The OPC was established to increase the number of entrepreneurs in the Indian market by allowing them to make a greater contribution to the country's economy, but just how advantageous has it proven to be?
A new concept known as the one person company (OPC) was introduced in the Company Act of 2013. A single promoter or founder can form a one person company, meaning that while a private limited company needs to have at least two directors and two members to incorporate, this structure doesn’t need any more than one person in total. Prior to this allowance of starting a one-person company in India, a corporate entity could not be formed by a single individual.
Companies such as Arkan Diary (OPC) Private Limited and Truffle House (OPC) Private Limited are examples of one person companies. Keep reading to know more about what are the probable factors that have incentivized the formation of one person company in India.
One Person Company Features
- As per Section 3(1)(c) of the Companies Act, OPC’s are private companies
- OPC’s do not enjoy perpetual succession. Instead, the death of the sole member will result in the nominee choosing to either accept or reject sole membership of the one person company
- A one person company in India enjoys limited liability
- Likewise, OPC’s can only have one member or shareholder
- OPC’s must have at least one individual acting as the director. It is also provided that they can have a maximum of 15 directors
Incentives for Undergoing OPC Registration
Is there any real benefit in starting a one person company? Yes, to put it simply. There are various benefits to registering with the OPC; the following section seeks to shed light on the same.
Easy Access to Funding
Financial and banking institutes tend to lend financial assistance more freely to companies over unregistered private or proprietary businesses. Before granting finance, most banks require businessmen to restructure their business into a private limited company. As a result, registering your business as a one person company instead of a proprietary organization is preferable. Further, when compared to a sole proprietorship, an OPC’s legal position as an incorporated company gives it an advantage when it comes to obtaining loans from any bank.
Relaxation of Norms
In the union budget 2021-22 the finance minister introduced various incentives for the incorporation of OPCs. OPCs will now be able to convert into any type of company at any moment, subject to the minimum conditions outlined in the Companies Act of 2013. The budget 2021-22 also raised the paid-up capital threshold to ₹2 crores from ₹50 lakhs and the turnover threshold to ₹20 crores from ₹2 crores. Additionally, the Non-resident Indians (NRIs) can now form one person companies in India, contrary to previous regulations. The criteria for Indian citizens to create an OPC has also been reduced from 182 to 120 days of stay.
Fewer Compliance Formalities
OPCs, unlike other company structures, have been granted a variety of exemptions, resulting in a lower compliance burden. A one person company registration is advantageous as OPC’s do not have to prepare the cash flow statement and moreover, a company secretary is not required to sign the books of accounts of the company.
Other compliance advantages of a one-person company include:
- It is not mandatory to hold annual or extraordinary general meetings
- Section 174 (quorum for meetings of the board) does not apply to a one person company that has only one director on its board
- Auditor rotation is not required even after the maximum period has expired
- A one person company is exempt from the requirements of Sections 98 and 100 to 111. So after as it governs the convening of general meetings.
Legal Status and Limited Liability Privilege
An unorganised proprietorship can be converted into a private limited company with the use of an OPC company registration. An OPC is granted its own legal status; as it is a separate legal body that protects the single person who has incorporated it. The member’s liability is limited to their shares, and they are not personally accountable for the company’s loss. While it is unfortunate that proprietorships have unlimited liability, this disadvantage can be avoided if the proprietor conducts business through an OPC structure, which limits the responsibility of the members.
Now that you’ve learned everything about the advantages of establishing a one person company, it’s time to put your one person company ideas into action. Everything takes roughly 10-15 days, including obtaining the necessary documentation, the application procedure, the name approval process, and finally the incorporation of the OPC.
If need help with the registration of a one person company, the next step would be to partner with Vakilsearch. Further, our team consists of experts and veteran professionals who are dedicated to providing a hassle-free and affordable incorporation experience. Hence, when you team up with us, the entire incorporation process becomes extremely simple and effortless.