One Person Company (OPC)

CS. Meenakshi Jayaraman

DVS Advisors LLPIndia-Singapore-London-Dubai-Malaysia-Africa

www.dvsca.com

Credits and AcknowledgmentsBharathi Priya R D

Presentation Schema

OPC – Rationale & Origin

OPC & Sole Proprietorship

Features / Privileges

available to OPC

Incorporation Procedures

Changes in Nominee or

MemberContracts by OPC Conversion Conversion

Procedures

Penalty Benefits & Limitations

Concept of OPC outside India Statistics

OPC – Rationale

A novel / pioneering concept introduced in Companies Act, 2013 as a steptowards harmonization with rest of the world

To encourage small and medium enterprises who have the wherewithalin terms of ideas and skills to organise their business into the corporatedomain

To provide a corporate cloak for start-ups and small time businessmen atthe same time saving them of compliance requirements

To guard the individual against any pitfall of liabilities; desire for limitedliability drives an individual to form OPC

Origin of OPC - J J Irani Committee Report

To unleash the entrepreneurial talent of people in IT driven environment, law should recognize OPC

Law should recognise formation of single person economic entity in the form of a company

Classified companies on the basis of size / number of members / basis of control / liability / onthe basis of manner of access to capital

Simpler regime through exemptions so that a single entrepreneur / member need not fritter awayhis time, energy and resources on procedural matters

Additional safeguard in the event of death / disability of a member

Letters “OPC” to be suffixed to distinguish the same from other companies

OPC & Sole Proprietorship

OPC – One Person Company Sole Proprietorship

Separate Legal Entity – cardinal principle germane tothe corporate legislation inherited from UK

Owner and Entity are the same

Limited Liability – Risks mitigated are limited to thevalue of shares held in OPC; Best part of OPC – Legal &financial liability is limited to company & not members

Unlimited Liability

Perpetual and automatic succession – thus mandated requirement of nomination

No Perpetual succession

Registration is compulsory No Registration

OPC means a company which has only one member and one nominee for such member with aminimum of one director OPC can run and undertake its business as sole-proprietor with status of a company – OPC thusprovides benefits of both forms of business

Features of OPCOPC can be formed only as a private company limited by shares or limited by guarantee or as an unlimitedcompany

Words “OPC” to be mentioned within brackets below the name to distinguish from other form ofcompanies

OPC must have minimum of one director and maximum of 15 directors. To have more than 15 directors,special resolution must be passed

OPC gives the benefits of a private limited company like access to bank loan, limited liability with relaxedcompliance requirements

OPC will have direct access to market and wholesale retailers without middlemen’s intervention

OPC – Eligibility criteriaOPC must have only one member and one nominee for such member. Minor cannot become a memberor nominee of OPC or hold shares with beneficial interest

Member and nominee must be Indian citizens and residents in India i.e. minimum stay of 182 days inIndia for the immediately preceding calendar year

A person who is a resident in India can be a member or nominee only in one OPC

OPC cannot be incorporated or converted into a Charitable Company (Sec 8)

OPC cannot carry out Non-Banking Financial Investment activities including investment in securities ofany body corporate

Privileges Available to OPC

Easy incorporation and conversion procedures

Mandatory rotation of auditors is not

applicable; Preparation of Cash flow statement

is not compulsory

Annual return to besigned by CS or wherethere is no CS it can besigned by director itself

AGM / EGM / noticeconvening generalmeetings are notapplicable to OPC

Proxies / Voting by electronic means /

through postal ballot are not applicable to

OPC

Limited Board’s Report disclosure – to specify only the qualifications in the auditor’s report

One Board meeting shall be held in each

half year with gap between 2 meetings not less than 90 days

No Board meeting is required if there is only

one director and Quorum is not

applicable

Financial statements can be signed by only

one director & submitted to auditors

Financial statements can be filed with

Registrar within 180 days from the end of FY

Provides surreal opportunity to first gen entrepreneurs instead of carrying business in sole proprietor form

A boon for start-up entrepreneurs with new business ideas

Incorporation Procedures

Obtain DSC and DIN for the proposed Directors

Select suitable Company Name and make an application to the Ministry of Corporate Affairs foravailability of name

Draft Memorandum of Association (MOA) and Articles of Association (AOA)

Sign and file MOA and AOA with the Registrar of Companies electronically in SPICe Form No.INC-32

Scrutiny of documents and receipt of Certificate of Registration / Incorporation from ROC

Incorporation Procedures

The subscriber of OPC shall nominate a person in Form No.INC-32 as nominee after obtaining prior writtenconsent in INC-3 who shall act as a member in the event of member’s death or incapacity to contract

eMOA which includes additional disclosure stating to buy all the shares of OPC and appointing a person asnominee in INC-33 and eAOA in INC-34

Simplified Proforma for incorporating Company electronically (SPICe) e-form (INC-32): OPC can avail 5 differentservices in one form:

Name Reservation, Allotment of Director Identification number (DIN), Incorporation of New Company,Allotment of PAN and Allotment of TAN

Changes in Nominee or Member

Member can at any time for any reason change the person nominated by him

A nominee may withdraw his consent at any time by giving a notice in writing. Within 15 days, new nomineemust be appointed by the member and within 30 days, the same must be intimated to Registrar

In the event of member’s death or incapacity to contract, nominee becomes the member and within 15 dayshe must appoint a nominee and within 30 days it must be informed to Registrar

A notice of such withdrawal of consent and intimation of name of another nominee must be filed withRegistrar in Form No.INC 4 along with written consent obtained from the new nominee in Form No.INC3

If a member becomes a member in another OPC by virtue of being a nominee, he must withdraw hismembership from any one OPC within 180 days

Contracts by OPC

Where OPC limited by guarantee / shares enters

into a contract

With member who is also the director and if such

contract is not in the ordinary course of

business

Such contract must be in writing and recorded in

MOA or recorded in minutes of first meeting of

the board held after entering into contract

Such contracts should be intimated to Registrar

within 15 days from the date of approval of the

board

Conversion Conversion

OPC to Public Company or Private Company

Voluntary conversion

After 2 years ofincorporation, OPCcan be converted

Compulsory conversion

If paid up capital > ₹50,00,000and if average annual turnover> ₹2 crore during the Relevantperiod

Private Company to OPC

If paid up capital < ₹50,00,000and if average annual turnover< ₹2 crore during the Relevantperiod

Relevant period means the immediately preceding three consecutive financial years

Conversion Procedure for OPC

Within 60 days of exceeding the prescribed limit, a notice be given to Registrar in Form No.INC.5 that it ceasedto be an OPC and is required to convert itself into private company or public company

Alteration of MOA and AOA should be done for conversion by passing a resolution

Convert within 6 months from the date on which its paid up capital > ₹50,00,000 and the last day of therelevant period during which its average annual turnover > ₹2 crore as the case may be

After 2 years from the date of incorporation, OPC can be converted into Public Company or Private Company

Conversion to Public Company can be done afterincreasing the minimum no. of members to 7 anddirectors to 3

Conversion to Private Company can be done afterincreasing the minimum no. of members to 2 anddirectors to 2

Conversion Procedure for Private company

A private company other than a charitable company can convert itself into OPC provided its paid upcapital is <= ₹50,00,000 and average annual turnover is <= ₹2 crore

No objection certificate must be obtained form members and creditors and a special resolution mustbe passed in a general meeting for such conversion

Copy of the special resolution must be filed with the Registrar within 30 days from the date ofpassing such resolution in Form No. MGT. 14

File an application in Form.No.INC.6 for conversion by attaching the requisite documents

Directors declaration in affidavit, list of members and creditors, latest audited B/S and P&L account,copy of no objection letter from secured creditors

On being satisfied, Registrar shall issue the certificate

Penalty

Penalty – Rule 7A of Companies (Incorporation) Rules

Penalty for contravention of Companies (Incorporation) Rules: Where OPC / any officer

contravenes the provisions of these Rules

Punishable with a fine of ₹10,000

Further fine of ₹1,000 for every day after the first offence during which the contravention

continues

BenefitsLegal status - Ability to form a separate legal entity with just one member

Quicker and easier decision making

Process of setting up and running – simple & comfortable

Minimal paper work and minimum compliance

Complete control of the company with single owner

Easy to get loans from banks as legally recognised

Hybrid structure to combine the benefits of sole proprietorship and company form of business

Limitations

MAT and DDT will

apply

Tax rate –30%

Owner is the only

supplier of capital

Company Audit

Only residents can start

OPC

Annual compliance procedures

Member in not more

than one OPC

Can’t be wholly owned

subsidiary

Nominee in not more

than one OPC

Minor cannot

become member or

nominee

Nominee can

withdraw his consent

anytime

Cannot form Sec.8 company /

NBFC

Concept of OPC Outside India

United Kingdom enacted Companies (Single Member Private Companies) Regulation in 1992

United States of America allows formation of single member Limited Liability Company (LLC)

Singapore permits OPC under Companies Amendment Act, 2004

China and Pakistan recognize the formation of OPC

UAE and Turkish Commercial Code provides for LLC with one or more shareholders

Single member companies - a common law vehicle in corporate laws of many countries

StatisticsMonth of Registration 2019 No.of.OPC Registered

May 702

April 626

March 604

21

776

42 107

135

63

2272

126 32

9

266

46

3039

92

369

369

Agriculture Business services Finance, Insurance andReal Estate

Manufacturing Trading

Sector wise No.of.OPC registered

2014-15 2015-16 2016-17

Case Law: Salomon V. Salomon

Whether a company is distinct from its sole shareholder? – to claim the benefit oflimited liability

Legal fiction of corporate veil thus established that the company has a legal personalityseparate and independent from the identity of its shareholders. Liability limited to theextent of capital contributions

In OPC, the member is the owner and sole shareholder. However, OPC’s separate legalentity status cannot be undermined

Conclusion: OPC=One director & one member

Best suited for professionals – for it affords security in the form of limited liability;otherwise, professionals would be liable to an unlimited extent and even theirpersonal assets will be in jeopardy

A mixed blessing – while it avoids frittering away time, resource and energy byproviding exemptions / privileges in complying with certain procedural matters; itresults in higher tax liability

Concomitant changes to other laws may be brought in which includes devising a taxstructure that compliments OPC. There has been an enthusiastic response despiteseveral limitations contained in the law on the concept

Thank You

DVS Advisors LLP

India-Singapore-London-Dubai-Malaysia-Africa

www.dvsca.com

Copyrights © 2019 DVS Advisors LLP