1.

INTRODUCTION

Working as a Sole Proprietor grants you the autonomy and faster business decisions because you
are not answerable to any third person. You are your own boss and can even hire assistants for
delegation of work. But Despite the fact there are certain inherent limitations of working as a
Sole Owner for instance:

1. Unlimited Liability
2. Lower Brand Value
3. Problem of funding from Banks and financial institutions and many more.

Therefore, to overcome these shortcomings of a traditional form of sole entity form of business
structure the Government of India has introduced a New Form of Business structure titled “ONE
PERSON COMPANY “more popularly known as OPC with bringing of Companies Act, 2013.

In India the Companies are mainly regulated by Ministry of Corporate Affairs by enforcing the
provisions of Companies Act, 2013 which repealed the years old erstwhile Companies Act, 1956.
This innovative Concept of “OPC” was not present in the erstwhile Companies Act, 1956 it was
first introduced with the coming of new corporate legislation in the country.

The intent of the government is to bring the traditional small proprietors who are currently
working in un-organized sectors in an organized form of business to enhance Corporate
governance and inculcate a habit of formal business structure.

“OPC” provides the benefits of limited liability, brand image, access to banks funding and at the
same time retaining the basic feature of “ONE MAN SHOW” because in OPC there is only one
person who controls the company and can hire directors and employees for efficient
management.

AIMS AND OBJECTIVES:

1. To study the concept of OPC in India.
2. To study the pros and cons of OPC
3. To study the OPC in comparison with sole proprietorship

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RESEARCH QUESTIONS
1. What are the different types of OPC under companies act, 2013?
2. What are the salient features of OPC?
3. What are the privileges given to One Person Company?
4. What are the pros and cons of Sole Proprietorship?

HYPOTHESIS:
OPC provide access to market players to various credit and loan facilities to encourage
entrepreneurship.
RESEARCH METHODOLOGY:
The researcher will be relying on Doctrinal method of research to complete the project.

MODE OF CITATION
 SILC

SOURCES OF DATA:
The researcher will be relying both on primary and secondary sources to complete the project.

Primary Sources: Companies Act. 2013

Secondary Sources: Books, Articles, Journals

LIMITATIONS OF THE STUDY:

The researcher has territorial, monetary and time limitations in completing the project.

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 2. CONCEPT OF OPC IN INDIA

The Companies Act, 2013 has, for the first time, allowed formation of a limited liability
company by just one person. Such a company is described under section 3(1)(c) as a private
company. ‘One Person Company’ is a one shareholder corporate entity, where legal and financial
liability is limited to the company only. In India, the J.J. Irani Expert Committee recommended
the formation of one-person company (OPC). The provisions relating to OPC are strewn all
across the Companies Act, 2013.

Section 2(62) of the Companies Act, 2013 defines ‘One Person Company’ to mean a company
with only one person as its member. Section 3(1)(c) provides that a company may be formed for
any lawful purpose by one person, where the company to be formed is to be One Person
Company, that is to say, a private company by subscribing his name to a memorandum and
complying with the requirements of the Act in respect of registration.

An OPC may be registered as ‘limited by shares’ or ‘limited by guarantee’. However, the

memorandum of One Person Company shall indicate the name of the other person, with his prior
written consent in the prescribed form (Form No. INC.3), who shall, in the event of the
subscriber’s death or his incapacity to contract become the member of the company and the
written consent of such person shall also be filed with the Registrar at the time of incorporation
of the One Person Company along with its memorandum and articles.

Such other person may withdraw his consent in such manner as may be prescribed. On the death
of the promoter member of an OPC, the person nominated by such promoter member shall be the
person recognized by the company as having title to all the shares of the member and shall be
entitled to the same dividends and other rights and liabilities to which such sole promoter
member of the company was entitled or liable.1

Again, the member of One Person Company may at any time change the name of such other
person by giving notice in such manner as may be prescribed. He must, however, intimate the
company the change, if any, in the name of the other person nominated by him by indicating in

1
DR. G.K. KAPOOR AND DR. SANJAY DHAMIJA, COMPANY LAW (TAXMANN, 22nd EDITION, 2019) at
pg. 41

pg. 3
the memorandum or otherwise within such time and in such manner as may be prescribed, and
the company shall intimate the Registrar any such change within such time and in such manner
as may be prescribed.

The words “One Person Company” shall be mentioned in brackets below the name of such
company, wherever its name is printed, affixed or engraved.

 Relaxations available to OPCs

Relaxations given to an OPC include:

1. There is no need to prepare a cash-flow statement2.

2. The annual return can be signed by the Director and not necessarily a Company Secretary
(Section 92). The Central Government may prescribe an abridged annual return for OPC.

3. There is no necessity for an Annual General Meeting (AGM) to be held.3

4. Specific provisions related to general meetings and extraordinary general meetings would not
apply (Sections 100 to 111).

5. Compliance can be said to have been done if the resolutions are entered in the minutes’ book
of the company.4

6. It would suffice if one director signs the audited financial statements.5

7. Financial statements can be filed within six months from the close of the financial year as
against 30 days.6

8. An OPC need to hold only one meeting of the Board of Directors in each half of a calendar
year and the gap between the two meetings should not be less than ninety days7

 Can a body corporate form an OPC?

2
Section 2(40) of Companies Act 2013
3
Section 96 of Companies Act 2013
4
Section 122 of Companies Act 2013
5
Section 134 of Companies Act 2013
6
Section 137 of Companies Act 2013
7
Section 173 of Companies Act 2013

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As per Singapore law, a Company can be the one person in a One Person Company. So, for
example, if you have an existing Company where you are a director, you can form a One Person
Company with your Company as the sole director.

For instance, you have a company called Sudeep Textiles Pvt. Ltd. with you and your friend
Nitin as directors. Now you also want to import textiles from Italy for sale in India and want to
have a separate entity to do that (for accounting and taxation purposes).

As per Singapore law, you are entitled to form a One Person Company with Sudeep Textiles Pvt.
Ltd. as the sole person in the company.

However, in India, only a natural person can form ‘one-person company’.8

8
DR. G.K. KAPOOR AND DR. SANJAY DHAMIJA, COMPANY LAW (TAXMANN, 22nd EDITION, 2019) at
pg. 42

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 3. SALIENT FEATURES OF OPC

 Independent corporate existence

Like any other company, an OPC will have its own existence, which is separate from that of its
Director/shareholder. The principle was first emphasized in Salomon v. Salomon & Co Ltd 9. A
company is in law a person, having perpetual succession and a common seal. It forms a distinct
legal persona independent of its member. Thus, an OPC becomes a body corporate capable
forthwith of exercising all the functions of an incorporated individual. It becomes
impersonalized. In the words of Palmer, “The benefits following from incorporation can hardly
be exaggerated. It is because of incorporation that the owner of the business ceases to trade in his
own person. The company carries on the business, the liabilities are the company’s liabilities and
the owner is under no liability for anything the company does, although as principal shareholder,
he is allowed to take full advantage of the profits which the company makes.

Further in T.R. Pratt v. E.D. Sasoon & Co. Ltd10, the Bombay High Court has held that,

“Under the law, an incorporated company is a different entity, and although the entire share
maybe practically controlled by one person, in law a company is a distinct entity.”

This is in contradistinction to a proprietorship where there is no separation of identity between

the individual and his business. They function as one and share the same identity.

 Member of the Company

First and foremost is that the company shall have only one member 11. Member is defined as a
shareholder or a person who agrees in writing to become a shareholder or the subscriber of MoA
who has agreed to become the member of the company12.

The member of the company shall always be a natural person. Thus, a company, which is an
artificial person, cannot incorporate OPC as a subsidiary or holding company.

9
[1897] AC 22
10
AIR 1965 Bom 62
11
Section 2(62) of the Companies Act, 2013
12
Section 2(55) of the Companies Act, 2013

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The natural person who will be the member of the company shall have to be an Indian citizen
and a resident of India (a resident of India means a person who has stayed for 182 in the
immediately preceding financial year13.

He shall be a major because he would be the person to enter into a contract on behalf of the
company and thus will be liable in breach of the contract. Indian Contract Act specifies that a
person entering into a contract shall be a major.

The member of the company shall have only one OPC in his name. The member cannot be a
shareholder of more than one OPC simultaneously14.

 Directors of the company

Every company shall have directors. Minimum of two directors in case of private company and
minimum of three directors in case of public company 15. OPC shall have minimum of one
director and maximum of 15 directors16. The member of the company shall be its first director 17
which shall also be mentioned in MoA.

 Naming of OPC

Section 12 of the Companies Act, 2013 deals with naming of a company, that is, whether it is a
public company or a private company, it should be mentioned wherever the name of the
company is used. The same is in the case of OPC as well, that is, under the name of the
company, One Person Company should be written in brackets, whether the name is printed or
affixed or engraved18.

 Nominee of the company

Company has a feature of perpetual succession. In any other company, on the demise of the
member or his incapacity to act as a member, then the legal representatives of the incapacitated
member shall replace and carry over the business. But it is not in the case of OPC, as a member
can have more than one legal representative, on the incapacity of the member to act, all the legal
13
Rule 3 of the Companies Incorporation Rules, 2014
14
Ibid.
15
Section 149 of the Companies Act, 2013
16
Ibid.
17
Section 152 of the Companies act, 2013
18
Section 12 of the Companies Act, 2013

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representatives cannot act as members of OPC, if such were the case, then the whole purpose of
OPC is eliminated19.

As the definition itself suggests, OPC is a company which has only one member. Thus, a
nominee has to be nominated in the case of death of the existing member or incapacity of the
member to carry on the business any more 20. In such cases, the existing member shall have to
nominate a person as the member of the company. This shall happen only with the written
consent of the nominee according to the form INC-3 which is regarding the nominee of a one-
person company.21

The nominated member can withdraw from the nominee himself. He has to communicate this to
the existing member who shall then within 30 days communicate it to the company, that is, the
board of directors; And the same procedure in case of change of the nominee. It shall later have
to be mentioned in the memorandum22 and shall also have to be informed to the registrar of
companies.

 Annual returns

Section 92 of the 2013 Act provides that annual returns shall have to be filed at the end of every
financial year. Annual returns are the document which contains the record of its composition,
turn over, profit, members etc. in that specific financial year. This document shall have to be
signed by a director and the company secretary. But, in the case of OPC, it shall have to be
signed by either the company secretary or a director and not both. The report of board of director
also includes a snippet of the annual returns. Then, it shall be submitted to the registrar.

 Meetings

Section 96 of the Act provides for conducting annual general meeting within the prescribed time
limit. But this is not a mandate for OPCs as they are specifically excluded from conducting
general meeting after every financial year.

19
Anagha, Characteristic features of One Person Company Comparison of OPC and sole proprietorship,
http://www.legalserviceindia.com/legal/article-926-characteristic-features-of-one-person-company-comparison-of-
opc-and-sole-proprietorship.html
20
Section 3 of the Companies act, 2013
21
Companies Incorporation Rules, 2014
22
Section 4 of the Companies Act, 2013

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Section 173(5) of the Act provides for conducting board meetings in the case of OPC, where
there is more than one director, a board meeting shall have to be conducted in every six months
of the calendar year and the gap between the meetings should not be less than ninety days.

The resolution of the general meetings is deemed to be accepted or passed when it has been
passed by the sole member of the company and this shall later be communicated to the company,
that is, the board of directors. This resolution shall be later entered in the minutes book
maintained and shall be signed by the member himself.23

23
Section 122(3) of the Companies Act, 2013; Table-F, Articles of association of a company limited by shares,
given in the Companies Act, 2013.

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4. INCORPORATION OF OPC

1. DIN (Director Identification Number) and Digital Signature Certificate– First of all, the
sole shareholder/director should get Director Identification Number from the Ministry of
Corporate Affairs and also get Digital Signature Certificate.
2. Name of the Company– The second step involves the sole shareholder to apply for the
name of the company.
3. Consent of the Nominee– The subscriber to the memorandum of ‘one person company’
shall nominate a person, after obtaining written consent of such person, who shall, in the
event of subscriber’s death or his incapacity to contract, become the member of that one
person company. [1]
4. Incorporation- Form INC- 2 is the form for incorporation of ‘one-person company’ which
has to be submitted to the registrar along with the following attachments-
o Memorandum of Association
o Articles of Association
o Proof of identity of the member and the nominee.
o Residential proof of the member and the nominee.
o A copy of PAN card of member and nominee.
o Consent of nominee in form INC- 3.
o An affidavit from the subscriber and first director to the memorandum in Form INC-
9.
o List of all the companies (specifying their CIN) having the same registered office
address, if any.
o Specimen signature in form INC- 10.
o Entrenched articles of association.
o Proof of registered office address.
o Copies of the utility bills. (not older than 2 months)
o Proof that the company is permitted to use the address as the registered office of the
company if the same is owned by any other entity/person.

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 o Consent from the director.
o Optional attachments.
5. Final Incorporation Certificate– After doing all the formalities, the subscriber shall
receive the final incorporation certificate from the registrar of the companies. The
business can be commenced henceforth.
6. E– filing– the subscriber can also do e-filing for the incorporation of the company by
filling e- form INC-2 and attaching other relevant documents.24

24
What Is The Procedure For The Incorporation Of One Person Company In India, ipleaders
https://blog.ipleaders.in/procedure-incorporation-one-person-company-india/

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