The concept of one-person company in India was introduced through the Companies Act. 2013 to support entrepreneurs who on their own are capable Of starting a venture by allowing them to create a single person economic entity. One of the biggest advantages of a one-person company (OPC) is that there can be only one member in a OPC. While a minimum of two members are required for incorporating and maintaining a private limited company or a limited liability partnership (LLP) similar to a private limited company a one-person company is a separate legal entity from its promoter offering limited liability protection to its sole shareholder while having continuity of business and being easy to incorporate.
Though a One Person Company allows a lone Entrepreneur to operate a corporate entity with limited liability protection, an OPC does have a few limitations. For instance, every One Person Company (OPC) must nominate a nominee Director in the MOA and AOA of the Company – who will become the owner of the OPC in case the sole Director is disabled. Also, a One Person Company must be converted into a Private Limited Company if it crosses an annual turnover of Rs.2 crores and must file audited financial statements with the Ministry of Corporate Affairs at the end of each Financial Year like all types of Companies. Therefore, it is essential for the Entrepreneur to carefully consider the features of a One Person Company before incorporation.
Before exploring the concept of a one-person company, let us have a brief understanding of the various types of companies that can be formed. A company can be established for a lawful purpose by the following number of persons:
- Seven or more person in case of a public limited company.
- Two more person in case of a private limited company.
- One person in case of a one-person company.
Unlike a private limited company, a one-person company has certain restrictions associated with its incorporation. Hence, before starting an OPC registration, its essential to understand the constraints and ensure the promoter is eligible as per the Companies Act to register a OPC.
- Only a natural person who is Indian citizen and resident in India can incorporate OPC
- Resident in India means a person who had resided in India for a period not lesser than 182 days in the prior calendar year.
- Legal entities like company or LLP cannot incorporate OPC.
- The minimum authorised capital RS 1,00,000.
- A nominee must be appointed by the promoter during incorporation.
- Businesses involved in financial activities cannot be incorporated as a OPC.
- OPC must be converted to a private limited company when paid-up share capital exceeds RS 50 lakhs or turnover RS. 2 crores.
Thus, a one-person company can be formed by an Indian citizen who has his/her presence in India for at least 182 days during the immediately preceding calendar year. A person can incorporate not more than one OPC finally an OPC is prohibited from having a minor as its member