Running a business on one’s own comes with a lot of limitations. Most severe implications are difficulty in access to credit by banks / financial institutions and unlimited personal liability. As a result, many businessmen and professionals want to carry their business through a corporate structure.
However, most corporate structures be it partnership, LLP or company require more than one promoter. For example, in India, the company law stipulated minimum 2 members for forming a private company and 7 members for a public company. A minimum of 2 directors for a private company and 3 for a public company were also mandatory.
Many businessmen / professionals either do not have another business partner or are unwilling to engage anyone in their professional endeavours as a business partner. This discouraged sole proprietors from converting their existing business to a corporate structure if the scale of business or their mindset did not warrant mandatory engagement of anyone other than them. They simply held back due to the requirement of finding a second director or second shareholder for their entity.
On the other hand, One Person Company (OPC) has been quite successful form of carrying business in many countries for long. It obviates the need to engage others in constituting a corporate entity.
The Companies Act, 2013 introduced the concept of OPCs in India. This structure provides an of opportunities to entrepreneurs who want to organise their business structure into a corporate entity on their own. OPC structure provides benefits of a private limited company (e.g., limited liability, perpetual succession, easier access to credit, separate legal entity status, to name a few) with only one member. This opens up possibilities for sole proprietors and entrepreneurs who can now avail the advantages of Limited liability and corporatisation.
All the provisions related to an Indian private company are applicable to an OPC as well, unless otherwise expressly excluded.
Only a natural person who is citizen as well as a resident of India can incorporate an OPC. It means that other legal entities like companies, etc. are ineligible to form an OPC.
An OPC may be limited by shares or by guarantee.
The prohibition applicable to private companies with respect to invitation to the public for subscription of the company’s securities is applicable to OPCs too.
The member of an OPC has to nominate another natural person as a nominee. Such nominee’s written consent must be filed with the Registrar of Companies (RoC). This nominee shall become a member of an OPC in case of death or any other incapacity of the original member. Such nominee has to be a major.
There are some procedural and filing relaxations in respect of OPCs in order to make their operations and management simpler than those of multi-member companies.
It must be noted that an OPC can retain its character only till it reaches a paid-up capital of Rs. 5 million or an annual turnover of Rs. 20 million. At that stage, an OPC is mandatorily required to convert itself into a private or public limited company. Clearly, the idea of an OPC is to encourage relatively smaller entrepreneurs to get organised and structured.
The concept of an OPC is still in nascent stage in India but picking up as Indian entrepreneurs are becoming knowledgeable about this concept.
With the current government’s focus on bringing a bigger proportion of the working people in the formal sector which is transparent, digital and compliant, the concept of OPC is definitely going to pick up in the coming years.
About the author :
Bhumesh Verma is a lawyer with over 2 decades of experience in advising domestic and international clients on corporate transactions (M&A, Venture Capital, Private Equity, Startups, corporate advisory, etc.) and features in "The A-List - India's Top 100 Lawyers" by India Business Law Journal. He keeps writing frequently on FDI, M&A and other corporate matters and is a guest faculty as well. He can be reached at email@example.com.