As per the Companies Act ‘One Person Company means a company that has only one person in it. Another significant point to be taken under consideration is that an individual can form not more than 5 One-Person Companies (OPC).
When the entrepreneur starts their business at a small scale to keep it simple and easy they have 2 choices either to go ahead with a sole proprietorship or OPC through sole proprietorship is easy however it comes with its set of boundaries. To overcome this problem there is another option to choose One Person Company.
In this blog we’ll discuss features, procedures of formation and legal issues one may face when starting a one-person company.
Features of an OPC:
Some of the important features of an OPC are as follows:
1. Considered as a Private Company
One of the most important features of OPC is it’s considered a Private company as per Section 3(1) (c) of the Companies Act. Thus, it has an upper hand over a sole proprietorship. This all means that the treatment of OPC would be the same as a private limited company in all legal matters.
OPC will be considered a Private Limited Company in all legal matters and disputes. All prevailing rules and regulations applicable to a private company will apply to an OPC as well.
2. Nominee as a Helping Hand
When the owner of One Person Company proceeds for registration of the company it’s compulsory that she/he is required to appoint a nominee.
The nominee can be any individual who shall become the shareholder of the OPC, in the event of the death or incapacity of the owner whereas there’s no such option available in OPC.
3. Perpetual Succession
As discussed in the above points that there’s a nominee available hence this gives us the third feature of One Person Company which is perpetual succession.
This means that when the owner of the company dies, the nominee has a choice to succeed as the sole member. The nominee has the freedom to reject or select the ownership.
4. No Minimum Paid-up Capital
Whenever a company is formed there’s a requirement of minimum paid-up capital but as per the Companies Act, One Person Company is exempted and there’s no amount in particular as the minimum paid-up capital.
5. Limited Liability
If the business structure doesn’t give the feature of limited liability then there’s a big risk taken by the shareholders but that risk ain’t part of OPC as the liability of the shareholder is limited to his contribution to the share capital. This makes it a good option to go ahead with.
6. Number of directors
One Person Company can be started by having only 1 director in company. The same person can become a shareholder in the company as well. That means that only one person is required to start an OPC. However, you need to have a nominee.
Incorporation Process of OPC:
The incorporation process of one person company is easy and just has 4 steps which are described below:
• Digital Signature Certificate
• Name Reservation
• Incorporation Filing
1. Obtaining Digital Signature Certificate
The process of incorporation began with a digital signature certificate as both the owner as well as the nominee are required to hold one. If they don’t already own one, they can apply for it and we at BBNC can help in this process.
2. Obtaining Director Identification Number
After getting DSC we move on to the second step in the incorporation process which is obtaining Director Identification Number and just like the previous step both the owner and nominee are required to own their DIN.
3. Name Availability
To name an OPC one needs to make sure it doesn’t match with an already registered company and it must end with the word OPC. Otherwise, there would be a rejection of the application. To ensure your name is unique you can visit the MCA site and see the name already taken.
Once the name is finalised an application should be made to the MCA. Once the Digital Signature is obtained, an application for name reservation can be submitted to the MCA.
4. Application for Incorporation
When all 3 steps above are successfully completed, then various documents are submitted to MCA including the Memorandum of Association (MOA) and Articles of Association (AOA).
All the required documents should be duly signed by the owner and submitted carefully to MCA, in case of any issue with the documents the process has to be repeated.
While setting up a One Person Company one may face the following, legal issues:
The problem with the taxation system of One Person Company is that as it’s considered a private limited company so it’s taxed both on income as well as the distribution of profits, and this does not act in favour of the One Person Company. Unlike sole proprietorship where taxation is done as per individuals. Thus for One Person Company, there’s no benefit of this taxation system rather it’s more of a burden.
The One Person Company cannot obtain funding from foreign recognised lenders as per the extant ECB Policy as the OPC is not a recognised concept under the External Commercial Borrowing and Trade Credits dated July 1, 2014 (“ECB Policy“).
If you’re someone who wants to start their own business in a structure other than sole proprietorship then One Person Company is your solution and in this blog Starting a One-Person Company? Here’s What You Need To Know: I’ve described everything you need to know before starting an OPC. I hope my blogs help and for any queries reach out to us at BBNC.IN and we’ll be happy to help you with the same.