What Is One-Person Company?

Companies Act, 2013 revolutionized Indian corporate law by introducing many new concepts. One-person companies were game-changers. This factor resulted in a new way to start businesses. A company entity offers flexibility, protection, and limited liability.

What is an One-Person Company?

A one-person company or OPC is defined in section 2(62), Companies Act, as one company with one member. Members of a company can only be subscribers to the memorandum or shareholders. An OPC is a company with only one shareholder.

These companies are usually created when there is one promoter/founder. Moreover, OPCs are preferred by entrepreneurs whose businesses are in their early stages of growth over sole proprietorships due to the many advantages OPCs provide.

The Features of a One-Person Company

These are the main characteristics of a single-person business:

Private company: According to Section 3(1)(c), the Companies Act, a single person may form a company for any legal purpose. OPCs are also classified as private companies.

OPCs are limited to one shareholder or member, and OPCs cannot have other private companies.

Nominee: OPCs are unique in that the only member of the company must mention a nominee when registering the company.

No perpetual succession: Because there is only one OPC member, the nominee can accept or decline to be its sole member. As they do not follow the principle of perpetual succession, this does not occur in other companies.

OPCs must have at least one director. Maximum 15 directors are allowed.

Companies Act 2013, 2013 does not prescribe any minimum capital requirement for OPCs.

OPCs have special privileges: OPCs are entitled to certain exemptions and privileges under the Companies Act, which other types of companies don’t enjoy.

One-person companies

One person can form an One-Person Company by signing a memorandum and complying with other requirements required by the Companies Act, 2013. This memorandum must include details about a nominee to become the company’s sole member if the original member becomes incapacitated or dies.

The memorandum, along with the application for registration, should be submitted to the Registrar of Companies. The nominee may withdraw his name at any time by submitting the necessary applications to the Registrar. The member can also cancel his nomination later.

Membership in One-Person Companies

India is only open to Indian citizens and residents who are natural persons. Nominees for OPCs are subject to the same conditions. Additionally, such a natural person can’t be a member of or nominee for more than one One-Person Company at the same time.

Natural persons can only join OPCs. Further, this aspect is not valid for companies that own shares or are members. The law also prohibits minors from being members or nominees for OPCs.

The difference Between OPCs & Sole Proprietorships

Although a sole proprietorship business form might look very similar to one-person businesses, there are some significant differences. The only difference between them is the liabilities that they have. An One-Person Company is an independent legal entity that is distinct from its promoter. It has its own assets as well as liabilities. The company’s debts are not the responsibility of the promoter.