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Concept of One Person Company

One Person Company (OPC) in India introduced through the Companies Act, 2013 support entrepreneurs who on their own are capable of starting a venture by allowing them to create a single person economic entity.  It is a step forward to facilitate more business friendly corporate regulations in India.

An individual company (OPC) defines a company constituted with one person (one) as a member, in contrast to the standard practice of having at least two members. It is a recognition of a one-man economic organization that paves the way for small businesses, service providers to enter the business by increasing their opportunities with corporate ownership.

Definition of One Person Company (OPC)

An OPC is a hybrid structure, wherein it combines most of the benefits of a sole proprietorship and a company from of business. According to section 2 (62) of the companies Act, 2013, ‘One Person Company (OPC)’ means a company which has only one person as a member.

Features of One Person Company (OPC)

Here are some general features of a one person company:

  • Private company: Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes OPCs as private companies.
  • Single-member: OPCs can have only one member or shareholder, unlike other private companies.
  • Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the sole member of the company has to mention a nominee while registering the company.
  • No perpetual succession: Since there is only one member in an OPC, his death will result in the nominee choosing or rejecting to become its sole member. This does not happen in other companies as they follow the concept of perpetual succession.
  • Minimum one director: OPCs need to have minimum one person (the member) as director. They can have a maximum of 15 directors.
  • No minimum paid-up share capital: Companies Act, 2013 has not prescribed any amount as minimum paid-up capital for OPCs.
  • Special privileges: OPCs enjoy several privileges and exemptions under the Companies Act that other kinds of companies do not possess.

Mandatory Conditions for formation of One Person Company (OPC)

  • Only a natural person can form OPC.
  • There shall be a nominee in an OPC who shall again be a natural person only.
  • The OPC shall have to mandatorily convert itself into a private or public Company in case the paid up exceed Rs. 50 Lakhs or the turnover exceeds Rs. 2 Crores.
  • The OPC cannot voluntarily convert itself into a public/private Company before the expiry of two years from the date of its incorporation.

Following cannot be member of OPC

  • A minor shall not be eligible to become a member or nominee of the OPC or can hold share with beneficial interest.
  • Foreign citizen.
  • Nonresident.
  • A person incapacitated to contract.
  • Persons other than natural person (living human being).

Types of One Person Company OPC

One person company may be:

1)      An OPC limited by shares or

2)      OPC  limited by guarantee and having share capital or

3)      OPC limited by guarantee and having no share capital

4)      OPC unlimited having share capital

5)      OPC unlimited not having share capital

Benefits of One Person Company (OPC)

  • Limited Liability: The directors’ personal property is always safe in a private limited company, no matter the debts of the business.
  • Continuous Existence: Sole Proprietorships come to an end with the death of the proprietor. As an OPC company has a separate legal identity, it would pass on to the nominee director and, therefore, continue to exist.
  • Greater Credibility: As an OPC needs to have its books audited annually, it has greater credibility among vendors and lending institution.

Management of One Person Company (OPC)

  • Minimum one director is required.
  • First director shall be the person whose name is mentioned in Articles of Association.
  • The first director shall hold the office until the holding of general meeting. However, the first director can be re-appointed or another person can appointed on that meeting.
  • The OPC may have a maximum number of 15 directors.

Financial Statement of One Person Company (OPC)

  • The Financial statement of OPC includes balance sheet, profit and loss account and statement of changes in equity.
  • Financial statement may not include the cash flow statement.
  • The OPC is required to file the copy of financial statement within 180 days from the closure of the financial year.

Meetings of One Person Company (OPC)

The provision of holding of Annual General Meeting is not applicable to OPC.

The OPC is required to hold minimum two Board meeting during a calendar year and one meeting in each half of the calendar year and gap between two meetings is not less than 90 days *

* Provided that nothing contained in this sub-section and in section 174 (Quorum for meetings of Board) shall apply to One Person Company in which there is only one director on its Board of Directors.(If OPC has only one director then OPC need not to hold Board Meeting (BM)

Privileges of One Person Company (OPC)

One-Person Companies benefit from the following privileges and exemptions under the Companies Act:

  • OPCs don’t have to conduct annual general meetings.
  • Cash flow statements need not be included in their financial statements.
  • Directors could sign the annual returns too; a company secretary is not mandatorily required.
  • Provisions in regard to the independent directors are not applied to OPCs.
  • Directors can take home more remuneration as compared to other companies.

Turnover/Capital threshold for conversion of OPC into Private/Public Company

  • If Paid-up share capital exceeds Rupees 50,00,000/-
  • If Average Annual Turnover exceeds Rupees 2,00,00,000/-

Then, OPC needs to alter its MOA/AOA within 6 months for conversion into private company or public company and give notice to Registrar within 60 days for such conversion.

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Note: This Post was last updated on November 5, 2022

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