The One Person Company (commonly known as OPC) is the type of entity which is owned by a single person. It allows a sole person to own and also manage the entire business operations. The OPC as a business structure is recently introduced in India through Companies Act, 2013 to administer the proprietorship businesses and promote in an organised way. This is the structure which provides the benefits of corporate structure to those who wants no partition to business ownership. Therefore, it is compared to sole proprietorship firm due to ownership and control aspects. However, more often it is compared to Private Companies owing to its registration process, business structure and characteristics. The OPC is also a type of Private Limited Company, but with little distinctness. Similar to Private Limited Company, OPC Registration and its operations are governed by the Indian Companies Act, 2013. Having primary characteristics similar, here we are discussing how OPC is similar or distinct from other Private Limited Company which would help you to choose the best between both.
As referred, Companies Act, 2013 has introduced the One Person Company as a sub-category of Private Company. The Act defines both structures in following way.
One Person Company:
According to Section 2(62) of the said Act, “One Person Company” means a company which has only one person as a member.
Section 2(68) of the Act defines a Private Company as “A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred;
(iii) prohibits any invitation to the public to subscribe for any securities of the company”
Number of Persons:
As referred in the definition, the One Person Company registration is possible with only one person as the shareholder of the company. The shareholder is the sole owner and holds 100% stake of the company. To register OPC, the member must be a natural person and not the corporate or other artificial body. S/he must be resident of India and a person competent to contract. Apart from the member, the company requires to appoint a nominee as well.
In case of Private Company, the minimum number of shareholders required is 2. The ceiling limit prescribed for the number of shareholders is 200. In this company, an artificial person such as another company or LLP can also hold shares to be an owner of the company.
It is prescribed to appoint a nominee to retain the character of perpetual succession in case of OPC. As there is only one member of the company, in case of his incapacity or death the nominee will take place of the member. The nominee also must be an Indian resident with a stay in India for more than 182 days in the immediately preceding calendar year. The appointment of a nominee must be made at the time of One Person Company registration with his written consent. The nominee once appointed can be changed at a later stage, if required.
In case of Private Limited Company, there is no provision to appoint nominee to the members of the company. The shareholders may nominate a person, but not mandatory or to be intimated to RoC.
Number of Directors:
The minimum number of director required in case OPC is only one, whereas it is 2 for a Private Company. In both cases, shareholder himself can hold the directorship at the same time. The maximum number of directors that can be appointed with the ordinary resolution is 15 in both cases. The person shall hold the Director Identification Number (DIN) to be appointed as the Director of any company.
Ownership and Control:
The ownership in case of a company is defined by the shareholding by the personnel involved. The ownership is in hand of a sole member in case of OPC and not divided with any other person. Owing to 100% ownership, the member is not dependent on other person and enjoys the freedom to work and operate subject to applicable laws and provisions. He can become the shareholder and director at the same time and take over the complete control, which in case of Private Company is not possible. The ownership is divided into at least two members at any time in the Private Company. Therefore, the freedom of decision is compromised and dependent. All the managerial decisions are taken by the directors appointed by the shareholders. The voting power is based on the ratio of shares held by each member.
There are certain business activities prescribed, for which the OPC Company Registration is not permitted. Activities such as Non – Banking Financial Activities, investment in securities, etc. cannot be carried on by any OPC as an organisation. A Private Company may indulge in such activities subject to prior approval of concerned regulatory.
Investment by foreign national:
OPC Registration in India by a foreign national as a member is not permitted as only Indian resident can become the member of the company. However, in case of Private Limited Company Registration, NRIs, foreign nationals and foreign entities are allowed to hold shares subject to FDI Guidelines. 100% Foreign Direct Investment is allowed in India in many of the industries under the Automatic Route. However, there are few industries that require prior approval from the RBI.
The fundraising from investors is not possible in the form of equity investment in case of OPC because there can only be one member. But, for a Private Company, the fundraising through issue of equity is possible in many ways including private placement, right issues, through Venture Capital, etc. Further, internal funding has better a face than OPC as there is more than one to contribute to.
The concept of OPC is not recognised under the IT Act and hence such companies will be put in the same category as other companies for taxation purpose. Private companies have been placed under the tax bracket of 30% on total income excluding cess and surcharges. However, the small companies are covered under the tax bracket of 25% on total income.
Audit & Annual Compliance:
The audit is mandatory for any company registered under Indian Companies Act, 2013. Similarly, for the Annual Compliance part. Both OPC and Private Company shall appoint a statutory auditor within 30 days of registration. The Annual Compliance will include filing forms with Ministry of Corporate Affairs for each financial year. Additionally, both must file the income tax return for each financial year.
OPC enjoys many exemptions compared to a Private Limited Company in form of requirement for AGM, Board Meeting and more. As there is only one member and the director, it does not require holding the meetings like a private company. Where the Private Company itself enjoys many exemptions, OPC is more privileged for same.
Conversion of OPC:
There is a limitation to the expansion of business in case of One Person Company. If the paid-up capital of the company exceeds INR 50 Lakh or the average turnover exceeds INR 2 Crore, OPC shall convert itself into Private or a Public Company. Therefore, this is the ceiling limit provided to operate under the OPC. In case of Private Company, no restrictions or limitations are provided.
Further, if the promoter wants to covert the OPC voluntarily into other company, a minimum period of 2 years shall pass since One Person Company Registration.
There are both advantages and disadvantages accompanied to every organization. If one can balance the pros and cons in situational context by considering above discussed features, it would be easy to set upon which is the appropriate structure for particular business.