How to Setup One Person Company Formation in India

Narendra Kumar

06 Sep, 2022

For a very long time, an individual entrepreneur involved in trade could operate only as a Sole Proprietor. Such structure was beneficial so as to maintain an individual’s control over the activities and was cost-effective yet the biggest drawback was the unlimited liability that fell upon one single person. An individual was thus held personally liable for the debts and loans availed for the purpose of installing and expanding the business.

Unlike a company, the proprietor was considered to be the same as the business and thus personal assets are not distinguished from business assets for any purpose. This adds to the risks involved in the trade.

To provide some alternative to the situation, a concept of One Person Company formation was introduced in the Companies Act, 2013^[1]. Section 2(62) defines One Person Company as ‘a company which has only one person as a member’. The definition has clarity in itself and has brought numerous benefits to a group of capable individuals, desirous of starting a venture without extending his personal assets for the debts if the company. It has the features of both Company and Sole proprietorship combined for the maximum benefit of the individual. An OPC registration can be done with just 1 Director and 1 member.

What are the Advantages of One Person Company Formation?

1. The requirement of a single person is the primary feature and advantage of OPC registration. An individual can, without a thought of the risks earlier involved with the Sole Proprietorship structure, advance his ideas towards implementation
2. An OPC is a separate legal entity and avails all the related benefits, for example, can own a property in its own name, an OPC can sue in its own name, etc.
3. The transferability of the shares for the purpose of change of ownership is another major advantage attached to the OPC.
4. It provides certain credibility to business for dealings with financial institutions, suppliers, and potential clients.
5. The OPC structure provides the individual with a higher borrowing capacity than the Sole proprietorship.
6. Limited liability of the individual is another important feature of an OPC registration. The personal assets of the individual remain apart from the business assets and are not liable for the debts of the business.
7. The benefit of complete control over the business activities and decisions that a Sole proprietor had has been passed on to the OPC. It was the key push for individuals to be inclined towards the Sole Proprietorship model.
8. Contrary to the sole proprietorship whose existence ended with the death of the proprietor, the OPC continues to be in existence in such an event.
9. If required and upon fulfillment of the conditions, One person Company can be converted into a Public or Private Company.

Who Can Apply For OPC Registration?

Only a natural person who is a citizen of India citizen and a resident shall be eligible to act as a member. The term “resident in India” implies a person who has stayed in India for a period of not less than 182 days during the period immediately preceding the financial year.

• It should be noted that a person who has formed an OPC( one person company formation) cannot be a member or nominee of another OPC.
• The following cannot incorporate an OPC:
  1. Minor
  2. Foreign citizen
  3. Non-Resident Indian
  4. Any person who is not capable to contract.
• Same shall apply to the nominee as well.

What Is The ‘Power To Nominate’ In OPC?

Like any other private limited company , in an OPC ( one person company formation) also, the ‘one person’ holding the securities of the company nominates a person, in whom the securities shall vest in event of the death of present holder or if he becomes incapable to contract. The nominee’s consent to such is also required to be submitted in the prescribed form.  Such Name may also be changed and duly informed to the Registrar and updated in the Memorandum of Association.

Mandatory Requirements for One Person Company Registration

Following listed are the requirements which are mandatory for One Person Company registration –

• DIN (Director Identification Number) and DSC (Digital Signature Certificate) for all the directors
  • Minimum one director required
  • Only one shareholder required
  • One nominee required
  • There must be minimum amount deposited as the paid-up share capital, i.e. Rs 1,00,000 as the authorized capital
  • At least one Indian Resident Director required
  • Must be having a registered office address in India

Nominee in a One Person Company

The rules for the incorporation of One Person Company needs that the sole owner of a One Person Company must include the name of his nominee in the Companies Memorandum of Association, who will undertake the affairs of the concerned company after the expiry or the incapacity of the former owner. Moreover, the documents required must also contain the written consent of the concerned nominee, which should also be filed with the Registrar of Companies during the incorporation together with the Memorandum of Association and Articles of Association.

Withdrawal of the Consent

The nominee has the power to withdraw his or her consent, in which case the concerned sole member is again needed to nominate another member as the legal heir within a period of 15 days of the notice of the withdrawal. The nomination of the new personnel must be duly intimated to the concerned Company by way of written consent in the Form INC-3. The Company, in turn, is needed to file the notice of said withdrawal of consent together with the intimation of the new nominee with the Registrar of Companies in the Form INC- 4.

Change of the Nominee Appointed

The sole owner of a ‘One Person Company’ is authorized to change the name of the nominee appointed for the Company for any reason whatsoever, just by providing a notice in writing to the concerned Company. Again, the same procedure will followed and the new nominee must mandatorily give consent to the nomination in the Form INC 3, and the concerned Company is required to file the said notice of change and the consent of the nominee appointed with the Registrar of Companies (ROC) together with the applicable fee, within a period of 30 days of receiving the said intimation of change.

Appointment of the Nominee

If in case a nominee becomes in-charge of the OPC (One Person Company) due to the cessation of the tenure of the original member’s owing either to the death or incapacity of the latter, the concerned new member will now appoint a nominee as his replacement.

Penalty

If in case anOPC (One Person Company) or an officer concerned with such Company is not compliant with the prescribed rules and regulations, the company or the officer concerned will incur penalties which could reach to an extent of as Rs 10,000. Further, the said penalty will be also be increased by a fine of Rs. 1,000 for each day of default.

What is the Process of One Person Company Formation?

• Obtain DSC (Digital Signature Certificate) of proposed Director for which the following are required:
  1. Address Proof
  2. Aadhar card
  3. PAN card
  4. Photo
  5. Email ID
  6. Phone Number
• 5 different services (Name Reservation, Allotment of Director Identification Number (DIN), Incorporation of New Company, Allotment of PAN and Allotment of TAN) can be applied for in one single form by applying for Incorporation of OPC through SPICe+ form (INC-32) with Emma (INC-33) and AOA (INC-34). In the case of emo, you are not applicable, a PDF of MoA and AoA requires to be attached. There is no need for reserving a name separately before filing the Form-A
  1. The word ‘One person Company formation’ must be mentioned along with the name of the company
  2. e.f. March 23, 2018, two proposed Names and one re-submission has been permitted.
• Pay prescribed fees wherever applicable;
• Scanning of the submitted forms and documents by ROC;
• Registrar of Company issues Certificate of incorporation.
• In case the paid-up share capital of the OPC exceeds rupees 50 lakhs or its average annual turnover of the immediate period preceding 3 consecutive financial years exceeds rupees 2 cr, then the OPC has to mandatory convert itself into the private or public company. Such information must be supplied to the RoC in form INC-5, within 60 days of exceeding such threshold limits.
• OPC can voluntarily convert into the private or public company by filing a Form INC-6.
• A private company may also convert into an OPC by filing form INC-6, the restriction being that the paid-up share capital of the private company should not exceed rupees 50 lakhs and the average annual turnover should not exceed rupees 2 cr at the time of such conversion.
• The company shall then have 1 member and shall appoint a nominee to act as the member in case of death or incapacity of the present member.