India is set to be a most entrepreneurial active nation, or we can say ‘one of the startup ecosystems’, having an increased number of initiatives for starting a venture. As these ventures do play a key role in accelerating the economic growth, and will require a supporting system to smoothen its growth as well. In this emerging scenario where use of technology is being enhanced, Indian entrepreneurs need a boost in this area; they must give outlet participation towards economic growth and that could be achieved even through one person in form of company. For this emerges a new form of company – “One Person Company”, which would be a supporting system to new enterprises and startups to have desired growth, and facilitates its benefit to their businesses. And less burden of compliance would help them devote their energy, time and resources effectively towards important work.
Therefore, several significant changes have been introduced under Section 2(62) of the Companies Act, 2013 which defines the term “One Person Company (OPC)” as a private company having only one director and one shareholder. Here, the enterprises registered as OPC, can now avail the benefits of limited liability without finding a second person. This is a paradigm shift from the requirement of two members in case of private company as per the Companies Act, 1956.
In India there were no separate provisions for OPC under the Companies Act, 1956, according to which a minimum of two members were required to form a private company. Thus, a single-member company could not continue as a registered company, and this became a hindrance to operate the business as a ‘private limited company’, and thereby opting for ‘sole proprietorship’ firm, which has major drawbacks, such as not creating separate legal entity and having unlimited liability. OPC is a legitimate way to form a company with one person; it would work as sole proprietor and can avail the status of the registered company with limited liability.
The evolution of OPC by the Companies Act, 2013, facilitated small entrepreneurs to set-up their companies without any middleman, with an access to target markets directly without sharing their profits. Although OPC has been in practice in many countries, but earlier it was considered as an abuse of the very concept of ‘company’ as the criteria was of requirement of minimum two person. However, the concept of OPC later gained sheen due to benefits therein. The OPC is a revolution in the corporate sector that benefits entrepreneurs, which means they will get credit, bank loans, funds, access to the competitive market and limited liability, etc., and adhere to compliance.
The concept of OPC is still in nascent stages, and thus it would not be easy for the entrepreneurs to adopt it so early and to make it a practice. Like other countries, India will be able to adopt this trend of business, which would be the most preferred form for the small enterprises and startups. OPC emanates various benefits as follows:
- An OPC must have a minimum of one Director. The number of directors may extend up to fifteen Directors. Also, the sole shareholder can himself be the Sole Director.
- Basic paper work and less compliance;
- Could establish a separate legal entity with one member;
- Provision is there for conversion to any different types of legal entities via introduction to Memorandum of Association;
OPC holds a bright future for small entrepreneurs and startups having low risk capacity and limited liability. It would be a launch pad for these entrepreneurs to show their capabilities at global arena. This was first introduced by the Expert Committee headed by Dr. JJ Irani, aimed to organize business with altogether a different legal entity.
There are also some exemptions given to OPC as follows:
- They are not required to prepare cash flow statement [sec 2(40)]
- In case it does not have company secretary, the annual return can be signed by director of the company [proviso to sec 92(1)].
- Not required to hold an annual general meeting [sec 96(1)].
One of the main advantages of OPC is that an entrepreneur can start a business, irrespective of the risk involved therein, and without the fear of unlimited liability which is, of course, a threat to very existence of his business. OPC allows the entrepreneur to independently carry out his business for a long-run without any hurdles relating to compliance.