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. These ventures play a crucial role in accelerating economic growth and will require a supporting system to smoothen their growth as well. In this emerging scenario where the use of technology is enhanced, Indian entrepreneurs need a boost in this area; they must give outlet participation towards economic growth, and that could be achieved even though one person in the 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 are 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 One Person Company 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 a private company as per the Companies Act, 1956.
In India, there were no separate provisions for One Person Company under the Companies Act, according to which a minimum of two members was 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 significant drawbacks, such as not creating a separate legal entity and having unlimited liability. OPC is a legitimate way to form a company with one person; it would work as a sole proprietor and can avail the status of the registered company with limited liability.
The evolution of One Person Company by the Companies Act, 2013, facilitated small entrepreneurs to set-up their companies without any middleman, with access to target markets directly without sharing their profits. Although OPC has been in practice in many countries, earlier it was considered as an abuse of the very concept of ‘company’ as the criteria were of the requirement of a minimum of two people. However, the idea 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 One Person Company 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 small enterprises and startups.
Benefits Of One Person Company
OPC registration has various advantages 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.
- Necessary paperwork and less compliance.
- Could establish a separate legal entity with one member.
- Provision is there for conversion to different types of legal entities via introduction to Memorandum of Association.
OPC holds a bright future for small entrepreneurs and startups having the low-risk capacity and limited liability. It would be a launch pad for these entrepreneurs to show their capabilities at the global arena. It was first introduced by the Expert Committee headed by Dr JJ Irani, aimed to organise business with altogether a different legal entity.
There are also some exemptions given to OPC in India as follows:
- They are not required to prepare a cash flow statement [section 2(40)]
- In case it does not have a company secretary, the annual return can be signed by the director of the company [proviso to section 92(1)].
- It is not required to hold an annual general meeting [section 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 the very existence of his business. OPC allows the entrepreneur to independently carry out his company for a long-run without any hurdles relating to compliance.