Section 2(62) of Companies Act defines a one-person company as a company that has only one person as its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one Shareholder as its member.
Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the several advantages that OPCs offer.
Difference between OPCs and Sole Proprietorships
- The main difference between the two is the nature of the liabilities they carry. Since an OPC is a separate legal entity distinguished from its promoter, it has its own assets and liabilities. The promoter is not personally liable to repay the debts of the company
- On the other hand, sole proprietorships and their proprietors are the same persons. So, the law allows attachment and sale of promoter’s own assets in case of non-fulfilment of the business’ liabilities.
Membership in One Person Companies
Only natural persons who are Indian citizens (Indian Passport Holders) whether resident in India or otherwise (NRI’s) are eligible to form a one-person company in India. The same condition applies to nominees of OPCs.
A single person can form an OPC by subscribing his name to the MOA and fulfilling other requirements prescribed by the Companies Act, 2013. Such memorandum must state details of a nominee who shall become the company’s sole member in case the original member dies or becomes incapable of entering into contractual relations.
On the demise of the original director, the nominee will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
Privileges to OPC
- Independent Existence
- Require only 1 Director & 1 Shareholder (can be same)
- Limited Liability
- Separate Property
- Legal Status & Social Responsibilities
- No Minimum Share Capital Required
- Complete control of a Single Person
- Easy to get loan from Banks
- Perpetual Succession
- Benefits of Small Scale Industries
- Easy to Manage & Freedom Compliance
- Tax Flexibility & Savings:- Deduction available for Remuneration, Rent & Interest paid to director