One Person Company

The Companies Act 2013[1], One Person Company was introduced. Facilitating more business friendly corporate legislation in India is a step forward. The matter was first proposed in 2005 by Dr. JJ Irani’s committee of experts. If one wanted to set up a private company in the Companies Act 1956, one needed at least one other person because the law mandated a minimum of two directors and shareholders. So the only choice for the person who wanted to venture alone was proprietorship. In the case of a single person company, however, only one person is required who can be a shareholder as well as the director allowing them to create a single individual entity.

Section 2(62)[2] reads as follows “one person company means a company which has only one person as member”.

An OPC is a hybrid system in which it blends much of the advantages of a single ownership with a business model. It thus eliminates the hazels of finding the right type of co-partner to start a business as a registered entity.

It should be noted that section 3 classifies OPC as a private entity with only one director for all the legal purposes. All Private Company rules shall refer to an OPC, unless otherwise expressly excluded.

The only exception given to an OPC by the act is that only “NATURAL BORN” Indians are entitled to add an OPC according to the rules. It ensures that only a natural person who is an Indian citizen and resident in India is entitled to enter an OPC and is the OPC’s candidate.

Salient features of OPC-

  • Private Company: A single person can form a company for any lawful purpose. It further describes OPC as private companies[3].
  • Single Member: OPC, unlike other private companies, can have only one member or shareholder;
  • Nominee: the unique feature of OPC that distinguishes it from other types of companies is that the company’s sole member must mention a nominee while registering the firm.
  • No perpetual succession: since there is only one OPC member, the nominee’s death will result in the nominee choosing or refusing to become his sole Member. For other businesses this does not happen as they follow the principle of eternal succession.
  • Minimum one director: OPC must have at least one person as director (the member). They may have no more than 15 directors.
  • No minimum paid-up share capital: no sum has been approved for OPC by the Companies Act, 2013 as the minimum paid-up capital.
  • Special rights: OPC enjoys many advantages and exemptions that certain forms of corporations do not hold under the Companies Act.

Steps to incorporate OPC-

1. Obtain Digital Certificate of Signature for the proposed Directors.

2. Obtain the identification number of Manager for the proposed Directors.

3. Choose the correct business name, and apply for name availability to the Ministry of Corporate Affairs.

4. Draft association memorandum and association articles.

5. Electronically sign and file different documents like MOA & AOA with the Companies Registrar.

6. Payment to the Ministry of Corporate Affairs and also to the Stamp Duty of Requisite Fees.

7. Report screening at Companies Registrar.

8. Receipt of Registrar / Incorporation certificate from ROC.

Other information required

  1. The applicant should make available the subsequent details :
  2. Proposed name: Maximum 6 names which will be considered on the basis of the subscribed name (first to last) may be quoted.
  3. Proposed business to be carried on
  4. Capital to be contributed for the formation
  5. Details of the nominee
  6. After obtaining name and availability, incorporation documents with ROC have to file within 60 days, the required documents are as follows:
  7. Memorandum of Association (MOA) of the corporation.
  8. Articles of Association (AOA) of the corporation
  9. verification of identity of the members and the nominee
  10. Residential proofof the member and the nominee
  11. Consent of the nominee in the form INC 3.
  12. Affidavit to the memorandum from subscriber and first director in the form no. INC 9.
  13. Specimen signature in form INC 10.
  14. Description of all companies (specifying their CIN) having the very same address of registered office, if there is any, specimen signature in INC 10 form.
  15. Consent from director
  16. Proof of registered office address
  17. Copy of the PAN card of member and nominee
  18. Details of duration of start at present address if it is less than one year (address of the previous residence has to be provided).
  19. Details of the name of the nominee.

Pro’s-

1. Limited liability insurance for managers and shareholders: not all unforeseen business incidents are necessarily under the control of the entrepreneur; thus, it is necessary to safeguard the owner’s personal assets if the company is in crisis. Therefore, by limiting its liability, OPC gives the individual a protection from any form of mishap.

2. Total management of the single owner company: this leads to quick decision taking and execution. However, the entrepreneur can elect as many as 15 directors for administrative responsibilities within the OPC, without giving them any share.

3. Easy to get loans from banks: banking and financial institutions prefer not proprietary firms to lend money to the company. In certain cases, banks demand that businessmen turn their business into a private rather than proprietary company.

4. Tax Versatility and Savings: A company may carry out a legal contract with its shareholder or directors in an OPC. This means one can receive renumberation as a manager, one can receive rent as a lessor, one can lend money as a borrower and gain interest. Remuneration of the manager, rent and interest is a deductible expense that reduces the company’s profitability and ultimately results in taxable income of business.

5. Simple to administer and comply with freedom: OPC is one of the simplest managed types of corporate organizations. Very few ROC filings are to be filed with the Companies registrar. No need to hold Annual General Assembly.

Con’s-

1. OPC cannot carry out financial non-banking operations like trading in shares of another corporate body.

2. OPC cannot be converted to a private or public limited company until 2 years from the date of incorporation have elapsed.

3.  Unable to transfer OPC to section 8 companies

4. OPC shall inform the company registrar of each contract concluded by the company and reported in the minutes of the meeting of its board of directors within 15 days of the date approved by the board.

Difference between OPC & Sole Proprietorship

Point of differenceOne Person CompanySole proprietorship
LiabilityLiability may be limited or unlimited by the person owing to the OPC.Liability of the owner is unlimited
Process of incorporationComes under the companies act 2013 and hence involves steps to be taken with regard to the rules and regulationsLess cumbersome as compared. Not covered under any such Act.
Legal utilitySeparate legal entityNo concept of separate legal entity. The owner and the company are the same – individual entity.
Decision makingQuick decision makingQuick decisions

Contract by OPC

If OPC is restricted by shares or Guarantee undertakes a contract with the sole member of the organization, who is also the company’s director and where the contract is not even in written, it should be assured that the terms of the contract or offer are included in a memorandum or reported in the minutes of the next meeting of the company’s board of directors The said clause does not apply in the case of written contracts and where the contract entered into is in the ordinary course of its operation. The company will notify the registrar of each contract entered into by the company and reported in the minutes of its Board of Directors meeting within 15 Days of the Board of Directors approval date.

Eligibility norms for incorporation and nominee member-

As per rule of the Companies (Incorporation) rules 2014[4], the incorporation / forming of an OPC shall be valid only for a natural person who is an Indian citizen living in India. Indian Resident means who lived in India during the one calendar year immediately preceding for a total of no less than 182 days.

The sole member of OPC is expected to nominate another person as his candidate at the time of the incorporation of OPC, and his name shall be stated in the OPC Association Memorandum.

In the following situation the candidate thus named shall become a member

  1. In case of death of the sole Member; or
  2. In case the only becoming member is incapacitated to contract.

A nominee thus appointed is supposed to give his written permission to the same that is mandated to be filled in with the ROC at the time of incorporation of the OPC together with its Memorandum and Article of Association.

Questions & Answers :

Ques 1. What are the types of OPCs ?

Ans.  OPC limited by shares

         OPC limited by guarantee and having share capital or

         OPC limited by guarantee and having no share capital

         OPC unlimited having share capital

         OPC unlimited not having share capital

Ques 2. Is OPC required to file Annual Return?

Ans. As per the provisions of Companies Act, 2013[5], the Annual Return in case of OPC shall be signed by the company secretary, or where there is no company, by the director of the OPC.

Ques 3. Does OPC hold Annual General Meeting ?

Ans. The provisions relating to holding AGM is not mandatory for an OPC[6].

Ques 4. When can a nominee withdraw?

Ans. A nominee has the right to withdraw his consent if he so desires.


[1] [No. 18 of 2013]

[2] Companies Act, 2013

[3] Section 3(1)(c) of the Companies Act, 2013

[4] Rule 3(1), of the Companies (Incorporation) Rules, 2014

[5] Section 92 (1)

[6] Section 96(1) of the Companies Act, 2013.

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