The One Person Company (commonly known as OPC) is the type of entity which is owned by a single person. It allows a sole person to own and also manage the entire business operations. The OPC as a business structure is introduced in India through Companies Act, 2013 to administer the proprietorship businesses and promote in an organized way. This is the structure which provides the benefits of corporate structure to those who wants no partition to business ownership. Therefore, it is compared to sole proprietorship firm due to ownership and control aspects. However, more often it is compared to Private Companies owing to its registration process, business structure and characteristics. The OPC is also a type of Private Limited Company, but with little distinctness. Similar to Private Limited Company, OPC Registration and its operations are governed by the Indian Companies Act, 2013.
In order to ease the formation of an OPC in India, the Ministry of Corporate Affairs (MCA) has brought certain amendments to the One Person Companies (OPCs) rules vide Companies (Incorporation) Second Amendment Rules, 2021. MCA amends Rule 3 related to One Person Company, Rule 6 related to One Person Company to Convert Itself into a Public Company or a Private Company in Certain Cases and Rule 7 related to Conversion of private company into One Person Company vide Companies (Incorporation) Second Amendment Rules, 2021. The said rules will take effect from 01st April,2021.
As per Rule 3 of Companies (Incorporation) Rules,2014 “Only a natural person who is an Indian citizen and whether resident in India or otherwise resident in India–
(a) shall be eligible to incorporate a One Person Company;
(b) shall be a nominee for the sole member of a One Person Company.”
Further for the purposes of this rule, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding financial year.
Therefore, before the amendments only a natural person who is a citizen of India and residing in India was allowed to incorporate an OPC. However, after the aforesaid amendment in Rule 3 the condition that a person should be resident and citizen in India is relaxed to include a person whether or not resident in India i.e. the Non Resident can also incorporate an OPC in India. For the purpose of this rule the period of stay in India is also reduced from 182 days to 120 days.
Rule 6 talks about the Compulsory conversion of OPC which further states that:
“Where the paid up share capital of a One Person Company exceeds Rs. 50 lacs or its average annual turnover exceeds Rs. 2 crores immediately preceding three consecutive financial year;
Such OPC shall require to convert itself, into either private company or public company in accordance with the provision of the Act within 6 month of the date as mention above.
The OPC shall alter its memorandum and articles by passing a resolution in accordance with section 122(3) of the Act to give effect to the conversion and to make necessary changes incidental thereto;
The OPC shall within period of sixty days from the date of applicability of above provisions, give a notice to the Registrar in Form No. INC. 5 informing that it has ceased to be a OPC and that it is now required to convert itself into a private company by virtue of its paid up share capital or average annual turnover, having exceeded the threshold limit laid down above. ”
As per the amendment made in Rule 6, in order to convert itself from an OPC to a Private or a Public Limited Co., the OPC shall: –
(1) The One Person company shall alter its memorandum and articles by passing a resolution in accordance with subsection (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.
(2) A One Person company may be converted into a Private or Public Company, other than a company registered under section 8 of the Act, after increasing the minimum number of members and directors to two or seven members and two or three directors, as the case may be, and maintaining the minimum paid-up capital as per the requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.
(3) The company shall file an application in e-Form No.INC-6 for its conversion into Private or Public Company, other than under section 8 of the Act, along with fees as provided in the Companies (Registration offices and fees) Rules, 2014
Further the amendment in Rule 7 talks about the conversion of Private company to an OPC which earlier stated that quote “A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less or an average annual turnover during the relevant period having paid up share capital of fifty lakhs rupees or less and average annual turnover, during the relevant period is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting. “unquote
The rule has omitted the word “having paid up share capital of fifty lakhs rupees or less and average annual turnover, during the relevant period is two crore rupees or less”. The above stated omission can be further clarified as now the companies not satisfying the above conditions may also be converted into the OPC.
The above amendments have created an ease of business for the small traders as well as startups to start a company in India. Further it has also expanded the scope of the foreign direct investment by giving relaxation to the nonresidents to start a OPC in India.
About the Author
Author is Ritu Chauhan, FCA, Partner in Ruchi Anand & Associates, a leading and prominent Chartered Accountant Firm in India, founded in 2000 and having existence in New Delhi and Gurgaon. Ruchi Anand & Associates is a group of accounting professionals, providing end to end solutions in diversified fields of Corporate Finance, beginning from registration of company in India to compliance and procedural parts to Financial Reporting, Auditing and other areas of consultancy/liaison.