Pros and Cons of Incorporation of One Person Company (OPC)

CS Mohit Saluja

With the enactment of Companies Act, 2013 w.e.f. April 1, 2014, a new concept called “ONE PERSON COMPANY (OPC)” also came into existence. The legislature were of the view that OPC shall have an edge over the other companies in relation to the benefits being earned w.r.t. holding of Board Meetings/ General Meetings/ Preparation of accounts and many more. Although there are a no. of benefits available to OPC but the progress of incorporation of such companies is comparatively too less in as compared to private limited companies. In The Last One Year I.E. April 1, 2014 to March 31, 2014, a total of 2026 companies have been registered (This calculation is based on searching of name of companies with the end word” OPC Private Limited” on MCA Portal) whereas a total of 68, 000 private/ public limited companies have been incorporated during 2013-14. The concept of OPC was being generated by J. J. Irani Committee was with an intention:

1.      To enable growth and most business friendly corporate regulation in India.

2.      To encourage the individuals/ small Proprietors who used to carry their business on individual basis on small scale in small towns even, could convert themselves into the corporate.

3.      To give the young businessman all benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc. all in the name of a separate legal entity.

4.      To bring more and more business under the MCA that could make enable the government to check over such business in a transparent way.

5.      For those persons who want to venture alone, the only option was proprietorship, an onerous task since it is not legally recognized as a separate entity. Hence, the concept of OPC has opened the doors for the entrepreneur looking to set up a company all by himself.

6.      OPC will give the businessman all benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc all in the name of a separate legal entity.

7.      Complete Control of the company with the single owner

8.      Legal Status And Social Recognition For the Business

9.      Limited Liability Protection To Directors and Shareholder

10.  This has benefitted for those persons who wanted to do business under corporate culture alone but because of the condition of two persons as members, they face difficulties and have to induce some other into the business. This has given an option to such persons for carrying their business in a corporate way without inducing any other person as owner of the business.

BENEFITS TO OPC UNDER THE ACT

Even, the ACT has provided a no. of benefits to the OPC under the law. These are as follows:

1.     The financial statements of a one person company can be signed by one director alone.

2.     Cash Flow Statement is not a mandatory part of financial statements for a One Person Company [Section 2(40)].

3.     Board Report to be annexed to financial statements may only contain explanations or comments by the board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.

4.     OPC should file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred and eighty days from the closure of the financial year.

5.     As per Section 96(1) of the Companies Act 2013, the provision relating to holding of AGM is not mandatory for OPC.

6.     For the purposes of holding board meetings, in case of one person company which has only one director, it shall be sufficient compliance if all resolutions to be passed by such a company at a board meeting, are entered in the minutes book required to be maintained under section 118 and signed & dated by the member and such date shall be deemed to be the date of the board meeting for all the purposes under this act. If OPC has only one director, it is exempted from holding Board meetings.

7.     Provision for compulsory rotation of auditor in section 139(2) are not applicable to OPC

WHY OPC NOT ATTRACTING THE PUBLIC AT LARGE

(The reason for not attracting the public at large for OPC has been drawn on basis of Practical Experience of my clients which may differ from Person to Person)

1. The cost of incorporation of an OPC with 1 lakh capital is same as that of incorporation of a Private Limited Company. No cost benefit has been given to the OPC. Hence,  Businessman prefers to have Private Limited Company only

2. Using the word “OPC Private Limited” seems odd to a no. of people instead of Private Limited Company. Hence, there is no craze for OPC among them.

3. A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company. This restricts them to carry more than one business where as being just a non-corporate businessman, they can carry any no. of activities with single name.

4. The concept says that that the member will have to nominate any person. But restriction has been imposed with regard to Minor i.e. Minor cannot become member or nominee of the One Person Company or can hold share with beneficial interest. This restricts those non-corporate businessman who does not have any nominee other than their legal representatives as minor.

5. Moreover nominating someone again look like intervention/ involvement of third person into the company.

6. In case the company needs funds, it cannot raise through money through issue of shares because of condition of only one person as members and compulsory will have to convert itself into private limited company. Even if the person thinks of converting itself into the Private limited company, law impose a restriction that no OPC can be converted into private limited company unless two years have been expired from the date of incorporation or specified limit has been achieved by the OPC.

7. In some of the business, the product value is as high that the target of sales more than 2 crores can be achieved in couple of months. In such a case, incorporating an OPC will not at all benefit to the NON-Corporate as they compulsorily will have to convert themselves into Private or Public Limited Companies within a short span of time.

8. This concept was brought specifically for non-corporate business men. But these Non-Corporate Businessmen has thinking that incorporating a company will bring them under preview of one more department i.e. Registrar of Companies un-necessarily. Hence, they hesitate to do business under corporate culture. Moreover, after the enactment of Companies act, 2013, which has brought down strict provisions, penalties for non-compliance, the Professionals even are not suggesting their clients for incorporating the companies.

Conclusion: Hence, the above is my own interpretation on Pros and Cons of Incorporation of OPC which may differ from person to person. But public at large/ Non-Corporate must be encouraged by Professionals to opt for OPC incorporation because it on one hand bring the corporate culture in country among businessman and on the other hand will bring the transparency in the business houses which will ultimately helpful for the economy of the country.

(CS Mohit Saluja, Mohit Saluja & Associates, 2nd Floor, Malhotra Complex, Sehdev Market, Jalandhar City, M- 9914558709, [email protected])

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