A One Person Company is essentially a Private Limited Company, the only difference being that an OPC cannot have more than one shareholder, whereas a Private Limited Company needs to have at least 2 shareholders to get established and registered. Here in this blog, we have tried to provide the most basic understanding of what a One Person Company is, and what are the essential components required to establish and incorporate it.
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A One Person Company is established and incorporated under the Companies Act, 2013. The Companies Act contains all the provisions needed to regulate a One Person Company beginning from the key elements and conditions required to be followed for its formation, and the rules to carry out its day-to-day operations. We have also mentioned the key provisions of the Companies Act dealing with a One Person Company for your better understanding.
As mentioned earlier, a One Person Company is essentially incorporated as a Private Limited Company. In other words, its core features related to the transferability of shares and the liability of the owner remains the same as that of a Private Limited Company. Like a Private Limited Company, the shares of a One Person Company are also sold in a private manner. The restrictions over trading the shares on public platforms like Stock Exchanges and opening the sale of shares to the general public apply to a One Person Company as well. The only difference between a One Person Company and a Private Limited Company, however, is the number of owners or shareholders that they can have.
A One Person Company cannot have more than one owner or shareholder. In other words, the 100% ownership and 100% shares of a one person company is owned by its sole owner, and cannot be shared with any other entity. The only owner of the company is entitled to pocket all the income and profits earned by the company. However, his liability is restricted only to the amount of capital he has subscribed to. This is the primary benefit that a one person company has to offer to its sole owner, compared to other single owner businesses like Sole Proprietorships, where the liability of the proprietor is unlimited or unrestricted.
Legal Definition of a One Person Company
A One Person Company or OPC is a company registered and regulated under the Companies Act, 2013. So, it is obvious that the Act itself contains the legal or statutory definition of a one person company. Section 2 (62) of the Companies Act, 2013, defines a One Person Company as “a company which has only one member”.
Additionally, Section 3 of the Act which lays down the provisions regarding “Formation of a company” further clarifies that a One Person Company, which is to be formed with only one person as its owner, is essentially a “Private Company”. In fact, the incorporated name of a One Person Company ends as “Private Limited Company” with “One Person Company” mentioned in brackets by its side.
Therefore, the legal definition that applies to a Private Company also applies to a One Person Company. For the purpose, one may refer to Section 2 (68) of the Companies Act, 2013, which mentions that a Private Company, including a One Person Company as one where the right to transfer shares is restricted, that is, its shares cannot be traded on public platforms like Stock Exchange Markets, and cannot be sold to the general public.
Essential Components of a One Person Company
The existence of a One Person Company is not possible without the five key essential elements of its identity, namely its name, business address, capital, shareholder, directors, and Nominee. Let us go through each of them one by one.
- Name of the Company: A company cannot exist without a name. In fact, it is the most prominent and communicative aspect of its identity. It is through its name that the company builds its brand value. Hence, it is necessary that the name of a company must be unique yet revealing of its purpose of establishment.
- Address of the Company: A One Person Company must have a primary place for conducting its business operations. The place could either be rented or owned by the owner in the name of the company. It is this address where all the communications addressed to the company shall be received.
- Capital of the Company: The capital of a company is the amount of money that the shareholder invests in the company after buying the same worth of shares. It is this investment for which the shareholder shall receive returns as a percentage in the share of profits earned by the company. Since all the capital is invested by a single shareholder in a one person company, the amount should be sufficient for the business to run smoothly and conduct its operations without any hindrance.
- Shareholder: A One Person company can have one member or shareholder who will be entitled to 100% ownership of the company, and will be entitled to pocket 100% of the profits earned by the company. His relevance to the company is that he invests all the capital that the company needs in the due course of business operations.
- Director: Unlike a Sole Proprietorship where the single owner is completely responsible for controlling the management of the company, the sole owner or shareholder of a one person company does not involve himself in the management of the company. For this purpose, he can appoint directors. A one person company must have at least one director and can have a maximum number of 15 directors.
Conclusion
A One Person Company can be incredibly beneficial for individuals who do not wish to share the profits of their company with any other entity. Moreover, as the owner of all its profits, the single shareholder of a one person company is not liable to pay off all the liabilities of the company. His liability is restricted only to the amount of capital that he has subscribed to, in the company.