Origin of OPC
Traditionally speaking, the procedure for incorporating a company is complex, lengthy and expensive, and encompasses innumerous legal formalities. The unfavorable circumstances have often discouraged potential business visionaries possessing entrepreneurial skills to incorporate new corporate entities owing to limited resources. Contemplating over this set back and keen on overcoming the same, the JJ Irani Committee (“the Committee”) Report, 2005 (“the Report” or “its Report”) emphasized on introducing and developing new and existing institutional structures that could address the contemporary needs posed by the incessantly developing economic environment.
The Committee, in its Report, acknowledged the mandatory requirements of the conventional companies, such as association of minimum number of members and directors, convening board and general meetings in the prescribed manner, etc.These legal requirements were perceived as impediments in the growth and development of companies at local level and the economy at large. Hence, the Committee in its Report recommended bestowing legal recognition upon single person economic entity to be known as “One Person Company”.
Appreciating this stance proposed by the Committee, the concept of OPC found its place in the Companies Bill, 2012 and subsequently, in the revamped Companies Act, 2013 (“the Act”).
Section 2(62) of the Act defines OPC as a company that has only one person as a member. Such a company shall be incorporated as a private company, either limited by shares or guarantee or an unlimited company.
The law prescribes simpler and intelligible regulations and compliance mechanisms for the OPC as opposed to other class of corporate entities, thereby proffering the individuals a more viable platform to execute their entrepreneurial ideas.
- An OPC is essentially a private company, and can be incorporated as a limited or unlimited company.
- If incorporated as a limited company, it may be limited by shares or by guarantee.
- If limited by shares, an OPC shall have a minimum paid up share capital of INR 100,000.
- Since it is intrinsically a private company, the restriction on the right to transfer its shares and the prohibition to invite public to subscribe its securities shall be explicitly stated in its Memorandum of Association (“memorandum”).
- An OPCshall have only one individual appointed as its member.
- The member must nominate another individual as its nominee so that if such an individual dies or is incapacitated to contract, the nominee can replace him to be the member of the company.
- The member may change the name of the nominee or the individual may withdraw his consent to be the nominee of the company at any subsequent date.
- An OPC shall have at least one individual appointed as its Director. The law does not prescribe the maximum limit.
- It is compulsory to use the suffix OPC in parenthesis with its name, for example Asics Feed and Farms (OPC) Pvt. Ltd. or Earthen Matter (OPC) Pvt. Ltd.
Procedure for Incorporation of OPC
Step I: Obtain Digital Signature Certificate (DSC)
The proposed member, intending to incorporate an OPC, is required to affix digital signature on the e-forms filed on behalf of the company. Thus, he shall first and foremost obtain a DSC from the DSC issuing authority. The objective of affixing such signature on e-forms, on behalf of the company, is to secure and validate the documents filed electronically under the MCA 21 e-governance programme. Once the DSCs have been obtained, it shall be registered on MCA 21 portal (“the Portal”).
Step II: Obtain Director Identification Number (DIN)
In case of an OPC, the member of OPC is deemed to be the first director of the company. Now, the Act mandates the furnishing of DIN by the person proposed to be appointed as the director of a company. Accordingly, the proposed member shall file an application to the Central Government for the allotment of DIN.
Step III: Reservation of the name
An application for the reservation of the name may be filed along with the prescribed fee at the Portal. If the name is available, it would be reserved and within 20 days of receipt of such approval, the procedure for the incorporation of the OPC shall be initiated by filing SPICe Form INC 32.
Step IV: Filing of documents for incorporation through SPICe (Simplified Proforma for Incorporating Company Electronically)
Acknowledging the delay caused due to individual filing of applications for obtaining DIN or reservation of name before actually filing the application for incorporation of the proposed company, a rather simplified and effective alternative to this exhausting process, i.e., filing a singular SPICe Form INC 32 for the incorporation of the OPC, has been introduced by the Ministry of Corporate Affairs (“MCA”).
SPICe incorporation process enables filing an integrated application for reservation of the name of a company, incorporation of a company and allotment of DIN to directors and Permanent Account Number (PAN) and Tax Collection and Deduction Number (TAN) to the company. Therefore, obliterating the comprehensive and prolonged process of filing individual applications, filing a single form shall fulfill multiple prerequisites for incorporating an OPC.
For the purpose of incorporation of an OPC, relevant SPICe forms shall be filed along with the memorandum and the Articles of Association (“articles”) to the Registrar of Companies (“ROC”). The duly executed, attested and notarized documents, as needed, shall be attached to the respective forms and the digital signature shall be affixed on the e-Forms.
Step V: Receipt of Certificate of Incorporation
The forms filed and documents submitted are scrutinized and processed by the Central Registration Centre. If they are found to be satisfactory, the Certificate of Incorporation, along with DIN, PAN and TAN, is issued.
- The member and nominee of an OPC shall be natural persons not less than the age of 18 years and an Indian resident and citizen. For this purpose, a person is said to be a Resident of India if he has stayed in India for a period not less than 182 days during the immediately preceding one calendar year. The name of such member and nominee must be reflected in the memorandum of the OPC.
- An individual, being the member of OPC, is deemed to be the first director of an OPC.He shall subsequently appoint the director(s) in the prescribed manner.
- The Board of Directors (“Board”) of an OPC shall hold a minimum of two Board meetings, one in each half of the calendar year and the gap between two meetings shall not be less than ninety days.
- For transacting any business by a Board comprising only one director, such a director shall enter the Board resolution in the minutes-book and affix his signature and date on the same. The meeting shall be deemed to have been held and the resolution passed on that day.
- For the purpose of passing a shareholder’s resolution, general or special, it shall be sufficient for the sole member to communicate the same to the Company and enter the resolution in the minutes-book. Once such an entry is signed and dated by the member, the meeting shall be deemed to have been held and the resolution to have been passed on such date as specified in the minutes-book.
- The financial statements of an OPC shall include the balance sheet at the end of the financial year, profit and loss account and explanatory note that may be annexed to them.
- The financial statements of an OPC shall be approved by only one director of the company before submitting the same to the auditor.
- The financial statements of an OPC shall be filed with the ROC along with the following documents attached to it within a period of 180 days from the closure of the financial year for which it has been prepared:
- The auditor’s report;
- The Board’s report - Rule 8A of the Company (Accounts) Rules, 2014 provides for the preparation of an OPC’s Board’s Report on the basis of stand alone financial statements in the abridged form and specifies the information to be included in such report.
- The annual return of an OPC may be signed by a Company Secretary and in his absence, by the director of the company.
- If an OPC limited by shares or guarantee enters into a contract, not being one executed in the ordinary course of business, with its sole member, who also happens to be the director of the company, such a contract shall be in writing. If such contract is not in writing, the terms of the contract must be incorporated in the memorandum of the company or shall be recorded in the minutes of the first Board meeting conducted after entering into the contract. The ROC shall be informed about such contracts within a period of fifteen days of the receipt of approval by the Board.
- An OPC, being a private company by nature, has been exempted from the pre-requisite of having a minimum of two members and a maximum of two hundred members for its incorporation. Instead, an OPC shall have only one member.
- Further, unlike a private company, its Board does not need to have a minimum of two directors and can be constituted with only one director aboard.
- The Board of an OPC is exempted from holding a minimum of four board meetings, and is instead required to hold a minimum of two.
- Where the Board of an OPC comprises only one director, the OPC is exempted from observing the provisions governing the quorum of the Board meeting. Further, Secretarial Standard – 1 on ‘Meeting of the Board of Directors’ shall not apply if the Board is constituted of only one director.
- An OPC is not obligated to call and hold an annual general meeting at the end of a financial year. Accordingly, the provisions from Sections 100 to 111 of the Actregarding convening such meeting as well as Secretarial Standard – 2 dealing with ‘General Meetings’ shall not be applicable to an OPC.
- The National Company Law Tribunal does not have power to call any such meeting of the Company under Section 98 of the Act.
- While preparing the financial statements, an OPC may exclude cash flow statement.
Restrictions on OPC
- An OPC cannot be incorporated or converted into Section 8 Company, i.e., a company formed for a charitable purpose. Further, such a company cannot be engaged in activities pertaining to non-banking financial investment including investment in the securities of a body corporate.
- An OPC shall have only one individual as its member who is also its shareholder. Consequently, such a company is restrained from issuing ESOP (Employee Stock Ownership Plan) to its employee(s) unless it is converted into a company of another class.
- The member or nominee of an OPC cannot be a non-Indian citizen or resident. Further, they have to be natural persons, and not fictitious ones.
- An OPC cannot be voluntarily converted into a public or private company before the expiry of two years of its incorporation unless it crosses the threshold limits with respect to the paid up share capital or average turnover as prescribed by law.
Conversion of OPC into a Public or Private Company
An OPC, once incorporated, can be converted into a public or private company, provided it satisfies the preconditions specified by law. For the purpose of conversion, such OPC must not have defaulted in filing its annual return, financial statements or any other document due to be filed with the ROC, and in the repayment of matured deposit or debenture or any interest thereon.
On such default, the application for change of name of the Company shall not be allowed, unless the default is rectified, and consequently, a new certificate of incorporation corresponding to conversion shall not be issued to the OPC.
An OPC cannot be voluntarily converted into any other class of company before the expiry of two years from the date of its incorporation unless its crosses the thresholds prescribed hereunder:
- Its paid up share capital exceeds INR 50,00,000; or
- Its average turnover during the immediately preceding three consecutive financial years exceeds INR 2,00,00,000.
Upon crossing either of the two thresholds, the law mandates such a company to convert itself, within six months from the date of crossing the threshold specified for paid up share capital or from the last day of the three consecutive financial years during which it crosses the average annual turnover into a public or private company.
Such a conversion shall be effected by passing a Board resolution and altering the memorandum and articles of the company. Upon passing such Board resolution, the same shall be communicated tothe sole member, who in turn shall enter the details and affix his signature and date in the minutes-book, and it shall be deemed that the resolution has been passed in a general meeting on the date mentioned in the minutes-book.
Further, upon crossing the threshold limits, the company shall intimate about the same to the ROC within a period of sixty days from the date of crossing the threshold. The Registrar shall, upon receipt of application for conversion, satisfy itself that such OPC has complied with the pre-requisites for the conversion before closing the former registration. After registering the altered memorandum and articles, the ROC shall issue a new certificate of incorporation. Such a conversion shall not have any impact on the subsisting debts, liabilities and obligations of the company.
Notwithstanding anything mentioned hereinabove, an OPC may be voluntarily converted into a public or private company, without qualifying either of the two thresholds, after the expiry of two years of its incorporation.In such a case, the member shall file with the ROC an application for the conversion within thirty days of passing the resolution for the same.
Conversion of Private Company into OPC
Not only can an OPC be converted into a private company, but the law even permits the conversion vice versa. A company incorporated as a private company, not being a Section 8 Company, can be converted into OPC at a subsequent date provided the paid up share capital of such a company does not exceed INR 50,00,000 or the annual average turnover does not exceed INR 2,00,00,000 during the immediately preceding three financial years.
For effecting such a conversion, such private company shall obtain a no objection certificate from its creditors and members and subsequently, pass a special resolution in the general meeting. The company shall, within 30 days of passing such resolution, file the same with the ROC.
The company shall subsequently file the application for conversion with the ROC along with the fees prescribed in the Fees Rules and the following documents:
- A duly sworn affidavit by the directors of the company confirming that the members and creditors of the company have consented to such conversion and the company is compliant with the paid up share capital or average annual turnover requirements, as the case may be;
- The list of members and creditors;
- The latest audited Balance Sheet and the Profit and Loss Account; and
- The copy of no objection letter of secured creditors.
Upon being satisfied that the company has complied with the preconditions, the ROC shallclose the former registration of the company and issue a new incorporation certificate. Such conversion shall not affect the debts, liabilities and obligations of the private company and they shall be enforced against the OPC incorporated via conversion.
Though a brand new concept for the Indian regime, OPC has been prevailing and running in multiple foreign jurisdictions such as UK, USA and Singapore. The basic characteristics of OPC may vary from one country to another. Nevertheless, the underlying intent behind propagating this class of corporate entity remains unanimous across the world – promoting corporatization and entrepreneurship which in turn shall stimulate the economy, locally and globally.
According to the Monthly Information Bulletin released by MCA in January 2020, a total of 27,263 OPCs with a total paid up share capital amounting to INR 802.72 Cr. have been registered since the conferment of legal recognition to it. The statistics fortifies the vision envisaged by the Committee while proposing and laying down the same in its Report. OPC has, without a shadow of doubt, paved way for channelizing the otherwise latent entrepreneurial skills among the individuals as well as stimulated the growth of the corporate sector and the national economy.