One Inc

Updated on: Apr 02, 2014

The Centre’s proposal for one-person company means sound business

Two is company, three is crowd is passé. Welcome the one-person company (OPC), the new kid on the corporate block. This avatar was unleashed by the 2013 Companies Act. It was proposed by the Ministry of Corporate Affairs.

Says its website: “With increasing use of information technology and computers, emergence of the service sector, it is time that the entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such economic activity may take place through the creation of an economic person in the form of a company.”

OPC provides the flexibility of starting, owning and running a company, with the benefit of limited liability. For one, if the OPC runs into losses, the sole shareholder/director and his/her personal and private property is beyond the long arm of the law.

But it is not a brand new idea. Such experiments are successfully carried out in countries such as Singapore and the US.

Legally sound

OPC is a legal entity. This means the company’s life does not end even after the lone shareholder passes away. Its longevity is guaranteed and the fate of transactions is not jeopardised.

Hence, the people who lent money to the company cannot sue to recover personal properties of the shareholder. The lenders’ arms can reach up to the shareholder’s unpaid amount of share — thus far and no further!

The OPC needs to be registered with the Registrar of Companies (RoC) as a private limited company, with the lone shareholder. It may also have a director. This may sound like a mom-and-pop store — a sole trader establishment — but it is different.

A sole trader invests his or her own resources and has a lot of freedom to take decisions. The set-up does not need registration. One may open and shut a shop at one’s will. If the going gets tough, creditors can reach the private property of the sole trader.

An OPC, on the other hand, provides an individual with an opportunity to become a “corporate” and attain a distinct personality, quite different from the creator.

But a cumbersome process

In the case of OPCs, there are a slew of documents to be submitted. The memorandum of association, which is the charter of the company, as also the articles, which are the bye laws of the company, along with the consent of the individuals who wish to be directors of the company, need to be filed with the RoC.

One may well have to hire a professional lawyer or a company secretary to assist in documentation, who, naturally, come at a price. Such an ordeal is not required in sole-trader organisations.

The OPC needs to nominate a person to ensure that there is continuity and that nominee’s name is to be registered with the ROC. The mom-and-pop stores are spared of such a requirement.

Since OPC is a legal entity, its affairs need to be recorded and become more in the public domain, unlike sole traders.

Another issue is that the OPCs may have to shell out more taxes as compared to a sole trader, where the incidence of tax is relatively less.

Besides this, the books of account need to be maintained as OPC is created by Law.

Nevertheless, the advantages of limited ability and the possibility of tapping the market for funds may render OPCs an attractive option. But only time will tell whether the idea can bloom in India.

The writer is Director (Advanced Studies), Institute of Cost Accountants of India.

The views are personal

Published on April 02, 2014

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