One Person Company (OPC) is a type of company that is formed by a single person who is vested with legal and financial rights. The JJ Irani Committee in 2005 recommended its formation and is popular among young entrepreneurs. It has been defined under Section 2 (62) of the Companies Act, 2013. The Companies (Incorporation) Rules 2014 states that an Indian citizen or resident can form this company and has also to appoint someone else as his nominee.
A private company has been defined under Section 2 (68) of the Companies Act, 2013 as a company having minimum paid capital as may be prescribed and which in its articles –
- Restricts the right to transfer its shares
- Except in cases of One person company, limits the number of its members to two hundred
Provided there are two or more people hold one or more shares jointly, then they shall be treated as one member. Also, persons who were members and current employees of the company are not included in the minimum statutory requirement of members. Public cannot hold shares in such a company. Here the business owners own the shares and have access to better resources and financial assistance.
- The Companies Act, 2013, governs both these forms of companies and do not require any minimum capital for incorporation.
- Both companies require at least 2 members (for OPC – one director & one nominee director who does not have the powers and duties till the director performs his functions properly).
- Both companies have to file their annual returns with the Ministry of Corporate Affairs and their Income Tax returns to the Income Tax Department.
- A statutory audit is required in both cases.
- The liability of the members is limited in both these companies.
- Name requirements – OPC requires the ‘one person company’ written in brackets below the company’s name while the name of a private limited company should end with ‘private limited’.
- Meetings and Directors – Annual General Meetings is not required in OPC as a single person manages the entire business while it is mandatory in a private limited company. However, an OPC must have one board meeting in each half of a calendar year with a maximum gap of 90 days between 2 board meetings.Also, a Board of Directors is not present unlike in the private limited company.
- Shares – All the shares in OPC are held by a single person but a private limited company has to have at least 2 members and all the members hold the shares.
- Registration – The cost of registration is lesser than registration cost of a Private limited company. The process of registering a private company takes roughly 5-7 days while that of one person company takes around 7-10 days.
- Foreign nationals – NRIs or foreign nationals are allowed to be a part of a private limited company but they cannot start a One Person company.
- Conversion – A One Person Company has to convert into a Private Limited Company if its annual sales turnover exceeds Rs.2 crore or its paid up capital crosses Rs.50 lakh. There is no requirement or limitation for a private company to convert into another form but it may be converted into an LLP, etc.
- Procedure – As the concept of One Person Company is relatively new, there exist more procedural requirements and hurdles in getting license, etc. as compared to the procedures involved in a Private Limited Company.
Thus, the private limited company has privileges such as holding, associate or subsidiary companies are not considered as a party for the purposes of Section 188; meetings should be held after meeting all the requirements such as proxies, voting rights, quorum, etc. On the other hand, the concept of One Person Company is relatively new and has certain exemptions such as that of not conducting annual general meetings or not preparing cash flow statements as a part of financial statements and the like which implies that both have there pros and cons and should be setup according to the needs of the business.