Starting a business is an exciting journey, and for solo entrepreneurs in India, the One Person Company (OPC) offers a unique opportunity to explore business opportunities. It allows you to maintain full control over your business while you enjoy the advantages of limited liability, which protects your personal assets in case things don’t go as planned. As the business expands, a common question that comes to mind for entrepreneurs is how many one-person companies can be created by an individual. The limit to creating multiple one-person companies (OPC) revolves around statutory laws and rules. This blog shall help you to understand the meaning of One Person’s Company and the laws governing its incorporation, including limits.
What is One Person Company (OPC)?
A One Person Company (OPC) is a kind of type of business that allows a single individual to operate and manage a company with the liability limited only up to the extent of their shares in the company. The model of OPC was introduced for single entrepreneurs who are looking to establish a formal business alone without the complexities of a partnership or multi-member organization.
As per section 2(62) of the Companies Act, 2013, a One Person Company (OPC) is defined as a company that is formed with just one member. It can be registered as a private limited company and must adhere to specific compliance requirements, including appointing a nominee who will take over in the event of the sole member’s death or incapacity.
Who is Eligible to Form a One Person Company?
In India, forming a one person company is a demanding process. Certain criteria must be met to form a one-person company, which includes-
Firstly, the individual must be a natural person, as defined under the Companies Act of 2013, meaning that a company or any artificial entity cannot register as an OPC. Additionally, the individual must be an Indian citizen and resident, which is specified under Section 12(1)(c) of the Act. This residency requirement mandates that the individual has resided in India for at least 182 days during the previous financial year. It is also pertinent to note that minors and foreign nationals are ineligible to form or manage OPCs in India.
Limitation on the Number of OPCs an Individual Can Create
Under Section 3(1) of the Companies Act of 2013, an individual is allowed to incorporate only one OPC at any point in time.
The primary rationale behind this limitation is to prevent unnecessary complexity that could arise from multiple OPCs owned by the same individual. By restricting the number of OPCs, the law promotes simplicity in corporate governance, making it easier for individuals to manage their businesses while complying with regulatory requirements.
Can the Same Person Act as a Nominee in Other OPCs?
The law stipulates that an individual cannot serve as a nominee for more than one, One Person Company (OPC) at any given time. This means that if you are already designated as a nominee for an OPC, you cannot take on the same role in another OPC. The nominee so appointed is accountable and responsible for managing and operating the company in case of the death or incapacity of the owner of the company. The restriction so imposed ensures that there is a designated representative for each company.
Can a Person Have an OPC and Other Business Simultaneously?
While an individual is limited to incorporating only one One Person Company (OPC), they can simultaneously engage in other types of business entities, such as Private Limited Companies or Limited Liability Partnerships (LLPs). It simply means that holding a directorship position in an OPC does not preclude you from serving as a director or shareholder in other companies. You can be a director in OPC and simultaneously be a director or a shareholder in other companies. In this way, entrepreneurs are open to diversifying their business interests and exploring various ventures.
Legal Consequences of Exceeding the OPC Limit
OPC is governed by a statutory enactment in India, the Companies Act, 2013. Therefore, violation of any of the provisions or restrictions imposed under the law attracts a hefty penalty. If an individual violates the law by incorporating or operating multiple OPCs, they may face the following consequences:
- Penalty under the Companies Act, 2013: Although there is no explicit provision of specific penalties for creating multiple OPCs, Section 450 of the Companies Act 2013 states that for any violation without a specific penalty, the company and every responsible person shall be liable to a fine of up to Rs. 10,000 with an additional fine of Rs. 1,000 for each day till the default continues.
- Forced Conversion or Closure by RoC: The Registrar of the Company in some cases has the authority to direct the closure of other OPCs or convert it into a different company structure if is found that the individual is managing multiple OPCs together.
For example: if the paid-up share capital of OPC exceeds Rs. 50 lakh or the average turnover of the company exceeds Rs. 2 crore, it has to be converted into a private or public limited company within six (6) months.
- Disqualification of Director: Under Section 164(2) of the Companies Act, 2013, directors can be disqualified if they fail to meet the regulatory requirements of the companies as mandated by the act. If the director is found to be violating the limit of OPCs, the non-compliance can lead to disqualification of the director.
Other Business Opportunities
While the Companies Act 2012 has limited individuals to register only one One Person Company (OPC), there are still plenty of opportunities to explore other business options. Entrepreneurs can easily set up Private Limited Companies (PLCs) or Limited Liability Partnerships (LLPs) alongside their OPC. The flexibility to diversify their interests and manage different ventures alongside the OPC gives entrepreneurs an opportunity to expand their businesses. By doing so, they can spread their risks, target various markets, and maximize growth potential—all while staying within the legal framework.
Future of OPCs in India: Is the Restriction Necessary?
The restriction of one-person company (OPC) per individual has generated significant discussion among industry experts. Many people believe that easing this limitation could promote innovation and entrepreneurship among individuals, especially in dynamic sectors like technology and e-commerce. The government, by allowing individuals to establish multiple OPCs, could empower entrepreneurs to explore diverse business ideas and respond to the increasing market demands. Many individuals believe that the restriction acts as a checklist for creating monotony in the business market. By restricting the limit, the government is providing a chance for other individuals and entrepreneurs to grab the opportunity in the market and widen the scope of the business landscape.
The contemporary framework prioritizes simplicity and transparency in corporate governance. Maintaining a one-OPC rule helps in prevention of complexities involved in business operations and promotes fair competition by making sure that no single individual is in the dominating position to saturate the market.
Conclusion
Setting up a One Person Company (OPC) provides a valuable opportunity for solo entrepreneurs in India that offers them the benefits of limited liability. The limitation that restricts an individual from forming only one OPC was imposed with the intention of maintaining a balance and equality in the market, which prevents the overconcentration of business control by a single individual and thereby promotes fairness in the business. While this restriction might seem to be limited to some individuals, it encourages entrepreneurs to explore other forms of business entities, such as Private Limited Companies or LLPs, that allow broader business diversification.
Some people believe that relaxing these restrictions could shoot the innovation, but the current framework is established keeping in mind the size of business market of India that focus on efficiency in managing the businesses.
If you are an individual who is looking to gain insights into the creation of business entities, feel free to reach out to us. Our professional team is ready to assist through the complexities of incorporating corporate entities and help pave the way for your success.
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FAQs
1. Can an NRI form an OPC in India?
No, only Indian residents are allowed to form an OPC in India.
2. What happens if the annual turnover of an OPC exceeds the limit?
The OPC must be converted into a Private Limited or Public Limited Company once the turnover exceeds ₹2 crore.
3. Can the nominee take over the OPC automatically upon the death of the owner of the company?
Yes, the nominee takes over the OPC upon the owner’s death, but the company has to notify the Registrar of Companies.
4. Can a person be both a nominee in one OPC and a director in another?
Yes, a person can be a director in a Private Limited Company while being a nominee in an OPC.
5. Can a person own an OPC and be a partner in an LLP at the same time?
Yes, a person can own an OPC and simultaneously be a partner in an LLP.