A new concept in India which has been introduced by the Companies Act, 2013 (CA, 13) is “One Person Company”. Under this provision, only 1 person is required who can be a shareholder as well as the Director.

The biggest advantage of an OPC over a sole proprietorship would be that in case of an OPC, liability in case the business fails, is limited to only the business assets. In case of a proprietorship, the liability is unlimited and the creditors of business can even take hold of personal assets of Proprietor which can be used to settle the business liabilities.

However, the Company Incorporation Rules provide that only a natural person who is a resident of India and also a citizen of India can form an OPC. It means that other legal entities like companies or societies or other corporate entities or NRI, Foreign Nationals cannot form a one person company.

OPC cannot be incorporated or converted into Section 8 Company (with charitable object) or as a Non-Banking Financial Companies (NBFC). There is no bar on more number of directors. However, as per the Act, the total number of directors shall not be more than 15.

This is a very important concept where the person forming OPC has to nominate a Nominee with his written consent who, in the event of death or inability to contract of the sole shareholder of OPC, shall come forward and take over the reins of the one person company.

Since nothing has been specified as such by the finance ministry, it is assumed that the rates of taxation applicable for a private limited company shall apply to a One Person Company. Net profits, which are calculated by deducting all allowable expenses from the turnover of sales, shall be taxable at the rate of 30 percentage and education cess.

This is a concept that is expected to give big impetus to Corporatization in the country. The only care to be taken is that there should be no regulatory mess ups like the ones which hampered the growth of Limited Liability Partnerships in this country.