One Person Company and a Small Company

Coverage of this Article

Key takeaways

-The concept of one person company gives an individual more flexibility to manage his business while also enjoying the advantages of a company.

One Person company

-An organisation process used by a corporate entity can take many different forms.

Small Company

-In order to give small firms functioning as private limited companies certain advantages, the concept of a small company was added in the Companies Act of 2013.

Conclusion

-Persons or entrepreneurs who want to conduct business with the entrepreneurial freedoms provided by proprietorships but without the burden of personal liability that a proprietorship is required to carry have taken a keen interest in the idea of a a one-person company.

Key takeaways

• The concept of one person company gives an individual more flexibility to manage his business while also enjoying the advantages of a company.
• In order to give small firms functioning as private limited companies certain advantages, the concept of a small company was added in the Companies Act of 2013.
• Either the paid-up capital or the turnover as of the last profit and loss statement should not exceed Rupees 50 lakhs for a small company.

One Person company

An organisation process used by a corporate entity can take many different forms. Which form an investor chooses to invest in is entirely up to them if they want to start a business. The choice is made based on factors including the industry, the quantity of cash available, the number of potential customers, etc. One way to structure a firm is using a one-person company. As implied by the name, the main characteristic of an OPC is that it only comprises of one person.

The expert committee of Dr. JJ Irani originally suggested this idea of OPC in 2005. One Person Corporation (OPC) refers to a company with just one member, as defined by section 2 (62) of the Companies Act, 2013. The subscribers to a company's Memorandum of Association (MoA) are what constitute the members at the time of incorporation. As a result, in an OPC, there is just one shareholder who is a subscriber to the company's Memorandum of Association, making up its sole member.

The following are an OPC's primary characteristics:

• In accordance with Section 3(1)(c) of the Act, a single person's business can only be a private company, which may be established for any permissible reason.
• OPC must formally nominate a candidate for the firm when filing the Memorandum of Agreement with the Registrar of Corporations, unlike other private companies that may have many shareholders. It becomes necessary since there is just one member in such a corporation and any unfortunate event will leave the organisation unorganised.
• If the person named in the MoA rejects to join the OPC upon the death of the member, the idea of perpetual succession will not be applicable.
• The OPCs must have at least one director, as opposed to the three and two required for public and private corporations, respectively. However, much like other companies, they are only permitted to select a maximum of 15 directors.
• According to the Act, there is no set minimum paid-up share capital requirement for OPCs.

Advantages one person company enjoys are:

• Cash flow statements are not required to be included in the OPC's financial statements.
• An OPC's annual returns do not need to be signed by a company secretary. The director himself can complete it to an acceptable standard.
• Unlike other firms, they are not required to have annual general meetings.
• The OPCs are not required to have an independent director.
• The OPCs are likewise exempt from the requirements for meeting quorums.
• Finding funding for an OPC is simpler. Through venture capital, banking institutions, angel investors, etc., it can raise money. As a result, in terms of investment, it becomes comparable to a private corporation.
• Decisions are made quickly since there is just one person in charge of everything, including managing the firm. The procedure becomes more adaptable and advantageous to all parties.
• An OPC is eligible for tax deductions in the same way as other businesses. The tax benefit that an OPC receives but a sole proprietorship does not is one of the main advantages of an OPC over a sole proprietorship.

Small Company

In order to give small firms functioning as private limited companies certain advantages, the concept of a small company was added in the Companies Act of 2013. Small companies are the backbone of any economy, thus it is important to make the process of starting and running one as straightforward as possible in order to increase jobs and the economy. As a result, the Companies Act, 2013's designation of "small company" helps to promote small businesses in India.

According to Section 2(85) of the Companies Act of 2013, a "Small Company" is one that:

The small company’’ means a company, other than a public company,-

1. Paid-up share capital of not more than fifty lakh rupees, or the maximum amount permitted by regulation, which shall not exceed five crore rupees;
2. Has a turnover that, according to its last profit and loss statement, is not greater than two crore rupees, or any higher figure that may be prescribed but is not greater than twenty crore rupees: As long as nothing in this section applies to:

• holding or subsidiary company;
• company that has been registered under Section 8; or
• company governed by a special act

If a firm satisfies any of the aforementioned qualifications (1) or (2), it may be categorized as a "small company" under the Companies Act of 2013. However, the majority of companies were categorised as small companies since they met the first criterion but significantly went over the allotted budget for the second criterion. Therefore, the Ministry of Corporate Affairs altered "OR" at the end of requirement 1 to "AND" in an effort to prevent too many from being labelled as small companies.

A private company must satisfy both of the aforementioned requirements. Additionally, a company is not considered a small business if it is either:

• Public company
• Holding of another company.
• The company is a subsidiary of a different company.
• The company has a Section 8 status.
• It is a company subject to any Special Act.

Advantages a small company enjoys are:

• Annual Return: Either the company secretary or a director of a private limited company that is categorised as a small company may sign the annual return. A Director and a Company Secretary are required to sign the annual return for a private limited company that is not categorised as a small company.
• Board meeting: A small company only needs to hold two board meetings every fiscal year. A private limited company that is not categorised as a small company must hold four board meetings every fiscal year.
• A private limited company that is categorised as a small company does not required to prepare a cash flow statement as part of the financial statement. A cash flow statement that is a component of the financial statement for a private limited company that is not categorised as a small company must be prepared.
• Auditor rotation is not necessary for private limited companies that are categorised as smaller companies. The Act mandates that private limited companies that are not categorised as smaller companies change their auditors every five or ten years.

Conclusion

Persons or entrepreneurs who want to conduct business with the entrepreneurial freedoms provided by proprietorships but without the burden of personal liability that a proprietorship is required to carry have taken a keen interest in the idea of a a one-person company. This concept gives an individual more flexibility to manage his business while also enjoying the advantages of a company. OPC offers a variety of alternatives to anybody wishing to launch their own business with an established organisational framework. The requirement for compliance is far reduced, and the provision for limited liability is an additional benefit.

OPC is the ideal choice when the firm is small enough to be managed by a single person, the concept is innovative, and tight supervision is required. There is thus no better method to create a business than using the OPC form of enterprise. To address issues with size as the firm grows, OPC could be transformed into a Small company