From UPSC perspective, the following things are important :
Prelims level : OPCs
Mains level : Entreneurship promotion
In her Budget speech, the Union Finance Minister had announced measures to ease norms on setting up one-person companies (OPCs).
Q.What are One-Person Companies (OPCs)? Discuss how they will help startups and non-resident Indians?
What is an OPC?
- As the name suggests, a one-person company is a company that can be formed by just one person as a shareholder.
- These companies can be contrasted with private companies, which require a minimum of two members to get going.
- However, for all practical purposes, these are like private companies.
- It is not as if there was no scope for an individual with aspirations in business prior to the introduction of OPC as a concept.
- As an individual, a person could get into the business through a sole proprietorship mode, and this is a path that is still available.
Why do we need such companies?
- A single-person company and sole proprietorship differ significantly in how they are perceived in the eyes of law.
- For the former, the person and the company are considered separate legal entities. In a sole proprietorship, the owner and the business are considered the same.
- This has an important implication when it comes to the liability of the individual member or owner. In a one-person company, the sole owner’s liability is limited to that person’s investment.
- In a sole proprietorship set-up, however, the owner has unlimited liability as they are not considered different legal entities.
- Some see the proposal as a move to encourage corporatization of small businesses. It is useful for entrepreneurs to have this option while deciding to start a business.
Is this a new idea?
- Such a concept already exists in many countries. In India, the concept was introduced in the Companies Act of 2013.
- Its introduction was based on the suggestions of the J. Irani Committee Report on Company Law, which submitted its recommendations in 2005.
- Pointing out that there was a need for a framework for small enterprises, it said small companies would contribute significantly to the Indian economy.
- But because of their size, they could not be burdened with the same level of compliance requirements as large public-listed companies.
Features of OPCs
- The law on one-person companies that took shape, as a result, exempted such companies from many procedural requirements, and, in some cases, provided relaxations.
- For instance, such a company does not need to conduct an annual general meeting, which is a requirement for other companies.
- A one-person company also does not require signatures of both its company secretary and director on its annual returns. One is enough.
- There was, however, criticism that some rules governing a one-person company were restrictive in nature. This year’s Budget has dealt with some of these concerns.
How many OPCs does India have?
- According to data compiled by the Monthly Information Bulletin on Corporate Sector, there were 34,235 OPCs out of a total number of about 1.3 million active companies in India (Dec 2020).
- Data also show that more than half of the OPCs are in business services.