Restrictions on One Person Company – OPC

A company is classified as One Person or private or public limited on the basis of their number of members.

According to section 2(62) of the Companies Act, 2013, One Person Company (OPC) means a company which has only one person as a member. This means in the case of OPC, the number of members required to register is only 1.

One Person Company or OPC is a one shareholder corporate entity, where legal and financial liability is limited to the company only. The concept of OPC is basically introduced to eradicate the limitation of a sole proprietorship concept in India.

one person company or opc

As per law, a One person company (OPC) will be registered as a private limited company with one member and one director. Both member and director can be the same person.

Companies Act 2013 has imposed certain restrictions on One Person Company. In this article, we will discuss five major restrictions that you should know before registering a OPC in India.

Restriction to become a member and nominee director

As per rule 3 of Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.

Resident in India means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year. This means non-resident Indians can not form One Person Company in India.

Number of OPC allowed

No person shall be eligible to incorporate more than a One Person Company or become the nominee in more than one such company.

Where a natural person, being a member of a One Person Company in accordance with this rule becomes a member in another such Company by virtue of his being a nominee in that One Person Company, such person shall meet the eligibility criteria specified in sub rule (2) within a period of 180 days.

Age Limit for a OPC

No minor shall become member or nominee of the One Person Company or can hold a share with beneficial interest. This means, to form OPC, the person has to be aged 18 years or more.

Restriction on Conversion and certain type of businesses

One Person Company (OPC) cannot carry out Non-Banking Financial Investment activities including investment in securities of any other body corporate.

No such company can convert voluntarily into any kind of company unless 2 years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond 50 Lakhs rupees or its average annual turnover during the relevant period exceeds 2 Crore rupees.

One Person Company (OPC) cannot be incorporated or converted into a company under section 8 (Charitable Object) of the Act.

Contract by One Person Company – OPC

Section 193 (1) provides that where One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are recorded in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.

However, above said provision shall not apply to contracts entered into by the OPC in the ordinary course of its business.

As per section 193 (2), the company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board of Directors.

As per section 152 (1), in the case of a One Person Company, an individual being its member shall be deemed to be its first director until a director or directors are duly appointed by the member in accordance with the provisions of that section.