One Person Company (OPC) – India

A One Peron Company (OPC) is defined by the Indian Companies Act 2013 as a company which has only one person as a member.

As the definition suggests, there can be only one shareholder in the company. The liability of the OPC is ‘limited’ to the capital and surplus of the company and the director or member of the company is personally not liable for any losses beyond his/her capital contribution.

For practical reasons, the sole member of the company must appoint a nominee, who shall become the sole member of the company in the event of death of the original member.

Eligibility

Only a natural person who is an Indian Citizen and resident of India shall be eligible to incorporate a One Person Company or be a nominee in a OPC company.

Salient Features of an OPC

1. It is run by an individual or individuals but yet is incorporated as a separate legal entity similar to that of a private or public limited company.
2. It must have only one member at any point of time and may have more than one directors.
3. It must have a nominee director at all points of time

Advantages of an OPC

1. A single entrepreneur can manage his business on his own with limited liability.
2. Since there is a single member in the company, the decision making is usually fast.
3. Unlike a private limited and public limited company, the compliances of an OPC are relatively simple and easy.
4. The limited liability feature and the corporate structure would help in procuring loans from banks and other financial institutions
5. Since the liability is limited in an OPC, sole proprietors’ can increase the size of their businesses without any fear of unlimited liability affecting their personal wealth.

Disadvantages of an OPC

1. The sole member shall not be eligible to incorporate more than one OPC or become nominee in more than one such OPC company.
2. It is only suitable for small businesses.
3. The maximum paid up share capital that an OPC can have is Rs. 50 Lakhs and the maximum turnover that it can have is Rs. 2 Crores. If it crosses either of these thresholds, it has to convert itself into a private limited company
4. An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body-corporate.

Benefits of OPC in terms of compliance:

1. Cash flow statement is not required to be filed with ROC
2. Annual returns to be signed by a company secretary. Where there is no company secretary, the director can sign the returns.
3. There is no need to hold an AGM
4. A ‘Minutes’ book has to be maintained and all resolutions and contracts entered upon must be recorded in that book and signed by the member
5. If there is more than one director in the company, at least one meeting of the Board of Directors must be held once in each half of the calendar year, with a minimum gap of 90 days between both the meetings.

 

Exemptions from certain compliances:

The following provisions or sections of the Companies Act 2013 shall not apply to a One Person Company (OPC).

1. Section 98: Power of Tribunal to call meetings of members, etc.
2. Section 100: Calling of extraordinary general meeting
3. Section 101: Notice of meeting
4. Section 102: Statement to be annexed to notice
5. Section 103: Quorum for meeting
6. Section 104: Chairman of meeting
7. Section 105: Proxies
8. Section 106: Restriction on voting rights
9. Section 107: Voting by show of hands
10. Section 108: Voting through electronic means
11. Section 109: Demand for poll
12. Section 110: Postal ballot
13. Section 111: Circulation of members’ resolution

Limited Liability Partnership Act 2008 (India)

Introduction

A Limited Liability Partnership (LLP) is a body corporate which is a distinct legal entity separate from that of its partners. It has perpetual succession and a common seal.

It has been designed so as to allow it to function like a normal partnership entity while at the same time offering the benefits of a body corporate. Traditionally, partnership form of organisations have been very popular in a country like India and the world over. However, they suffer from the following limitations.

Limitations of a partnership form of organisation:

1. The maximum number of partner cannot exceed 20.
2. The liability of the partners is unlimited.
3. Acts of a single partner binds both the partnership firm and other partners, irrespective of whether the acts are ratified by all the partners or not.
4. Challenges in raising capital from banks and other institutions.
5. Lack of transparency among partners.

Survey’s conducted by the government, particularly the survey conducted by the Ministry of Small-Scale Industries has revealed that around 95% of the industrial units in the country are SMEs (Small and Medium Enterprises) and the manufacturing sector is dominated by these SME’s. Similarly, over 90% of these SMEs are registered as proprietorship’s, about 2% to 3% as partnerships and less than 2% as companies. The reason for absence of corporate form in the manufacturing sector is due to high compliance costs. However, the gains from the reduced compliance expenses is negated by the lack of proper credit facility from the bankers, thereby stalling the growth of the companies.

The Limited Liability Partnership (LLP) form of organisation addresses the weakness of the partnership form of organisation by giving it a corporate structure similar to that of joint stock companies but at the same time providing the flexibility in management that of a partnership organisations.

 

LLP Act, 2008

The LLP form of business organisation was introduced in India by way of Limited Liability Partnership Act, 2008 (LLP Act 2008) which came into effect by way of notification dated 31^st March 2009. It is applicable to the whole of India.

 

Chronology of Events in the introduction of LLP Act

 

• The LLP Bill, 2006 was introduced in the Rajya Sabha on 15^th December 2006 and referred to the Parliamentary Standing Committee on Finance.
• The Parliament Standing Committee on Finance submitted its report on 27^th November 2007.
• Taking into consideration the suggestions of the Standing Committee, the revised Bill, namely the Limited Liability Partnership Bill, 2008 was introduced in the Rajya Sabha on 21^st October, 2008.
• Simultaneous to the introduction of LLP Bill, 2008, on 21^st October 2008, the LLP Bill, 2006 was withdrawn from Rajya Sabha.
• This LLP Bill, 2008 was considered and passed by Rajya Sabha on 24^th October, 2008.
• The Lok Sabha granted its assent to the Bill on December 12, 2008.
• The Limited Liability Partnership Act, 2008 received the assent of the President on 7^th January 2009.
• The Limited Liability Partnership Act 2008 was published in the official Gazette of India on January 9, 2009.
• Parliament enacted the Limited Liability Partnership Act 2008 and notified it on 31.03.2009.
• The Limited Liability Partnership Rules 2009 were notified on 01.04.2009.

The first LLP was registered on 02.04.2009.

 

Comparison between traditional Partnership and LLP

Sl No	Traditional Partnership	Limited Liability Partnership (LLP)
1	Partnership may be registered under the Indian Partnership Act.	Registration is done under the LLP Act, 2008
2	A written agreement is not essential.	Written agreement is mandatory.
3	Documents are required to be filed with Registrar of Firms of respective State.	Registrar of Companies (ROC) is the administrating authority.
4	Unlimited personal liability of each partner for dues of the partnership firm. Personal property of each partner is also liable.	No personal liability of partner except in case of fraud.
5	It is not a legal entity separate from its partners	It is a legal entity separate from its partners, having perpetual succession.
6	The death of a partner dissolves the firm, in the absence of an agreement	Death of a partner does not dissolve the LLP.
7	There needs to be a minimum of two persons to form a partnership and a maximum of twenty	There needs to be a minimum of two persons to form a partnership but there is no maximum limit for the number of partners who can be admitted to the LLP
8	Each partner can take part in the business of the firm.	Each partner can take part in the business of the firm, but LLP agreement can provide to the contrary.
9	All partners are liable for the statutory compliance under the partnership act	Only the designated partners are liable for statutory compliance of the LLP
10	Partners cannot enter into business with the firm, though a partner can give a loan to the firm	Partners of an LLP can enter into business with the LLP. They can also provide loans to the LLP
11	Every partner of the firm is an agent of the firm and also of other partners. He/she can bind the partnership firm as well as other partners by his acts.	Every partner of the LLP is an agent of the LLP but not of other partners. Thus, he can bind the LLP by his acts but not other partners. The LLP agreement can also restrict powers of an individual partner.
12	Any partner can resign from the partnership and dissolve the firm	Individual partners can resign but cannot dissolve the LLP.
13	Public notice may be required for retirement of a partner	Public notice is not required. However, filing of returns of retirement of partner with ROC is required.
14	There are no specific provisions to enter into compromise, arrangement, amalgamation, reconstruction, etc. Any such re-organisations can be done via civil suits.	LLP can enter into compromise arrangement, amalgamation, reconstruction, etc.

 

Comparison between Company and LLP

Sl No	Company	Limited Liability Partnership (LLP)
1	Memorandum and Articles of Association govern the broad structure and operations of the company.	LLP Agreement or Deed governs the structure and operations of the company.
2	The name must contain as a suffix the words “Limited” or “Private Limited”	Name must contain as a suffix the words “Limited Liability Partnership” or “LLP”
3	The Memorandum should specify the state in which the company is incorporated. If the address changes subsequently to a new State, then it must be informed to the Registrar of both the old State and the new State. The change of address to a new State requires some prescribed procedures to be followed and can be slightly complex.	The Incorporation Document is generally not required to contain the State in which the LLP is incorporated. If the address changes subsequently to a new State, then the change needs to be intimated to either the Registrar of the old State or the Registrar of the new State. The procedure is simple.
4	Articles of Association have to be filed at the time of incorporation of the company.	LLP can be incorporated without a LLP Agreement or Deed. However, the LLP Agreement or Deed needs to be filed with the ROC within 30 days from the date of incorporation.
5	The administration of the company is usually done by the managing director or whole-time director.	The administration of the LLP is done by the Designated Partners or Managing Partners.
6	Individual directors or members do not have the authority to conduct the business of the company	Every partner of an LLP has the right to conduct the business of the LLP, unless the LLP agreement provides to the contrary
7	The companies act provides certain restrictions on the remuneration of the directors.	No restriction on remuneration is provided by the LLP Act. The remuneration can be as per the LLP Agreement or subsequent resolutions of the LLP.
8	Notice of change of director has to be given by the company	A partner who has resigned from a LLP can himself give the notice of resignation to the ROC
9	Share, Share Certificate, Register of Members, Transfer and Transmission of shares, etc., is required	No requirement of share and share certificates. Hence, no requirement for its issue, allotment, transfer, rectification of register, etc.
10	Board meetings and General Meetings are required	There are no provisions for regular meetings of the board or members. Partners can decide how and when they want to meet.
11	Any charge against the company needs to be registered with the ROC	No provision for registration of charges
12	If the directors, in their personal capacity, have entered into a business agreement with the company then such details should be disclosed to the members of the company.	No requirement of disclosure where a partner has entered into a business agreement with the LLP in his personal capacity
13	Elaborate provisions have been provided in the Companies act related to redressal in case of oppression and mismanagement	No provisions have been provided in the LLP Act with regard to redressal in case of oppression and mismanagement
14	Elaborate records and registers are required to be maintained	No records and registers are required to be maintained
15	Restrictions on Board regarding some specified contracts, contracts in which directors are interested, investment, loans and guarantees to other companies	Partners are free to enter into any contract

 

As can be seen from the above two comparisons with normal partnership and companies that the LLP structure provides a company form of organisation with the flexibility of a partnership. The compliance requirements are minimal compared to the requirements under the Companies Act. Hence, the structure would suit both new start-up businesses in green-fields as well as traditional businesses which are of small to medium size in terms of operations. The structure would particularly suit professionals such as Lawyers, Accountants, Company Secretaries, Investment Managers, Investment Consultants, Tax Consultants, Management Consultants, Engineering and Technical Consultants, Architects, Interior Designers and Consultants, Structural Engineers, etc., to form multi-speciality service organisations. Traditionally, it has been seen that each of these professionals form normal partnership firms along with other professionals in the same profession offering single professional service(s). Though, they had the freedom under the Partnership Act, 1932 to form multi-speciality service organisations, not many such organisations have been formed, partly for the fear of unlimited liability in case a major liability arising due to negligence of service or due to unavoidable reasons or circumstances. However, under the LLP Act, which provides for limited liability and a corporate form of governance, professionals from different professions can come together and provide their services under a single organisation, thus providing a one-stop-shop for various services to their clients. Internationally, this form or style of providing various services is quite common and popular. With the help of the LLP Act, such a trend is expected in the Indian services industry.

 

Business Activity of LLP

Section 11 (1) of the LLP Act, 2008 states that “two or more persons associated for carrying on a lawful business with a view to profit shall subscribe their names to an incorporation document.”

Section 2 (1) (e) of the LLP Act, 2008 states that “business includes every trade, profession, service and occupation.”

Interpreting the above two sections, the following can be inferred.

1. A LLP cannot be created for non-profit business or activity. It can only be created for a legal business activity.
2. A LLP can be created for carrying out all legal business activities such as trading, profession, service, manufacturing, commerce, or any other venture. There is no restriction on the type of business as long as it is legal.

 

Essential features of a LLP

1. LLP is a body corporate which has a separate legal existence from its partners.
2. Any two or more persons can start an LLP. There is no maximum limit on the number of partners.
3. The LLP can be formed for any business activity which is undertaken for profit.
4. The LLP needs to be registered with the Registrar of Companies of a particular State. The business of the LLP can be carried out in any State of India irrespective of the State in which the LLP is registered.
5. The LLP will have perpetual succession but it can be wound-off if agreed by all the partners.
6. The mutual rights, obligations, duties, etc., of the partners have to be described in the LLP Agreement. In the absence of an agreement on some clauses, the clauses under the LLP Act and the associated rules and regulations shall apply.
7. The capital and profit sharing ratios of the individual partners need to be mentioned in the LLP Agreement.
8. The rules and procedures regarding induction and removal of partners need to be specified in the LLP Agreement. If the LLP Agreement is silent on these issues, the provisions of the LLP Act shall apply.
9. The liability of all the partners in an LLP is limited to their respective shares in the partnership.
10. The LLP being a separate legal entity can own property, sue and be sued by others.

 

Duration of the LLP

The duration of the LLP can be either:

1. Perpetual; or
2. For a particular event; or
3. For a specific job.

 

Steps for forming a LLP

The process for incorporating a LLP is as follows:

• Deciding on the Partners and the Designated Partners
• Obtaining Designated Partner Identification Number (DPIN) and Digital Signature Certificate.
• Deciding on the name of the LLP and to check the availability of that name
• Obtaining the Certificate of Incorporation
• Drafting the LLP Agreement
• Filing the LLP Agreement within 30 days with the Registrar of Companies.