Can OPC Issue Shares?
In India, a One Person Company (OPC), as per the Companies Act, 2013, cannot issue shares to the public. The OPC structure was introduced to help solo entrepreneurs set up businesses with limited liability without the need for multiple shareholders. Since an OPC can have only one shareholder, it cannot raise funds from the public. If the business grows and requires external investment, it must be converted into a Private Limited Company or a Public Limited Company.
However, an OPC can issue shares to its sole shareholder, meaning the individual can hold multiple shares. The main advantage of an OPC is that it allows an entrepreneur to operate a corporate entity with limited liability protection, safeguarding personal assets.
Advantages and Disadvantages of OPC
Advantages of OPC
- Limited Liability: The personal assets of the owner are protected from business risks and liabilities.
- Separate Legal Entity: OPC enjoys a distinct legal identity, separate from its owner.
- Single Ownership & Control: Provides full decision-making power to the entrepreneur without any interference.
- Easy Compliance: Compared to private or public companies, OPCs have fewer regulatory requirements.
- Perpetual Succession: Unlike sole proprietorships, OPCs can continue operations even if the owner changes (through nominee succession).
- Access to Government Benefits: OPCs get benefits under the Startup India scheme and tax exemptions.
Disadvantages of OPC
- Limited Growth Potential: Since an OPC can have only one shareholder, it restricts the ability to raise capital from investors.
- Mandatory Conversion: If turnover exceeds ₹2 crore or paid-up capital exceeds ₹50 lakh, conversion into a Private or Public Limited Company becomes compulsory.
- Higher Tax Liability: OPCs are taxed at flat 25% corporate tax, unlike sole proprietorships where individual slab rates apply.
- Restrictions on Business Activities: OPCs cannot engage in Non-Banking Financial Company (NBFC) activities or carry out investment-related business.
- Nominee Requirement: The owner must appoint a nominee, which can be an additional procedural requirement.
Conversion of OPC into Private or Public Limited Company
Converting an OPC into a Private or Public Limited Company marks a major shift in the company’s structure and governance. This conversion allows the company to have multiple shareholders, making it easier to raise capital and enhance credibility among investors. Many successful businesses, such as Flipkart and Paytm, started as private companies before expanding into larger corporate entities.
The conversion of an OPC can be mandatory or voluntary, depending on the business requirements and regulatory thresholds.
1. Mandatory Conversion
An OPC must convert into a Private or Public Limited Company if it crosses any of the following limits:
- Paid-up capital exceeds ₹50 lakh.
- Annual turnover exceeds ₹2 crore for three consecutive financial years.
Once these thresholds are met, the company must file necessary documents with the Registrar of Companies (RoC) to complete the conversion process.
2. Voluntary Conversion
An OPC can also choose to convert into a Private or Public Limited Company voluntarily for several strategic reasons:
- Business Expansion: If the entrepreneur wants to bring in additional shareholders and raise external investment, converting to a Private Limited Company allows more flexibility.
- Enhanced Credibility: Private and Public Limited Companies have higher credibility among investors, partners, and customers. For example, Zomato and Nykaa gained investor confidence after converting into public companies before launching their IPOs.
- Ownership Transfer: In a Private or Public Limited Company, ownership can be transferred easily through shareholding, making it a preferred choice for business succession planning.
- Access to Capital Markets: Public Limited Companies can raise funds from the stock market, enabling them to finance large-scale projects, research, and expansion.
- Better Management and Governance: Transitioning to a Private or Public Limited Company allows for a board of directors with diverse expertise, improving decision-making and corporate governance.
Conclusion
An OPC is not allowed to issue shares to the public. The structure is designed for single entrepreneurs, limiting the number of shareholders to one. If an OPC wants to raise funds through public investment, it must first convert into a Private or Public Limited Company, following the rules of the Companies Act, 2013.
Entrepreneurs should assess their business needs before opting for conversion, as it comes with additional compliance requirements. Companies like Infosys and Reliance Industries have benefited from a structured corporate governance framework, which enables them to scale effectively.
For assistance with OPC compliance, GST registration, income tax returns, and corporate filings, you can seek guidance from professional experts specializing in company law and business regulations.
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More info on Companies Act at: https://mca.gov.in/
