OPC: A safe avenue for entrepreneurs
One Person Company alsolargely known as OPC is one of the most popular ways of conducting business in the developed countries for a longtime. However, it is the latest medium of doing business in Bangladesh. In 2020, Bangladeshi Parliament has amended the existing Companies Act, 1994 to insert the provision of OPC which earlier only recognised the Public and Private companies a view to creating an "ease of doing business" environment.
The Companies Act defines OPC as a company of which all the sharesare held by only one natural person. Earlier, the Act required at least two people to form a company i.e. the private company. However, now a person would be able to form a company on his/her own.Nevertheless, there must be a nominee in the company who will have all the shares of the OPC transferred to him/her when/if the sole shareholder dies.
The sole shareholder shall be the sole Director of the company as well. But if the Director wants he/she can appoint a Manager, Company Secretary, and other employees to assist him/her to run the OPC. Also, the One Person Companies are required to use OPC at the end of the companies' name similar to how PLC and LTD are required respectively in Public and Private companies' name.
There are currently 5 registered OPCs in Bangladesh compared to 185277 Private and 2462 Public companies according to the data in the website of The Registrar of Joint Stock Companies and Firms (RJSC). The registration process of the OPCs has been opened in Bangladesh since May 23, 2021.
Scopes and Limitations: The introduction of OPC has greatly widened the scope of conducting business in Bangladesh. The entrepreneurs will feel encouraged as the OPCs will provide a great number of benefits to them. For instance, the most significantbenefit would be the limited liability. A company is a separate legal entity for which it has its own rights and liabilities. Therefore, the liabilities of the company will not extend to the shareholder even though he/she is the sole shareholder ofit.
In case of sole proprietorship or even partnership, the proprietor or the partners have unlimited liability. Although Limited Liability Partnership (LLP) has not been introduced in Bangladesh, even if it were, at least one person would need to incur unlimited liability. Therefore, in regards to doing business alone and with ease, the OPC is certainly the most favourable avenue.
Further, the bank loans in regards to OPCs will be regulated by the existing system of the Companies Act. For this reason, the banks will seem to be more willing to lend money to the entrepreneurs who are seeking to establish an OPC than they would have been in sole proprietorship.
In addition, the OPCs will be conducted in the manner a private company is run. As a result, OPCs will have some the benefits a private company gets. Thus,it is more likely that we will be seeing more and more sole proprietorships converting into OPCs as the concepts of it becomes more popular in Bangladesh.
The Companies Act, 1994 sets some limitations on the amount of money in regards to capital and annual turnover. According to the said Act, the capital of the business has to be within 25 Lac to 5 crore BDT. Moreover, the annual turnover has to be within 1 crore to 50 crore BDT.
If the capital or the annual turnover exceeds the limit, the company in question has to be turned into a public or private company with necessary conditions applied. Therefore, while constituting an OPC, the value of the business must be analysed and measured correctly in order to avoid complications. In addition, the Act limits the formation of only one OPC by one natural person.
Why OPC is for entrepreneurs: The best way toknow what an enactment intends to achieve is to understand the intention of the lawmakers. The lawmakers at first when prepared the bill for the amendment of the Companies Act, 1994, the minimum capital for registering an OPC was determined to be 50 Lac Taka. The maximum was 10 Crore Taka. Moreover, the annual turnover had to be minimum 2 Crore Taka to maximum 100 Crore Taka.
However, in accordance with the recommendations of the Parliamentary Standing Committee on Ministry of Commerce, the minimum capital was set to be 25 lac Taka and minimum annual turnover to be 1 crore Taka. It clearly shows the intention of the lawmakers is to create an easy environment for the startup businesses.
The maximum limit also indicates that the OPCs are not designed for business magnates or big shots but rather is to promote new businesses. Therefore, I reckon that the OPCs in future will be the most desirable avenue for the entrepreneurs.
The entrepreneurs without a doubt have a great opportunity to establish a business with more legal securities through OPCs than by sole proprietorship as the OPCs' liability is not of unlimited nature. However, it must be kept in mind that this concept is relatively new in Bangladesh. Thus, there are definitely risks of people misusing this "ease of doing business" environment which might lead to tarnish the reputation of business environment in Bangladesh.
The most attractive feature to be misused is the limited liability of the company. Consequently, it is necessary to make sure that the OPCs which are registering in Bangladesh really are business which genuinely want to do business and are not using this avenue of business as a gateway from troubles.
Lastly, we can be hopeful that Bangladesh is going to jump ranks in the "Ease of Doing Business" Index of World Bank. Bangladesh is currently in the 168th position among the 190 countries in the list. However, the new amendments of Companies Act, 1994 in my opinion will greatly improve the ranking of Bangladesh in the Index.
The writer is a student, Department of Law, East West University