But what if you want to run a business with your close family member, spouse or friend? This is where the concept of a Close One Person Company (COPC) comes into play. In this blog, we will discuss what is a COPC, its features, advantages and disadvantages.
What is a Close One Person Company (COPC)?
A Close One Person Company (COPC) is a type of company where only two members (relatives or close family members) are allowed, with one of them acting as a director and the other as a nominee. The nominee acts as a legal representative of the director in case of any unfortunate events.
The concept of COPC was introduced in the Companies (Incorporation) Rules, 2014, to provide an opportunity for small entrepreneurs to start a business with their loved ones.
Features of a Close One Person Company (COPC)
- Limited liability: Like a One Person Company, a COPC also enjoys the benefit of limited liability, where the personal assets of the director and the nominee are separate from the business’s assets. This means that if the company incurs losses, the personal assets of the director and nominee are not at risk.
- Separate legal entity: A COPC is a separate legal entity from its directors and nominees, which means that the company can enter into contracts, own property, sue and be sued in its own name.
- Minimum two members: A COPC requires a minimum of two members, which can be close family members or relatives.
- Director and nominee: The director of the COPC manages the day-to-day affairs of the company, while the nominee acts as a legal representative in case of the director’s absence or death.
- Less compliance: A COPC has lesser compliance requirements as compared to a private limited company, making it easier for small entrepreneurs to start and manage their business.
Advantages of a Close One Person Company (COPC)
- Easy to start: Starting a COPC is easy and hassle-free. The process is similar to that of a One Person Company, and the registration can be done online.
- Limited liability: A COPC enjoys the benefit of limited liability, which means that the personal assets of the director and nominee are not at risk in case of any unfortunate events.
- Separate legal entity: A COPC is a separate legal entity from its directors and nominees, which means that the company can enter into contracts, own property, sue and be sued in its own name.
- Better control: A COPC provides better control to the entrepreneur as the director can manage the affairs of the company without any interference from the nominee.
- Less compliance: A COPC has lesser compliance requirements as compared to a private limited company, making it easier for small entrepreneurs to start and manage their business.
Disadvantages of a Close One Person Company (COPC)
- Limited members: A COPC can have only two members, which can be a disadvantage for entrepreneurs who want to expand their business.
- Limited funding options: A COPC cannot raise funds through the public or issue equity shares, which means that the company’s growth may be limited.
- Legal formalities: Though the compliance requirements of a COPC are lesser than that of a private limited company, it still involves some legal formalities like filing annual returns and conducting board meetings, which can be time-consuming and costly.
- Risk of personal liability: While a COPC enjoys the benefit of limited liability, there is still a risk of personal liability in certain cases, such as fraud or mismanagement of the company’s affairs.
- Limited scope of activities: A COPC is restricted from carrying out certain activities, such as non-banking financial activities, due to regulatory restrictions.
Conclusion:
A Close One Person Company (COPC) is a unique concept that allows small entrepreneurs to start and manage a business with a close family member or relative. It provides the benefits of limited liability and a separate legal entity, while also having lesser compliance requirements. However, a COPC has its limitations, such as a limited number of members, limited funding options and legal formalities. Therefore, it is important for entrepreneurs to carefully consider their business needs and consult with a professional before opting for a COPC.
Other Related Blogs: Section 144B Income Tax Act
Frequently Asked Questions (FAQs)
Q: What is a Close One Person Company (COPC)?
A: A Close One Person Company (COPC) is a type of company where only two members (relatives or close family members) are allowed, with one of them acting as a director and the other as a nominee. The nominee acts as a legal representative of the director in case of any unfortunate events.
Q: What are the features of a Close One Person Company (COPC)?
A: Some of the key features of a Close One Person Company (COPC) include limited liability, separate legal entity, minimum two members, director and nominee, and lesser compliance requirements.
Q: What are the advantages of a Close One Person Company (COPC)?
A: Some of the advantages of a Close One Person Company (COPC) include easy to start, limited liability, separate legal entity, better control, and lesser compliance requirements.
Q: What are the disadvantages of a Close One Person Company (COPC)?
A: Some of the disadvantages of a Close One Person Company (COPC) include limited members, limited funding options, legal formalities, risk of personal liability, and limited scope of activities.
Q: Can a Close One Person Company (COPC) raise funds through the public or issue equity shares?
A: No, a Close One Person Company (COPC) cannot raise funds through the public or issue equity shares, which means that the company’s growth may be limited.
Q: What are the legal formalities involved in setting up a Close One Person Company (COPC)?
A: Though the compliance requirements of a Close One Person Company (COPC) are lesser than that of a private limited company, it still involves some legal formalities like filing annual returns and conducting board meetings.
Q: Can a Close One Person Company (COPC) carry out any business activity?
A: A Close One Person Company (COPC) is restricted from carrying out certain activities, such as non-banking financial activities, due to regulatory restrictions.
