As part of the Company’s Act 2013, a new concept known as the One Person Company (OPC) has been introduced. A private company requires at least two directors and two shareholders, whereas a public company requires at least three directors and seven shareholders. Previously, a single individual could not incorporate a company.
A one person company (OPC) is a company incorporated by a single individual. Prior to the implementation of the Companies Act, 2013, one individual had no right to form a company. An individual could only set up a sole proprietorship if he/she wanted to do so since a company required two directors and two members.
Companies may be formed with just one director and one membership, as specified in Section 2(62) of the Companies Act 2013. It is regarded as a form of company with lower compliance requirements than a private company.
Generally, an individual can form a company with one director and one single member under the Companies Act, 2013. Director and member may be the same person. Therefore, one person companies allow individuals to incorporate their businesses in a way that has the benefits of a sole proprietorship and the features of a company.
A separate legal entity is created for the OPC from the members. The separate legal entity gives protection to the single individual who has incorporated it. A member’s liability is limited to his/her shares, and the member is not personally liable if the company goes under. As a result, creditors may sue the OPC instead of the directors or members.
Obtaining funds is easy
Having a private company such as OPC helps it to raise money through venture capitals, angel investors, incubators etc. Instead of lending to proprietorship firms, banks and financial institutions grant loans to companies instead. Therefore, obtaining funds is easy for OPC.
Compliance rates are lower
Several exemptions are provided to the OPC by the Companies Act, 2013. To name a few, the OPC does not need to prepare the cash flow statement and the company secretary does not need to sign the accounts and annual reports.
Incorporation is easy
There are only one member and one nominee required for OPC’s incorporation, and the member can also serve as a director. There is no minimum paid-up capital requirement for OPC, but it does require a minimum authorised capital of Rs.1 lakh. As a result, it is more easily incorporated than other types of companies.
It is easy to manage the affairs of the OPC because it can be created and run by a single person. The decision-making process is quick, and the resolutions can be passed easily by the members by entering them into the minute book and signing them by the sole member. The company is thus easy to run and manage since there won’t be conflicts or delays.
Succession in perpetuity
Upon the death of the founder member, the nominee will run the OPC in the member’s place. Even with only one member, the OPC has the feature of perpetual succession.
The disadvantages of OPC
Only suitable for small businesses
OPC is a suitable business structure for small businesses. It has a maximum of one member at all times. More members or shareholders cannot be added to the OPC to raise additional capital for the business. As a result, with expansion and growth, the number of members cannot increase.
Restrictions on business activities
Under Section 8 of the Companies Act, 2013, the OPC cannot engage in non-banking financial investment activities, including investing in securities of any corporate. It cannot even be converted to a charitable institution.
Management and ownership
It will be difficult to distinguish ownership and management because the sole member can be a director of the company as well. In an environment where ownership and control are blurred, unethical business practices may result. The sole member has the authority to take and approve all decisions.
Process for registering a One Person Company (OPC)
Step 1: Submit an application for DSC
As a first step, a Digital Signature Certificate (DSC) must be obtained for the proposed Director. This process requires the following:
- Proof of address
- Aadhaar card
- PAN card
- Email Id
- Phone number
Step 2: Request a DIN
Once the Digital Signature Certificate (DSC) is made, the next step is to apply for the Director Identification Number (DIN) of the proposed Director in SPICe Form along with proof of their name and address. In the case of existing companies, Form DIR-3 is only available. Starting in January 2018, the applicant will no longer have to file Form DIR-3 separately. DINs can now be applied for three directors within the SPICe form.
Step 3: Submit an application for approval of names
Having decided on the name of the Company is the next step in the process of incorporating an OPC. Incorporated under the name “ABC Ltd. (OPC)”.
Form SPICe+ 32 can be used to approve the name. Only one preferred name can be given along with reasons for keeping it. By applying another Form SPICe+ 32 application, another name can be submitted if the first name is rejected.
We move forward with the next step once the name is approved by the MCA.
Step 4: Documents needed
To be submitted to the ROC, the following documents must be prepared:
- The Memorandum of Association (MoA) states the objectives to be followed by the company and the business for which it will be incorporated.
- The Articles of Association (AoA) outline the bylaws that govern the company’s operation.
- There is only one Director and one member, so it is necessary to appoint a nominee on behalf of such a person in case he is incapacitated or dies and cannot perform his duties. In addition to his PAN card and Aadhar card, a consent form INC – 3 will be taken.
- Obtain a NOC from the owner and proof of the registered office of the company.
- Proposed Director’s Declaration and Consent, form INC-9 and DIR-2, respectively.
- Professional certification stating compliance has been achieved.
Step 5: Filling out MCA forms
With the DSC of the Director and the professional, these documents will be attached to the SPICe Form, SPICe-MOA and SPICe-AOA and uploaded to the MCA site for approval. There is no need to file separate applications for obtaining the Pan Number and TAN. They are generated automatically at the time of incorporation.
Step 6: Obtaining the Certificate of Incorporation
We can now begin our business after the Registrar of Companies (ROC) issues a Certificate of Incorporation.
OPC Registration Checklist
- One member is the minimum and maximum.
- Before incorporation, a nominee should be appointed.
- Form INC-3 needs to be completed to obtain the consent of the nominee.
- The name of the OPC must be chosen in accordance with the Companies (Incorporation Rules) 2014.
- Incorporation requires a minimum of Rs.1 lakh.
- Describe the proposed director in detail.
- A copy of the registered office of the OPC.
Registration timelines for OPC
An OPC’s Certificate of Incorporation can be obtained in 3-4 days after receiving the DSC and DIN of the proposed directors. Upon departmental approval and revert from the respective department, the entire incorporation process of an OPC takes approximately 10 days.
Frequently Asked Questions
Who is eligible for membership in an OPC?
Members and nominees of an OPC may only be natural persons who are Indian citizens and residents of India. During the preceding financial year, a person who has lived in India for at least one hundred and eighty-two days is considered a “resident in India” for the purpose outlined above.
Is it possible to belong to more than one OPC?
It is not possible for a person to be a member of more than one OPC.
Does forming an OPC have any tax advantages?
OPCs do not offer any special tax advantages over other forms of company. The tax rate is flat 30%, and other provisions such as MAT & Dividend Distribution Tax (DDT) apply to any company.
Do OPCs have to meet any thresholds before they must become private or public companies?
According to the Companies (Incorporation) Second Amendment Rules, 2021, the mandatory conversion of OPCs was removed upon meeting the criteria of exceeding the minimum paid-up capital and average annual turnover. When an OPC’s paid-up capital and average annual turnover increase, it does not need to convert into a public or private company.
How does an OPC have to comply with mandatory regulations?
The basic mandatory compliance comprises:
- Board Meetings should be held at least twice per calendar year, and the time gap between each Board Meeting should not be less than 90 days.
- Maintaining proper accounting records.
- Statutory audits are conducted on financial statements.
- A business income tax return must be filed by the 30th of September each year.
- Form AOC-4 and Form MGT 7 are required for filing Financial Statements and ROC Annual Returns.
OPCs cannot be formed by whom?
No minors, foreigners, non-residents, or people incapacitated by contract will be able to join.
What is the process for converting an OPC to a private limited company?
An OPC can be converted voluntarily into a private limited company by passing a special resolution after increasing the minimum number of members and directors to two. No Objection Certificate (NOC) in written form from the creditors must be obtained for the conversion of OPC to a private limited company. Click here to know more about the conversion of an OPC to a private limited company