Understanding One Person Company: From Registration To Compliance

Published Sun, 12 May 2024 | Updated Sun, 12 May 2024

In today's global business landscape, a One Person Company (OPC) is a unique business entity that permits a single individual to operate a company with limited liability. This business structure combines the benefits of a sole proprietorship and a company, offering the entrepreneur complete control and ownership while ensuring limited liability and less regulatory compliance.

Prior to the enactment of the Companies Act of 2013, the formation of a company in India necessitated the involvement of at least two individuals. However, the introduction of OPC provisions in the Act disrupted this tradition, providing a streamlined pathway for solo entrepreneurs to establish their businesses. This business structure, introduced in the Companies Act 2013, offers entrepreneurs an opportunity to establish their business with limited liability while maintaining full control. As stipulated by Section 2(62) of the Companies Act of 2013, OPC registration in India is entirely legal, requiring only a single director and member to represent the entire firm. In the following sections, we will explore the intricacies of the OPC, its registration process, benefits, and compliance requirements.

Introduction to One Person Company (OPC)

A One Person Company (OPC) introduces a streamlined approach for entrepreneurs in India, encapsulating a blend of corporate privileges and compliance ease, which is pivotal for its operation within the legal framework. Key characteristics of an OPC include:

1. Sole Membership and Nomination: It is mandated by law that an OPC has only one member, who also needs to appoint a nominee during the registration process. This nominee steps in as the sole member in events like the demise or incapacity of the original member, ensuring business continuity. But no minor shall become a member or nominee of the OPC.
2. Directorship and Capital: An OPC operates with a minimum of one director and can expand up to fifteen directors without a stipulated minimum paid-up capital requirement. This flexibility aids in the smooth operational management and scaling of the business as per the entrepreneur's vision.
3. Legal and Operational Privileges: Distinct from traditional companies, OPCs enjoy several legal exemptions aimed at simplifying business operations. These include not being required to hold annual general meetings, exemption from signing annual returns by a company secretary, and the liberty to offer higher remuneration to directors. Such privileges are designed to reduce the regulatory burden on single entrepreneurs, thereby fostering a conducive environment for business growth.

These foundational aspects underscore the unique position of OPCs within the Indian corporate landscape, tailored to meet the needs of solo entrepreneurs while offering the benefits of limited liability and corporate status.

Advantages of an OPC

An OPC brings numerous benefits to the table that make it an appealing choice for entrepreneurs. Some of them are listed below:

1. Limited Liability: The liability of the owner is restricted to the extent of their share capital in the company. So, even if the business hits a rough patch, the personal assets of the entrepreneur remain untouchable.
2. Separate Legal Entity: As an OPC is a separate legal entity, it can own assets and incur liabilities independently of its owner. This means that, the owner, are shielded by its legal status. If the company faces losses or debts, they're not personally responsible.
3. Ease of Management: With just one person in charge, decision-making is quick and straightforward. Resolutions can be passed easily by documenting them in the minutes book and getting another member to sign off. Internal conflicts and delays are rare, making the company easy to run. This makes the operations of the business more efficient and expedite.
4. Perpetual Succession: The OPC continues to exist, despite the death or incapacity of the owner. Even if there's only one member, an OPC has the ability to exist indefinitely. When setting up the OPC, the single member needs to choose a nominee. This nominee will step in to run the company if something happens to the member. So, the business can carry on smoothly, ensuring continuity.
5. Lesser Compliance: OPCs are subject to fewer regulatory compliances compared to other types of companies. OPCs enjoy some exemptions from the usual compliance requirements outlined in the Companies Act of 2013. For example, they don't have to prepare a cash flow statement, and there's no need for the company secretary to produce annual reports or maintain account books. It's a simpler, more streamlined process.
6. Easy Access to Funding: OPCs have an advantage when it comes to raising money. Because they're considered private companies, they can easily attract funds from sources like venture capital, angel investors, and incubators. Getting financial support becomes a breeze.

Pre-requisites for setting up an OPC in India

1. One Member and Director: The OPC must have only one individual as the owner, who can also be a director.
2. Resident Indian: The owner of the OPC must be a natural person who is a resident in India during the previous calendar year, i.e, the person must have resided in India for a minimum of 182 days during the previous calendar year.
3. Nominee: The owner must nominate another individual as a nominee for the OPC. The nominee should also be a resident Indian. This nominee will take over the management of the OPC in case of the owner's death or incapacity.
4. Unique Name Reservation: Before registering the OPC, the owner must reserve a unique name for the company through the RUN (Reserve Unique Name) web service provided by the Ministry of Corporate Affairs (MCA). An OPC is required to include "(OPC) Private Limited" in its name as per regulatory guidelines.
5. One person one OPC:  A single individual is permitted to register only one (OPC), and similarly, a person can serve as a nominee in only one OPC.

NOW EVEN NRIs CAN REGISTER AN OPC IN INDIA

The Companies (Incorporation) Second Amendment Rules, 2021, introduced changes to simplify the OPC registration process. These changes include allowing non-resident Indians (NRIs) to incorporate OPCs in India and permitting OPCs to convert into any other type of company (except Section 8 Company) at any time regardless of when the OPC was incorporated.

Documents required for registration of OPC

The following documents are required for the Nominee, Shareholder and Director:

1. Photograph and Specimen Signature
2. PAN Card
3. Aadhar Card
4. ID Proof (Driving License/Passport/Voter ID)
5. Address Proof (Electricity Bill/Latest Bank Statement/Mobile Bill) (not older than 2 months)

The following documents are required for the proof of Registered Office Address:

1. Copy of latest bank statement/telephone or mobile bill/electricity or gas bill in the name of property owner
2. Copy of Lease deed/Rent Agreement (in case of rented property)
3. Copy of sale deed/property deed (in case of owned property)
4. Copy of no-objection certificate from the property owner

The following documents are required for the NRI Shareholder*:

1. Photographs and Specimen Signature of NRI Shareholder
2. Passport of the NRI Shareholder
3. OCI Card (if any)
4. Notarized copy of address proof (latest Telephone, Electricity Bill, Bank Statement) of NRI Shareholder
5. PAN Card (if any)
6. Aadhar Card (if any)

Note: All documents must be self-attested and either apostilled or notarized and must be in English.

Process for registration of OPC

Here's a streamlined process for registering OPC in India:

Step 1: Name Approval: Begin by reserving a name for company through SPICe+ Part A. Provide two preferred names along with a rationale and objectives of the company.

Step 2: Obtaining DSC and DIN: Get a Digital Signature Certificate (DSC), mandatory for all intending Directors or Subscribers of the company. Also, ensure Directors obtain their Director Identification Number (DIN) through SPICe+ form.

Step 3: Filing Application: File an application in SPICe+ PART B, along with SPICe+ MOA and SPICe+ AOA, for incorporation of the One Person Company with the Registrar of Companies.

Step 4: Additional Services: As of February 23, 2020, additional services can be obtained at incorporation by filing AGILE-PRO-S linked web form, including PAN, TAN, EPFO registration, ESIC registration, Bank Account opening, and GSTIN (optional). Professional Tax and Shop and Establishment Registration are optional.

Step 5: Obtaining Certificate of Incorporation Upon successful completion of the process, obtain the “Certificate of Incorporation” from the Registrar of Companies.

Mandatory Compliance Requirements for an OPC

For One Person Companies (OPCs) in India, adhering to mandatory compliance requirements is crucial for maintaining their legal standing and operational effectiveness. These requirements encompass a range of activities, from financial statement filings to board meeting protocols:

• Conducting Annual General Meeting (AGM): It is not mandatory for OPCs to hold an AGM, but it is recommended to hold one within six months from the end of the financial year, even if there's only one director.
• Filing Financial Statements: OPCs need to prepare financial statements like balance sheets, profit and loss, and cash flow statements. These must be filed with the Registrar of Companies (ROC) within 30 days of the AGM.
• Filing Income Tax Returns: OPCs are required to file income tax returns by July 31st of each year. If the OPC's annual turnover exceeds Rs. 1 Crore, conducting a tax audit becomes compulsory.
• Filing Annual Return: OPCs must submit an annual return to the Ministry of Corporate Affairs (MCA) within 60 days of the AGM.
• Statutory Audit: OPCs must undergo a statutory audit of their financial statements, which should be conducted by a qualified Chartered Accountant.
• Maintenance of Statutory Registers and Records: OPCs must maintain various statutory registers and records, including the register of members, register of directors, and minutes of board meetings.
• Conducting Board Meetings – OPC must hold a minimum of two board meetings annually, with at least a 90-day interval between them
• Appointment of Auditor: An auditor to be appointed for five years using Form ADT-1 and ensure statutory audits of financial statements.
• Disclosure of Interest: Ensure directors disclose any interest in other entities at the first board meeting or upon any change.
• Director KYC:  filing application for KYC of directors in form DIR-3 KYC or DIR-3 KYC Web, as the case may be, before 30th of September every year

Conclusion

The unique advantages of OPCs, ranging from regulatory privileges to financial incentives, not only facilitate a conducive business environment but also empower individual entrepreneurs to focus on growth and operational efficiency without the cumbersome regulations often associated with traditional corporate setups. It encourages individual entrepreneurs to venture into the corporate world and enjoy the benefits of limited liability, perpetual succession, and easier compliance. Although it does have some limitations, the OPC continues to be a popular choice for solo entrepreneurs venturing into the corporate world. Our Professionals at Companies Next help entrepreneurs understanding the nitty-gritty of OPC registration and compliance can help you navigate the path to successful entrepreneurship with greater ease and confidence.

#MCA   #holding