One Person Company (OPC) is a relatively new form of business entity introduced in India in 2013 under the Companies Act, 2013. It is an excellent option for small business owners and entrepreneurs who want to start a company with a single member, where the member can act as both the director and shareholder. The concept of OPC was introduced to encourage self-employment and boost entrepreneurship in the country. In this article, we will discuss everything you need to know about One Person Company in India.
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What is a One Person Company (OPC)?
As the name suggests, a One Person Company (OPC) is a company that can be formed with only one person as its member. The OPC is a hybrid form of business entity that combines the advantages of a sole proprietorship and a private limited company. The primary objective of OPC is to provide a legal identity to small business owners and entrepreneurs who want to operate their business as a company without the need for any additional shareholders.
Definition of One Person Company (OPC):
An OPC is a type of company that can be formed with just one person as its member. This means that the company has only one shareholder who is also the sole director of the company. The concept of OPC was introduced in the Companies Act, 2013, to encourage small businesses and entrepreneurs to start their own companies without the need for a second shareholder.
Features of One Person Company (OPC)
The following are the essential features of a One Person Company (OPC):
1. One Member: An OPC can be formed with only one person as its member, who will act as both the director and shareholder of the company.
2. Separate Legal Entity: Like any other company, an OPC is a separate legal entity distinct from its member. This means that the company can own assets, enter into contracts, sue, and be sued in its own name.
3. Limited Liability: The liability of the member of an OPC is limited to the extent of the share capital invested in the company. This means that the personal assets of the member are not at risk in case of any financial losses incurred by the company.
4. Minimum Authorized and Paid-up Capital: The minimum authorized capital required to incorporate an OPC is Rs. 1 lakh, and the paid-up capital should be equal to or less than the authorized capital.
5. No Requirement of Annual General Meetings (AGMs): An OPC is exempted from holding AGMs. Instead, the member of the company must hold a meeting with the Board of Directors to discuss the financial statements of the company.
6. Appointment of Nominee: The member of an OPC is required to appoint a nominee at the time of incorporation who will take over the affairs of the company in case of the member’s death or incapacity.
7. No Minimum Number of Directors: An OPC can be formed with a minimum of one director and a maximum of 15 directors.
Advantages of One Person Company (OPC):
1. Limited Liability: The most significant advantage of an OPC is the limited liability feature. This means that the member’s personal assets are not at risk in case of any financial losses incurred by the company. The liability of the member is limited to the extent of the share capital invested in the company.
2. Easy to Incorporate: The incorporation process of an OPC is simple and easy, and it can be done online through the Ministry of Corporate Affairs (MCA) portal. The process is fast and can be completed within a few days.
3. Separate Legal Entity: An OPC is a separate legal entity, which means that it can own assets, enter into contracts, and sue and be sued in its own name. This provides a sense of professionalism and credibility to the business.
4. Tax Benefits: An OPC is eligible for various tax benefits, including lower tax rates and deductions on business expenses. This can help in reducing the overall tax liability of the company.
5. Single Ownership: An OPC allows the member to have complete control over the company’s operations and decision-making without any interference from other shareholders. This makes it easier to manage and run the business efficiently.
6. Better Credibility: An OPC has better credibility than a sole proprietorship, which can help in getting loans and attracting investors. This is because an OPC is registered with the Registrar of Companies and has to comply with various legal formalities.
Disadvantages One Person Company (OPC):
1. Limited Funding: The funding options for an OPC are limited as it cannot raise funds from the public or have more than one member. This can restrict the growth potential of the business.
2. Compliances: Like any other company, an OPC has to comply with various legal formalities, such as filing of annual returns, maintenance of books of accounts, conducting board meetings, etc. This can be time-consuming and may require the assistance of a professional.
3. Nominee Requirement: An OPC requires the member to appoint a nominee who will take over the affairs of the company in case of the member’s death or incapacity. This can be a disadvantage if the member wants to maintain complete control over the business.
4. Limited Name Choices: An OPC has to use the words “One Person Company” in its name, which can restrict the choice of name for the business.
Procedure for Incorporating an One Person Company (OPC):
The procedure for incorporating an OPC is as follows:
1. Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the sole director.
2. Obtain Name Approval from the Registrar of Companies (ROC) by filing Form SPICe+.
3. Draft the Memorandum of Association (MoA) and Articles of Association (AoA) and file them with the ROC along with Form SPICe+.
4. Obtain a Certificate of Incorporation (CoI) from the ROC.
5. Open a bank account in the name of the company.
6. Apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) of the company.
7. Register for Goods and Services Tax (GST) if applicable.
Compliances for One Person Company (OPC):
An OPC has to comply with various legal formalities as per the Companies Act, 2013, such as:
1. Filing of annual returns with the ROC.
2. Maintenance of books of accounts.
3. Conducting board meetings and general meetings.
4. Auditing of the company’s financial statements.
5. Compliance with various other laws such as Income Tax, GST, etc.
Conclusion:
In conclusion, an OPC is a type of company that can be formed with just one member, providing limited liability and separate legal entity status to the member. The incorporation process of an OPC is simple and easy, and it can be done online through the Ministry of Corporate Affairs (MCA) portal. However, an OPC has to comply with various legal formalities, and it has limited funding options, nominee requirements, and limited name choices. Therefore, it is essential to evaluate the advantages and disadvantages of an OPC before deciding to incorporate one.
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{The author i.e. Shahbaz Khan is a Company Secretary and can be reached at (M) 8982766623 and (E) [email protected]}
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