Understanding OPC (One Person Company): Benefits & Compliance

Introduction: In the dynamic business landscape of India, entrepreneurs often seek flexible and streamlined business structures that align with their aspirations. One such option introduced under the Companies Act, 2013, is the “One Person Company” or OPC. This legal structure combines the advantages of a sole proprietorship and a private limited company, offering a unique avenue for solo entrepreneurs to establish and operate their businesses with limited liability. In this article, we will delve into the key features, benefits, tax implications, and compliance requirements associated with OPCs in India.

Some key features and information about OPC companies:

1. One Person Company (OPC) Structure:

• • An OPC is a hybrid form of a sole proprietorship and a private limited company.
  • It allows a single person to form a company with limited liability, separating personal assets from the business’s liabilities.

2. Minimum Requirements:

• • Only one person is required to form an OPC, and that person can be both the director and shareholder.
  • There must be at least one director, and the sole member of the OPC will act as the first director.
  • A nominee is required to be appointed by the member in case of death or incapacity.

3. Limited Liability:

• • The liability of the member in an OPC is limited to the extent of their shareholding in the company. Personal assets are generally not at risk in case of business losses or liabilities.

4. Name of the Company:

• • The name of an OPC must end with “OPC Private Limited” to distinguish it from other types of companies.

5. Annual Compliance:

• • OPCs are required to file annual financial statements and annual returns with the Registrar of Companies (RoC).
  • They also need to conduct an annual general meeting (AGM).

6. Conversion to Private Limited Company:

• • If an OPC exceeds a specified turnover or paid-up capital limit, it must be converted into a private limited company.

7. Taxation:

• • OPCs are taxed at the same rate as private limited companies in India. They are subject to the applicable income tax rates and corporate tax rates.

8. Advantages of OPC:

• • Limited liability protection for the sole member.
  • Separate legal entity, enhancing credibility.
  • Easier to obtain funding and borrow money.
  • Continuity and perpetual existence, as the death or incapacity of the member doesn’t affect the company’s existence.

9. Disadvantages of OPC:

• • Some restrictions on the types of businesses an OPC can engage in.
  • Greater compliance requirements compared to a sole proprietorship.
  • Costlier to incorporate and maintain than a sole proprietorship.

10. Compliance Requirements:

• • An OPC must maintain proper books of accounts, conduct an annual audit, and file various regulatory documents with the RoC.

11. Conversion and Cancellation:

• • An OPC can be converted into a private limited company or be voluntarily dissolved if the member wishes to cease operations.

12. Restrictions:

• • An OPC cannot be converted into a Section 8 (non-profit) company.

Taxability of OPCs in India

OPCs are taxed as companies under the Income-tax Act, 1961. This means that they are taxed at a flat rate of 30% on their net profits. OPCs are also liable to pay surcharge and cess, as applicable.

Example

An OPC has a net profit of Rs. 10 lakhs in the financial year 2023-24. The tax liability of the OPC will be as follows:

• Income tax: Rs. 10 lakhs * 30% = Rs. 3 lakhs
• Surcharge: Rs. 3 lakhs * 7% = Rs. 21,000
• Cess: Rs. 3 lakhs * 4% = Rs. 12,000

Total tax liability: Rs. 3 lakhs + Rs. 21,000 + Rs. 12,000 = Rs. 3,33,000

Important points to note

• OPCs are not eligible for any special tax concessions or exemptions.
• OPCs are required to file their income tax returns and financial statements with the Income Tax Department and the Registrar of Companies (ROC), respectively.
• OPCs are also liable to pay other taxes, such as Goods and Services Tax (GST), as applicable.