Before the Companies Act 2013, it was impossible for a single person to start a company. The Companies Act 2013 gave rise to the new concept of a one-person company in India.
A One Person Company (OPC) registration is a forward-thinking concept that encourages the formation of micro-businesses and individuals who have entrepreneurial goals but lack the time, resources, or means to seek other partners to carry out their plans.
It can be thought of as a fusion of the sole proprietorship and the traditional legal entity business models, with the OPC getting the best of both worlds. You can form a one-person company under the terms of the Companies Act 2013 and its guidelines, which make it feasible for a single individual to act as a company without the hassle of having partners.
A company can be incorporated with just one director and one member, according to Section 2 (62) of the Company’s Act 2013.A One Person Company is a type of entity in India that has fewer compliance requirements than a Private Limited Company.
In India, a tours and travels services firm formed as an OPC under the name of Delhi-based businessman Ankur Sharma is one of the most successful OPCs. Mr Sharma indicated in 2014 that he expected his company to become a Private Limited Company in six to eight months.
Sharma would have easier access to bank loans and less compliance under the various provisions of the Companies Act, with liability limited to the entity’s net worth, even though his initial priorities were to get the business started as a registered legal entity under the OPC category separate from its owner. Shree Aasht Vinayak Travels Private Limited has already become a Private Limited Company as of 2016.
This demonstrates how successful an OPC can be because it allows start-up entrepreneurs to test their business model, products, and services, and eventually attract more investors to help them grow. Depending on the founder’s intentions, the OPC may or may not become a Private Limited or Public Limited Company. Every OPC doesn’t need to convert to a Private or Public Limited Company; it is solely reliant on the founders’ objectives, as some opt to remain an OPC rather than expand and change their corporate structure.
Characteristics of an OPC:
The following are the general characteristics of a One-Person Company:
Private Limited Liability Company
A company can be incorporated by a single person for any legal purpose, according to Section 3(1)(c) of the Companies Act, 2013. Private companies are another term for OPCs.
Single – Individual
OPCs, unlike other private companies, are limited to just one shareholder or member.
During the company’s registration process, the company’s sole member nominates a nominee. This is a feature that sets OPCs apart from other businesses.
Perpetual Succession is not a viable option
When the company’s only member dies, the nominee has the option of rejecting or accepting the position. The concept of everlasting succession is used in numerous types of businesses.
At least One Director
There must be at least one director.
There is no minimum amount of paid-up capital required.
The Companies Act of 2013 makes no requirement for OPCs to have a minimum paid-up share capital.
The member bestows legal entity status on the OPC. The OPC is a separate legal entity that serves to protect the individual who has formed it. The liability of the member is limited to his or her shares, and he or she is not personally liable for the company’s loss. As a result, creditors, rather than the member or director, have the ability to sue the OPC.
Obtaining finances is straightforward
OPC can easily raise funding from venture capitalists, angel investors, incubators, and other sources because it is a private company. Rather than sole proprietorships, banks and financial institutions prefer to lend to companies. As a result, obtaining funds becomes easier.
Compliances are lesser
The Companies Act of 2013 exempts the OPC from certain compliance requirements. The cash flow statement does not have to be prepared by the OPC. The company secretary is not required to sign the books of accounts or annual returns, which are only needed to be signed by the director.
Incorporation is simple
The incorporation of OPC is easy because only one member and one nominee are required. A member can also be a director. The minimum authorised capital for forming an OPC is Rs.1 lakh, although there is no requirement for a minimum paid-up capital.
Only suitable for small businesses
OPC is well suited to the structure of a small business. At any given time, the OPC can have no more than one member. To obtain more funds, OPC cannot recruit more members or shareholders. As a result, more members cannot be joined as the company expands and grows.
Company operations are restricted
The OPC is prohibited from engaging in non-banking financial investment operations, such as investing in corporate securities. It cannot be converted to a charity purpose company under Section 8 of the Companies Act, 2013
Management and ownership
There will be no apparent line between ownership and management because the only member can also be the company’s director. All decisions must be made and approved by the sole member. The barrier between ownership and control is becoming increasingly blurred, perhaps leading to unethical business activities.
What documents are needed to register for an OPC in India?
An applicant must submit the following documents to register a One Person Company in India:
- Aadhar Card
- Photo (Of Director and Nominee)
- PAN Card
- The most recent bank statement or any bill bearing the Director’s or nominee’s name.
- The most recent bill for the office address.
OPC Registration Checklist:
- One member seems to be the minimum and maximum.
- Before incorporation, a nominee should be appointed.
- Form INC-3 should be used to get the nominee’s consent.
- The OPC’s name must be chosen under the Companies (Incorporation Rules) 2014.
- A minimum of Rs.1 lakh in authorised capital is required.
- The proposed director’s DSC.
- Proof of the OPC’s registered office.
In a one-person company, what is the role of the nominee?
A nominee in an OPC is the person named by the company’s only promoter to succeed him. A Nominee Consent Form must be filed with the MCA when forming a One Person Company.
Withdrawal of Consent: If a nominee withdraws his or her consent, the sole member must nominate another member as a legal heir within 15 days after receiving notification of the withdrawal.
The company must be notified of the new personnel’s nomination via a written approval in Form INC 3. In turn, the Company must file Form INC 4 with the Registrar, accompanied by the notice of withdrawal of permission and notification of the new nominee.
Alteration in Nominee: The One Person Corporation’s sole member can change the Nominee by notifying the company in writing. The new nominee should sign the nomination form – INC 3. Within 30 days of receiving the intimation of change, the Company must file the notice of the change and the nominee’s consent with the registrar, along with the necessary fee.
Penalty: If a One Person Company or an executive of such a company violates the aforementioned restrictions, the entity could incur fines of up to Rs.10,000.
The procedure for acquiring OPC registration is as follows:
DSC application form:
The following documents must be supplied to receive the Digital Signature Certificate for the proposed Director:
- Aadhar Card,
- PAN Card,
- Email Id,
- Phone Numbers are all acceptable forms of identification.
Request for a Director Identification Number (DIN):
After obtaining the DSC, the next step is to apply for the proposed Director’s DIN in SPICe Form, together with the Director’s name and address evidence. For existing businesses, Form DIR 3 is the sole option available. The applicant is no longer required to complete Form DIR 3 separately as of January 2018. DIR 3 can be used in the SPICe form for up to three directors.
Application for Approval of a Name:
In the SPICe+ 32 application, the company name can be accepted. If the first name is rejected, a new name can be submitted by filling out a new SPICe+ Form.
We go on to the next phase of drafting the company’s MOA and AOA once the name has been approved by the MCA.
Preparation for MOA and AOA:
- The Company’s aims are outlined in the Memorandum of Association.
- The MOA specifies the form of business for which the company will be formed.
- The company’s operating laws are set out in the Articles of Association.
- Because there is only one Director and one member, a Nominee must be chosen if the promoter becomes incapacitated or dies. In Form INC 3, the Nominee’s consent will be taken along with the PAN and Aadhar card.
- Forms 9 and DIR 2 will be used to record the proposed Director’s declaration and consent
- A professional’s declaration that all of the requirements have been met.
Forms to be filed with MCA:
All documents will be added to the SPICe Form, and the MoA and AoA will be uploaded for approval on the site.
Certificate of Incorporation:
After verification, the Registrar of Companies will issue the Certificate of Incorporation, and the firm can begin.
OPC’s conversion into a Private Limited Company
Conversion of an OPC to a Private Limited Company might be voluntary or compulsory. Examine the complete descriptions of both types of Conversions.
Conversion of Willingness
Before meeting the following criteria, an OPC can be changed into a Private Limited Company:
- After three years from the date of incorporation, a one-person company can be changed into a private limited company.
- A board meeting will be necessary to convert an OPC to a Private Limited Company if the company has more than one Director.
Conversion is necessary
If a One Person Company meets the following criteria, mandatory conversion is required:
- If an OPC’s paid-up capital exceeds Rs. 2 crores. As a result, a One Person Company must be changed into a Private Limited Company within six months in any situation.
- The conversion is accomplished by the General Meeting passing a special resolution. The creditors and other members must sign a NOC before the resolution may be passed.
Major changes to the Union Budget for the years 2021-2022
- After fulfilling the basic conditions set out in the Companies Act of 2013, OPC registrations will be able to convert into any type of company at any time. In the Union Budget 2021-22, the paid capital was raised to Rs. 2 crores from Rs. 50 lakhs, while the turnover level was raised to Rs. 20 crores from Rs. 2 crores.
- If the paid-up capital or turnover surpasses the prescribed limits after three years, the organisation must be converted to a Private or Public Limited Company, based on the requirements listed above.
- The residency limit for Indian residents who own a One Person Company has been reduced from 182 days to 120 days.
- Non-resident Indians would be able to form Person Companies in India as well.
Registration for the OPC has a set of deadlines.
The DSC and DIN of prospective directors can be obtained in one day. The Certificate of Incorporation for an OPC takes 3-5 days to get. Depending on departmental approval and a response from the right department, the complete incorporation process for an OPC takes about ten days.
Mostly Asked Question about OPC Registration
What is a Nominee’s role in an OPC?
A nominee is a person who joins the company in the event of the promoter’s death or incapacitation.
What is the capital fee that has been authorised?
The number of shares a company can issue to its shareholders is known as its authorised capital. To issue shares, a company must pay an authorised capital fee to the government.
How may the incorporation procedure be accelerated?
For quick incorporation, make sure the name you choose is distinctive and that you have all of the essential documentation.
Is it possible for a person to be a member of more than one OPC?
No, a person can only be a member of one OPC at a time.
Is there any financial benefit to forming an OPC?
An OPC has no special tax advantage over any other type of business. The tax rate is a flat 30%, and other tax regulations such as MAT and Dividend Distribution Tax (DDT) apply as they do to any other type of business.
Is there a minimum number of OPCs that must be transformed into either a private or public company?
In the Companies (Incorporation) Second Amendment Rules, 2021, the mandatory conversion of OPC upon reaching the criteria of exceeding the minimum paid-up capital and average annual turnover was repealed. As a result, an OPC that increases its paid-up capital and average annual turnover does not have to convert into a private or public company.
In terms of India, there is no debate about how successful an OPC has become. The country’s youth appear to be tremendously motivated to create their businesses, which is also evidence of the emerging Start-up generation. To do so, forming an OPC appears to be the most likely and simplest choice, as ideas abound but implementation was impossible on an individual level before the birth of OPC in India.
Even while it has drawbacks of its own, the pace of its success outweighs them all, making it far easier to put it up rather than criticising its shortcomings. This is without a doubt one of the best blessings for the individual entrepreneurs who, for so long, had to team up with a co-partner to start their business venture, who may or may not have been as enthusiastic as the individual entrepreneur.
Compliance Calendar LLP has a team of professionals who can guide you with both the incorporation of an OPC and its regular compliance. For queries, reach out to us at 9988424211 or email us at [email protected]
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