Section 2(62) of Companies Act states a one-person company as a company that has only one person as to its member. In an OPC, members of a company are nothing but subscribers to its memorandum of the corporation, or its shareholders. So, an OPC is practically a company that has only one shareholder. Such companies usually arise when there is only one founder/sponsor for the company. Entrepreneurs whose business is at an early stage prefer to create OPCs rather than sole proprietorships because OPCs offer several advantages.
- 1 Business Name Approval
- 1 DSC & 1 DIN
- Incorporation Certificate
- MOA & AOA
- PAN & TAN
- Udaym – MSME Certificate
Establishment of One-Person Companies
An individual can start an OPC by adding their name to the memorandum of association and meeting other requirements required by the Companies Act 2013. In this charter, details must be given of a nominee who becomes the only member of the company, in the event of the death of the original member or if the founder becomes incapable of fulfilling contractual requirements.
This memorandum and the nominee’s consent for his nomination must be filed to the Registrar of Companies along with an application of registration. Such a nominee can withdraw his name at any point in time by submission of requisite applications to the Registrar. His nomination might also later be canceled by the company’s member.
Special Privileges of One-Person Companies
OPC enjoys the following privileges and exceptions under the Companies Act:
You don’t have to hold yearly general meetings.
Your financial statements do not have to include a cash flow statement.
Directors can sign annual returns, a company secretary is not required for it.
Provisions related to independent directors do not apply to them.
Your articles can provide an additional reason for the desertion of a director’s office.
Some provisions regarding meetings and quorum do not apply to them.
You can pay directors a higher fee than other companies.
Membership in One-Person Companies
Only an individual with Indian citizenship and residence in India can start an OPC. The same condition applies to the candidate/nominee of the company. Also, such a person at a given point in time can never be a member or candidate of more than one OPC.
It is important to note that only a living person can become a member of OPC. This does not apply to companies in which companies own shares and can be members. The law also prohibits minors from being members or candidates of OPCs
Steps to form an One Person Company
- Apply for DSC: The first step is to obtain the proposed director’s digital signature certificate (DSC), which requires the following documents:
proof of address
- Apply for DIN: Once the DSC has been created, you must apply for the director identification number (DIN) of the proposed director in SPICe Form together with the name and proof of address of the director. Form DIR-3 is only available for existing companies. This means that from January 2018 the applicant will no longer have to submit the DIR-3 form separately. DIN in SPICe form can now be used for up to three directors.
- Application for Name Approval: The next step in listing an OPC is to decide the name of the company. The name of the company is given in the form of “ABC (OPC) Private Limited”.
There are two ways to approve the name by submitting an application in the form of SPICe 32 or by using MCA’s RUN web service by just specifying a preferred name along with the importance of keeping that name. However, with effect from March 23, 2018, the Ministry decided to allow two proposed names and one resubmission (RSUB), while distinctive names (RUN service) will be reserved for companies.
Once the name has been approved by the MCA, we proceed to the next step.
- Required documents: We need to prepare the following documents to be submitted to the ROC:
The Memorandum of Association (MoA), which are the objectives to be followed by the company, or the business for which the company is to be founded.
The articles of association (AoA), which stipulates the laws under which the company operates.
Since there are only one director and one member, a nominee must be appointed for that person, in case the founder cannot perform his or her duties in the event of disability or death. The nominee’s INC-3 consent is given with its PAN card and Aadhar card.
Proof of the registered office of the proposed company along with proof of ownership and an NOC from the owner.
Affidavit and consent of the proposed director of forms INC-9 and DIR-2 respectively.
A statement from the specialist showing that all requirements have been met.
- Submission of forms to MCA: All of these documents are attached to SPICe Form, SPICe-MOA and SPICe-AOA along with the Director’s and Professional’s DSC and uploaded to the MCA site for approval.
Once uploaded, forms 49A and 49B are generated for the company’s PAN and TAN generation, which must be uploaded to MCA after the proposed director’s DSC has been attached.
- Issue of the deed of foundation: After verification, the Registrar of Companies (ROC) issues a deed of foundation and you can start your business.
Advantages of OPC registration
Limitation of liability
The personal property of the director is always safe in a limited liability company, regardless of the company’s debts.
Sole proprietorships end with the owner’s death. Since an OPC company has its legal personality, it would be passed on to the designated director and thus continue to exist.
Because an OPC needs an annual review of its books, it has greater credibility with providers and credit institutions.
Conversion of OPCs to other companies
Regulations establishing one-person companies explicitly limit the conversion of OPCs into companies in Section 8, i.e. companies that pursue charitable purposes. OPCs can also only be voluntarily converted into other types of companies two years after the date of their establishment.
Frequently Asked Questions
- Is there a tax advantage when founding an OPC?
There is no specific tax benefit for an OPC over any other form. The tax rate is a flat 30%, other tax regulations such as MAT & Dividend Distribution Tax apply as well as for any other company.
- Are there any thresholds for the mandatory conversion of an OPC into a private or a public company?
If the paid-in share capital of an OPC is above fifty lakh rupees or if its average annual turnover for the immediate preceding three consecutive financial years is more than two crore rupees, the OPC must be transformed into a private or public company.
- What is the mandatory conformity that an OPC must comply with?
The basic mandatory conformities are:
a. At least one board meeting in each half of the calendar year and an interval between the two board meetings should be at least 90 days.
b. Maintaining proper business books.
c. Final exam.
d. Annual business tax return submitted before September 30th.
e. Submission of the annual financial statements in Form AOC-4 and the annual return on investment in Form MGT 7.
- How do I convert an OPC into a limited liability company?
The mandatory conversion of a one-person company (OPC) into a public limited company (PLC) is required if a one-person company fulfills certain parameters, e.g.
a. The effective date of the increase in the paid-up share capital of a one-person share capital over fifty rupees and
b. An increase in average annual sales in the period immediately preceding three successive fiscal years exceeds two billion rupees.
In this case, the one-person company is obliged to transform itself into either a private or a public company within six months. In this article, we also look at how to convert a one-person company into a limited liability company or a limited liability company.
- How much capital is needed to start an OPC?
There is no difference in the capital requirement between an OPC and a limited liability company. It takes an authorized capital of Rs. First 1 lakh, but none of it has to be paid. That means you don’t have to invest money in the business.
- What tax benefits does an OPC offer?
No general advantages; However, there are some industry-specific benefits. The profit tax is payable at a flat rate of 30%.
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