Income Tax Topics
One Person Private Limited Company (OPC) Registration
The Companies Act, 2013 revolutionized corporate laws by introducing new concepts that did not exist previously. On such a game-changer was the introduction of the One Person Company concept. This new act led to the recognition of an entirely new way of starting businesses that accorded flexibility that a company form of entity can offer while also protecting limited liability that sole proprietorship or partnerships lacked.
Most countries had already recognized the ability of individuals to form a company before the enactment of the new Companies Act in 2013. These included the likes of China, Singapore, the UK, Australia, and the USA.
Running your own business but need company status? Register as OPC!
It usually takes 3 to 5 working days.
- Name approval in RUN (Reserve your unique Name)
- DSC (1 nos)
- Filing of SPICe+ Form
- Issue of Incorporation Certificate along with PAN and TAN
- Includes Govt Fees & Stamp duty for Authorised Capital upto Rs. 1 Lakh except for the states of Punjab, Madhya Pradesh and Kerala
- Excludes foreign national / Body Corporate as director or business needing RBI/SEBI approval
- Assistance in Opening Bank Account
- Entrepreneurs who wish to form a company with limited liability
- Proprietorship firm looking to get status of a company
Name approval form filing
Preparation of Incorporation Documents
Getting those docs signed by the respective stakeholders
Filing of e-Forms with ROC
Receipt of Incorporation Certificate with PAN, TAN, GST, EPF, ESI & Bank Account.
Name, Contact Number and Email Id of all the Stakeholders (Director & Nominee).
Directors Identification Number, if already.
Self Attested PAN, Aadhar & Passport size photo of all the Stakeholders.
Apostilled Passport, Mobile Bill and other KYC docs in case of NRI Stakeholder.
Latest Month Personal Bank statement of all the Stakeholders.
Specimen Signatures of all Stakeholders.
Few Proposed Business Names along with Objects.
Latest Electricity Bill/Landline Bill of Registered Office.
NOC from owner of registered office. (If Owned)
Rent Agreement from Landlord. (If Rented/Leased)
Brief description of main business activities of the proposed Company.
Shareholding pattern (50:50 or 60:40) between the Stakeholders.
Authorised & Paid Up Share Capital of the Company.
One Person Company has the ease of a Proprietorship & Benefits of a Private Limited!
Why prefer a One Person Company?
Here are some major advantages of One Person Company:
- For incorporating an OPC only one person is required and that is the most predominant feature of an OPC. Hence, we can say that it is a registered form of sole proprietorship. One person is responsible for decision-making, controlling, and managing the affairs.
- As it is a registered form of business entity it enjoys the same privileges as a Private Limited Company. The legality of this type of business form makes it popular among banks and financial institutions
- An OPC can avail various benefits enjoyed by small scale industries like loans are available at a lower interest rate.
- Any remuneration made to the director will be allowed under deduction under Income Tax Law, unlike Proprietorship. Also, the benefits of Presumptive Taxation are available subject to Income Tax Law.
- An entrepreneur can take more risks without stressing over the loss of assets as an OPC has limited liability. This is a sort of encouragement to new, young, and innovative business start-ups.
- All Companies are required to hold annual general meetings in addition to other meetings but One Person Company is exempt from this. The Resolution signed by the Director and entered in the minutes book is sufficient, instead of the annual general meeting.
- Every Company is required to prepare and file statements that include the balance sheets, Profit and loss account, cash flow statement, statement of changes in equity, and explanatory notes. In the case of an OPC, a cash flow statement is not required.
Definition of One Person Private Limited Company
Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.
Such companies are generally created when there is only one founder/promoter for the business. Entrepreneurs whose businesses lie in early stages prefer to create OPCs instead of sole proprietorship business because of the several advantages that OPCs offer.
Difference between OPC and Sole Proprietorship
A sole proprietorship form of business might seem very similar to one-person companies because they both involve a single person owning the business, but they’re actually exist some differences between them.
The main difference between the two is the nature of the liabilities they carry. Since an OPC is a separate legal entity distinguished from its promoter, it has its own assets and liabilities. The promoter is not personally liable to repay the debts of the company.
On the other hand, sole proprietorships and their proprietors are the same persons. So, the law allows attachment and sale of promoter’s own assets in case of non-fulfilment of the business’ liabilities.
Features of a One Person Company
Here are some general features of a one-person company:
- Private company: Section 3(1)(c) of the Companies Act says that a single person can form a company for any lawful purpose. It further describes OPCs as private companies.
- Single-member: OPCs can have only one member or shareholder, unlike other private companies.
- Nominee: A unique feature of OPCs that separates it from other kinds of companies is that the sole member of the company has to mention a nominee while registering the company.
- No perpetual succession: Since there is only one member in an OPC, his death will result in the nominee choosing or rejecting to become its sole member. This does not happen in other companies as they follow the concept of perpetual succession.
- Minimum one director: OPCs need to have minimum one person (the member) as director. They can have a maximum of 15 directors.
- No minimum paid-up share capital: Companies Act, 2013 has not prescribed any amount as minimum paid-up capital for OPCs.
- Special privileges: OPCs enjoy several privileges and exemptions under the Companies Act that other kinds of companies do not possess.
Process and Formation of One Person Companies
A single person can form an OPC by subscribing his name to the memorandum of association and fulfilling other requirements prescribed by the Companies Act, 2013. Such memorandum must state details of a nominee who shall become the company’s sole member in case the original member dies or becomes incapable of entering into contractual relations.
This memorandum and the nominee’s consent to his nomination should be filed to the Registrar of Companies along with an application of registration. Such nominee can withdraw his name at any point in time by submission of requisite applications to the Registrar. His nomination can also later be canceled by the member.
Here, we have simplified the process for Incorporating an OPC into 4 step
The identity proof and address proof will be required for obtaining the DSC
Simultaneously, to obtain the name approval it is necessary to submit an application for name registration to the MCA. The applications are processed by MCA in 24-72 hours. The name suggested should end or include the word OPC.
On obtaining the name approval, the incorporation application can be filed with the MCA with a signed MOA and AOA. The identity proof, address proof, and residence proof of the members, as well as the nominee, would be required. In addition to this other incorporation documents like affidavits and declarations of the sole promoter must be submitted. The consent of the Nominee Director must be attached in Form INC 3. The Registrar of Companies (ROC) approves filing for incorporation. In case of discrepancies, the application can be resubmitted.
Once the Incorporation Certificate is obtained the OPC would initiate the process for bank account opening. TAXAJ can help you open a current bank account. Post incorporation the director is required to deposit the paid-up capital he has mentioned in the MOA.
After the equity capital is infused in the current bank account, the company can file for commencement of business certificate with the MCA. The Business commencement certificate must be obtained within 180 days of incorporation to avoid penalty.
In case during the process of incorporation, if the notice of situation related to the office is not filed, it must be filed after incorporation but within 30 days. Here's the document required for filling INC 22 are :
- Lease Deed or rent agreement with the rent receipts
- Copies of utility bills as mentioned above but should not be older than 2 months
- A proof that the company is allowed to use the address as the registered office of the Company.
Membership in One Person Companies
Only natural persons who are Indian citizens and residents are eligible to form a one-person company in India. The same condition applies to nominees of OPCs. Further, such a natural person cannot be a member or nominee of more than one OPC at any point in time.
It is important to note that only natural persons can become members of OPCs. This does not happen in the case of companies wherein companies themselves can own shares and be members. Further, the law prohibits minors from being members or nominees of OPCs.
Conversion of OPC into Other Companies
Rules regulating the formation of one-person companies expressly restrict the conversion of OPCs into Section 8 companies, i.e. companies that have charitable objectives. OPCs also cannot voluntarily convert into other kinds of companies until the expiry of two years from the date of their incorporation.
Privileges of One Person Companies
OPC enjoy the following privileges and exemptions under the Companies Act:
- They do not have to hold annual general meetings.
- Their financial statements need not include cash flow statements.
- A company secretary is not required to sign annual returns; directors can also do so.
- Provisions relating to independent directors do not apply to them.
- Their articles can provide for additional grounds for vacation of a director’s office.
- Several provisions relating to meetings and quorum do not apply to them.
- They can pay more remuneration to directors than compared to other companies.
Advantages of One Person Company
A One Person Company (OPC) Private Limited has many advantages as compared to Companies and Proprietorship firm.
The One person Company includes in the definition of “Private Limited Company” given under section 2(68) of the Companies Act, 2013. Thus, an OPC will be required to comply with provisions applicable to private companies. However, OPCs have been provided with a number of exemptions and therefore have lesser compliance related burden.
Organised Sector of Proprietorship Company
OPC will bring the unorganized sector of proprietorship into the organized version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organized version of OPC will open the avenues for more favorable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.
√ Minimum 1 Shareholder
√ Minimum 1 Director
√ The director and shareholder can be same person
√ Minimum 1 Nominee
√ No Need of any Minimum Share Capital
√ Letters ‘OPC’ to be suffixed with the name of OPCs to distinguish it from other companies
Limited Liability Protection to Directors & Shareholders
The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
All unfortunate events in business are not always under an entrepreneur’s control; hence it is important to secure the personal assets of the owner, if the business lands up in crises.
While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.
If the business is unable to pay its liabilities, the individual has to pay such liabilities off in the case of sole proprietorship; and the individual is not responsible for such liabilities in the case of a one person company.
An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.
“Thus OPC allows an individual to take risks without risking his/her personal assets”.
Legal Status and Social Recognition for your Start-Up
One Person Company is a Private Limited Structure; this is the most popular business structure in the world. Gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with private limited companies instead of proprietorship firms. Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.
In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.
Easy to get Loans from Bank
Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.
Complete Control of the Company with Single Owner
This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.
Easy to Manage
♦No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
♦Board Meeting: A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
♦Quorum: The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.
♦Minutes: Where the company is having only one director, all the businesses to be at the transacted meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
Filing with Registrar of Companies
- Very few ROC filing is to be filed with the Registrar of Companies (ROC).
- Mandatory rotation of auditor after expiry of maximum term is not applicable.
- The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a One Person Company.
An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be pressed against the owner.
Tax Flexibility & Savings
In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.
Disadvantages of One Person Company
> One-person Company can have Minimum or Maximum no. of 1 Member.
> A minor shall not be eligible to become a member or nominee of the One Person Company or can hold share with beneficial interest.
> Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
Suitable only for small business
OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs. 50 Lakhs or Turnover of Rs. 2 Crores. Otherwise OPC need to be converted into Private Ltd Company.
> One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
> One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
This is Very concept of a separate legal entity being created for a perpetual succession that is continuation of the company even after the death or retirement of a member is also challenged. Because the nominee whose name has been mentioned in the memorandum of association will become the member of the company in the event of death of the existing member.
However it is doubtful that it would do any good for the company because the person is not being a member of the company and also not involved in the day to day operation of the company, would not be able to succeed the business after the death of the member.
Though the Act extends slew of exemptions to a One Person company in terms of conducting AGM, EGM, Quorum of meetings, restriction on voting rights or filing its financial statements, yet the incorporation of such a company requires lots of paper work as compared to a sole proprietorship. These procedural complexities with respect to incorporation of One Person Company might make this concept less attractive for sole entrepreneurs
Separation of Owner & Control
This is one of the characteristics of the company, which is seriously challenged by the new Companies Act ,2013, where the line between the ownership and control is blurred. Which might result in unethical business practices.
> A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
> NRIs not allowed incorporating One Person Company.
> Requirement to appoint a nominee for incorporating a One Person Company
Prior to the Companies Act, 2013, a company with minimum 2 members and 2 directors was supposed to be formed. Thus, One Person Company was not recognized in the 1956 Act. But, 2013 Act has given it OPCs a separate legal entity and other facilities which accompany separate legal entity. Other privileges like limited liability, separate property, perpetual succession, capacity to sue and be sues as an artificial person and few fundamental rights like Article 14 of the Constitution of India, 1950 as well.
Everything has its own criticisms as well. OPCs are criticized to be the possible way to tax evasion. As we have seen in the case of Sir Dinsha, in which Dinshaw was the maximum shareholder of the four companies and the main purpose for which the companies were incorporated was for tax evasion. In the case of OPCs, since there shall be only one shareholder, he shall invest in the company to evade tax and simultaneously earn profits from the company. There has to be a constant check on this aspect of OPCs.
In respect of OPC which is a completely new concept that is introduced by the Companies Act, 2013 is interlinked with other legislation like tax laws, GST regulations, Contract Act and many others. OPCs are private limited companies and also with single membership. In order to OPCs being recognized as single member company and not clubbed with other private limited companies, certain amendments have to be made to other legislations which are interlinked. Thus, OPCs are benefiting the Indian Society with their enormous remarkable features.
Q. What is a One Person Company(OPC) and how is it different from an ordinary private limited company?
One Person Company is a new type of business entity. A private limited company requires a minimum of two directors and shareholders. The directors and shareholders can be the same individuals. One person company does away with the requirement of a minimum of two shareholders. It allows a single entrepreneur to get his business registered as a company and get limited liability protection.
Q. Is there any tax advantage on forming an OPC?
There is no tax advantage to an OPC over Pvt Ltd or any other form of company. The tax rate is standard 30% for all forms of company. Other tax provisions are also identical, like MAT & Dividend Distribution Tax.
Q. What is the eligibility criteria for an member of OPC?
A person who is an Indian resident and an Indian Citizen living in India for 182 Days are eligible to incorporate an OPC. A person can incorporate only one OPC. If a person becomes a member or nominee of 2 or more 2 OPC’s, he has to resign from one of the OPCs within 182 days.
Q. Is stamp duty payable during incorporation process?
Yes, State Govt charges the Stamp duty for registering an O.P.C. in that particular state. The charges are on M.O.A., A.O.A. & form I.N.C. 32. These charges are all included in the incorporation cost.
Q. What is the minimum capital requirement to start an OPC?
One can start an OPC with any amount of authorised capital. No mandatory requirement for a minimum paid-up capital. Hence, you can begin as an OPC with a capital contribution as low as Rs. 2.
Q. What are the mandatory compliance that an OPC needs to observe?
The basic mandatory compliance are
👉 Maintenance of proper books of accounts
👉 Statutory audit of Financial Statements
👉 Filing of business Income tax return every year before 30th Sep
👉 Filing Annual ROC return which includes form MGT-7 - Statement of Disclosure of ShareHolders and Directors
Q. Do I need to be physically present during this process?
The (MCA) Ministry of Corporate Affairs has made the new OPC registration a completely online process. All the document flow happens in electronic form, and there is no need for any physical presence. Even the signatures are Digital.