Starting a business is a very exciting process but same time it is very challenging journey as well. For entrepreneurs who wish to operate independently while enjoying the benefits of limited liability, One Person Company (OPC) is an excellent option. It introduced under the Companies Act, 2013 in India, OPC allows a single individual to form a company without the need for multiple directors or shareholders. This guide provides a detailed overview of one person company registration, its benefits, process, compliance requirements, and key considerations.
What is a One Person Company (OPC)?
A One Person Company (OPC) is a company incorporated with a single shareholder who also acts as the director. Unlike a sole proprietorship, OPC offers a clear legal distinction between the business and the owner; both the identity has different roles and liabilities, ensuring limited liability protection. The One-person company structure is ideal for small entrepreneurs who want to operate the business independently while benefiting from a corporate framework.
Benefits of One Person Company
- Limited Liability Protection: The liability of the shareholder is limited to the amount invested in the company.
- Separate Legal Entity: OPC has a distinct legal identity, making it easier to raise funds and enter into contracts.
- Easy Compliance: Compared to private limited companies, OPCs have fewer compliance requirements.
- Perpetual Succession: The business continues even after the demise of the owner, as a nominee takes over.
- Increased Credibility: An OPC has the higher credibility ability as compared to sole proprietorships when dealing with banks, vendors, and clients.
- Tax Benefits: OPCs enjoy tax deductions on business expenses and other exemptions available to companies.
Eligibility Criteria for OPC Registration
Before registering an OPC, ensure you meet the following eligibility criteria:
- The owner must be an Indian citizen and a resident of India.
- Only one shareholder is allowed.
- A nominee must be appointed in case of the owner’s demise or incapacitation.
- The company cannot be engaged in non-banking financial investment activities.
- OPCs cannot be converted into Section 8 (non-profit) companies.
Documents Required for OPC Registration
To register an OPC, the following documents are required:
For the Director and Nominee:
- PAN Card
- Aadhaar Card
- Passport-sized photographs
- Address proof (bank statement/utility bill)
- Digital Signature Certificate (DSC)
For the Registered Office:
- Rental agreement (if the office is rented)
- No Objection Certificate (NOC) from the owner
- Utility bill (electricity/water bill)
Step-by-Step Process for OPC Registration in India
Step 1: Obtain a Digital Signature Certificate (DSC)
First, you need to initiate the registration process by acquiring a DSC for the proposed director. The DSC is essential for filing online forms with the Ministry of Corporate Affairs (MCA).
Step 2: Application for Director Identification Number (DIN)
The Director Identification Number (DIN) is required for the proposed director. It can be obtained by filing the essential, which is Form DIR-3, with the MCA, along with identity and address proofs as prescribed.
Step 3: Name Reservation with RUN Application
The proposed company name must be unique and should not be similar to any existing business entity. The name reservation application is filed using the Reserve Unique Name (RUN) service provided by the MCA.
Step 4: Drafting of Memorandum and Articles of Association
The Memorandum of Association and Articles of Association define the company’s objectives and operational framework. These documents must be drafted and signed by the sole member.
Step 5: Filing Incorporation Application (SPICe+ Form)
The SPICe+ (Simplified Proforma for Incorporating Company Electronically) is a required form to fill which is used for company registration. This integrated form facilitates:
- Company incorporation
- PAN and TAN registration
- GST registration (if applicable)
Step 6: Payment of Registration Fees
The fee for the registration must be paid which is based on the company’s authorized capital in the prescribed manner.
Step 7: Verification and Approval
Once submitted, the MCA verifies the application and, upon approval, issues the Certificate of Incorporation (COI), marking the legal existence of the OPC.
Post-Incorporation Compliance Requirements
After incorporation, OPCs must comply with certain legal and compliance obligations:
1. Appointment of Auditor
An auditor needs to be appointed within duration of 30 days of incorporation as per procedure provided under the Companies Act, 2013.
2. Annual Filings
- Financial Statements: OPCs must file the financial statements with required details with the Registrar of Companies (ROC) on the annually basis.
- Annual Returns: Form MGT-7A must be filed annually.
3. Income Tax Filings
- OPCs must file income tax returns (ITR-6) by September 30 of the assessment year.
- GST returns must be filed if GST registration is applicable.
4. Board Meetings
Although OPCs do not require frequent board meetings, at least one board meeting must be conducted every six months.
5. Statutory Compliance
- Maintain proper books of accounts.
- Adhere to tax laws and GST regulations.
- Ensure timely filing of regulatory forms and reports.
Conversion of OPC to Other Business Structures
A One-person company can be converted into a private limited or public limited company after fulfilling certain conditions:
- The company’s paid-up capital exceeds INR 50 lakh.
- The company’s average annual turnover exceeds INR 2 crore for three consecutive years.
- A voluntary conversion can be done after two years of incorporation.
Conversion Process:
- Pass a board resolution for conversion.
- File necessary forms with the MCA, including INC-5 and INC-6.
- Obtaining approval from the Registrar of Companies (ROC) is a very important element in the process of conversion.
- Comply with regulatory requirements for the new company structure.
Challenges of One Person Company
While OPCs offer various benefits, they also have certain limitations:
- Limited Fundraising Options: Unlike private limited companies, OPCs cannot issue shares to multiple investors.
- Restriction on Business Activities: OPCs are restricted from engaging in certain financial and investment activities as per the regulations provided under the Company’s Act.
- Higher Compliance Costs than Sole Proprietorship: OPCs require compliance with company law regulations, leading to increased costs.
- Nominee Requirement: The mandatory nominee requirement can be a curb for some business owners as per the requirement of the particular business.
Conclusion
One Person Company (OPC) is an ideal business structure for solo entrepreneurs seeking a corporate identity with limited liability. The registration process is straightforward, and the benefits outweigh the challenges for many small business owners. By adhering to the compliance requirements as per the company’s Act and considering future expansion plans, OPCs can successfully operate and scale their businesses in a structured manner with a smooth and hassle-free manner.
If you’re a solo entrepreneur looking to establish your business, OPC registration is a great way to start your journey with legal security and credibility. It is always advisable to consult with the professional to get the better understanding regarding the process, so that you can take the wise decision.
