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A new concept has been introduced in the Company’s Act 2013, about the One Person Company (OPC). In a Private Company, a minimum of 2 Directors and 2 Members are required whereas in a Public Company, a minimum of 3 Directors and a minimum of 7 members. A single person could not incorporate a Company previously.
One Person Company (OPC) is a company incorporated by a single person. Before the enforcement of the Companies Act, 2013, a single person could not establish a company. If an individual wanted to establish his business, he/she could opt only for a sole proprietorship as there had to be a minimum of two directors and two members to establish a company.
As per Section 2(62) of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member. It is a form of a company where the compliance requirements are lesser than that of a private company.
The Companies Act, 2013 provides that an individual can form a company with one single member and one director. The director and member can be the same person. Thus, one person company means one individual who may be a resident or NRI can incorporate his/her business that has the features of a company and the benefits of a sole proprietorship.
The OPC receives a separate legal entity status from the member. The separate legal entity of the OPC gives protection to the single individual who has incorporated it. The liability of the member is limited to his/her shares, and he/she is not personally liable for the loss of the company. Thus, the creditors can sue the OPC and not the member or director.
Since OPC is a private company, it is easy to go for fundraising through venture capitals, angel investors, incubators etc. The Banks and the Financial Institutions prefer to grant loans to a company rather than a proprietorship firm. Thus, it becomes easy to obtain funds.
The Companies Act, 2013 provides certain exemptions to the OPC with relation to compliances. The OPC need not prepare the cash flow statement. The company secretary need not sign the books of accounts and annual returns and be signed only by the director.
It is easy to incorporate OPC as only one member and one nominee is required for its incorporation. The member can be the director also. The minimum authorised capital for incorporating OPC is Rs.1 lakh but there is no minimum paid-up capital requirement. Thus, it is easy to incorporate as compared to the other forms of company.
Since a single person can establish and run the OPC, it becomes easy to manage its affairs. It is easy to make decisions, and the decision-making process is quick. The ordinary and special resolutions can be passed by the member easily by entering them into the minute book and signed by the sole member. Thus, running and managing the company is easy as there won’t be any conflict or delay within the company.
The OPC has the feature of perpetual succession even when there is only one member. While incorporating the OPC, the single-member needs to appoint a nominee. Upon the member’s death, the nominee will run the company in the member’s place.
OPC is suitable for small business structure. The maximum number of members the OPC can have is one at all times. More members or shareholders cannot be added to OPC to raise further capital. Thus, with the expansion and growth of the business, more members cannot be added.
The OPC cannot carry out Non-Banking Financial Investment activities, including the investments in securities of anybody corporates. It cannot be converted to a company with charitable objects mentioned under Section 8 of the Companies Act, 2013.
Since the sole member can also be the director of the company, there will not be a clear distinction between ownership and management. The sole member can take and approve all decisions. The line between ownership and control is blurred, which might result in unethical business practices.
The first step is to obtain the Digital Signature Certificate (DSC) of the proposed Director which required the following documents:
Once the Digital Signature Certificate (DSC) is made, the next step is to apply for the Director Identification Number (DIN) of the proposed Director in SPICe Form along with the name and the address proof of the director. Form DIR-3 is the option only available for existing companies. It means with effect from January 2018, the applicant need not file Form DIR-3 separately. Now DIN can be applied within the SPICe form for up to three directors.
The next step while incorporating an OPC is to decide on the name of the Company. The name of the Company will be in the form of “ABC (OPC) Private Limited”.
The name can be approved in the Form SPICe+ 32 application. Only one preferred name along with the significance of keeping that name can be given in the Form SPICe+ 32 application. If the name gets rejected, another name can be submitted by applying another Form SPICe+ 32 application.
Once the name is approved by the MCA we move on to the next step.
We have to prepare the following documents which are required to be submitted to the ROC:
All these documents will be attached to the SPICe Form, SPICe-MOA and SPICe-AOA along with the DSC of the Director and the professional, and will be uploaded to the MCA site for approval. The Pan Number and TAN is generated automatically at the time of incorporation of the Company. There is no need to file separate applications for obtaining PAN Number and TAN.
On verification, the Registrar of Companies (ROC) will issue a Certificate of Incorporation and we can commence our business.
The DSC and DIN of the proposed directors can be obtained in 1 day. The Certificate of Incorporation of an OPC is obtained in 3-5 days. The whole incorporation process of an OPC takes approximately 10 days, subject to departmental approval and revert from the respective department.
Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC. For the above purpose, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one financial year.
A person can be a member of only one OPC.
There is no specific tax advantage to an OPC over any other form. The tax rate is flat 30%, other tax provisions like MAT & Dividend Distribution Tax applies as they apply to any other form of company.
In case the paid-up share capital of an OPC exceeds fifty lakh rupees or its average annual turnover of immediately preceding three consecutive financial years exceeds two crore rupees, then the OPC has to mandatorily convert itself into a private or public company.
The basic mandatory compliance comprise:
A minor, a foreign citizen, a Non-Resident, and any person incapacitated by contract will not be eligible to become a member.
Mandatory conversion of One Person Company (OPC) to Private Limited Company (PLC) is required in case a One Person Company meets certain parameters such as:
In the above case, the One Person Company shall be mandatorily required to convert itself into either a private or a public company within a period of six months. In this article, we also look at the procedure for conversion of One Person Company into a private limited company or limited company.