In this article, we will discuss One Person Company.
The concept of One Person Company (OPC) was introduced in India to encourage sole proprietors to run their businesses with a corporate entity having few legal requirements. An OPC is owned by a single person having a separate legal entity than its owner. In other words, in case of loss, the personal assets of the owner shall not be used to pay off liabilities of the OPC. However, if the owner commits a criminal act then they may be held personally liable for the OPC’s debt or loss. The OPC form of business entities enjoys various relaxations from the government in respect to general meetings, board meetings, and other compliances.
Ownership & Profit-Sharing
In an OPC, a single individual is the owner of the business. Therefore, a single person has control over the assets and is entitled to receive all the profits generated by the company.
An OPC does not have any minimum capital requirement. However, a nominal amount is required.
An OPC is a separate legal entity from its owner which limits the liability of its owner.
Incorporating an OPC is easy. There are a few simple regulatory compliances that have to be fulfilled to incorporate the entity.
Advantages and Disadvantages of OPC
|1.||Separate Legal Entity||Limited Business Activities|
|2.||Easy to Obtain Loans||Not Suitable for Large – High Risk Business|
|3.||Basic Compliances||No Clear Distinction Between Ownership and Management|
|4.||Quick Incorporation||Not Investor-Friendly|
|5.||Ease of Business Administration||Higher Tax Requirements*|
|6.||Perpetual Succession||*in Comparison to a Sole Proprietorship|
Suitability of One Person Company
One Person Company (OPC) form of business organisation is suitable only for small businesses that have a maximum paid-up share capital of INR.50 Lakhs or a Turnover of INR. 2 Crores.
Non-Suitability of One Person Company
OPC form of business organisation is not suitable where:
- Business exceeds Paid up share capital of Rs.50 Lakhs or a Turnover of Rs.2 Crores
- Business is related to carrying out Non – Banking Financial Investment activities including investment in securities of any other corporate entity, and
- Charitable Trust
Eligibility Criteria for OPC Registration
The following are the eligibility guidelines for registration of OPC:
- Only a person who is a citizen of India and resident in India
- Legal entities like companies or LLP cannot form an OPC
- A nominee must be appointed during the incorporation process
- A minor cannot become a member of the OPC
Documents required for One Person Company
An OPC form of the business organisation requires the following documents:
- PAN card of sole member
- Passport size photograph of the sole member
- Aadhar Card
- Rent Agreement (If rented property)
- Electricity/ Water Bill (Office)
- Property Title Deed (If owned property)
- Landlord NOC (In the specific format)
- Director Consent Form (Form DIR 2)
Every OPC engaged in the business of inter-state supply of goods and services is mandatorily required to obtain registration under GST. However, in case the OPC has an intra-state business then there are no mandatory requirements to get registered unless they fall in the registration bracket.
Checklist for obtaining OPC Registration
The following requirements have to be fulfilled to obtain OPC registration:
- Minimum and maximum of one member.
- A nominee should be appointed during incorporation.
- Consent of the nominee should be obtained in Form INC-3.
- The name of the OPC must be selected as per the provisions of the Companies (Incorporation Rules) 2014.
- DSC of the proposed director.
- Proof of registered office address of the OPC.
Post Registration Compliance Requirements of OPC
The OPC form of business requires the following Post Registration compliance:
- At least one Board Meeting in each half of the calendar year and the time gap between the two Board Meetings should not be less than 90 days.
- Maintenance of proper books of accounts.
- Statutory audit of Financial Statements.
- Filing of income tax returns every year before 30th September.
- Filing of Financial Statements in Form AOC-4 and ROC Annual Return in Form MGT-7.
Choosing the ideal legal entity for your business should be done in consultation with a legal professional. Your Virtual Legal Counsel can guide you to set up the most preferred legal entity for your business. Your Virtual Legal Counsel will work with you as a partner in incorporating and protecting your business. Schedule a meeting with YVLC to discuss the ideal structure for your business to set up in India.