This Blog is written by Deepika Muthukrishnan.
Introduction
In recent years, One Person Company (OPC) has emerged as a popular choice for individuals looking to establish their own businesses. A One Person Company (OPC) is a type of company that allows a single entrepreneur to establish and operate a company with limited liability. There are many advantages for business owners who take up OPC. This means that the owner’s personal assets are protected from any liabilities that the company may incur. One Person Company (OPC) in India is a type of Private Company that can be incorporated with only one person as a shareholder and a director. The concept of OPC was introduced in the Companies Act, 2013 to encourage solo entrepreneurs and startups to register their own company without requiring two or more persons to form a Private Limited Company.
Understanding One Person Company (OPC)
An OPC is a business structure that allows a single person who is a sole proprietor to operate a company as both the shareholder and director. This legal structure combines the benefits of limited liability with the simplicity of a sole proprietorship. The advantages of choosing an OPC as your business structure include limited liability, legal recognition, and ease of compliance. However, it’s essential to be aware of potential drawbacks, such as limited scope for equity funding and certain restrictions. An OPC (One Person Company) in India can be registered and operated by an Indian citizen who meets the eligibility criteria, including being a resident of India and fulfilling other requirements as per the Companies Act 2013.
An OPC allows a single individual to establish and manage a company, combining the benefits of limited liability with the simplicity of a sole proprietorship. As per the Companies (Incorporation) Second Amendment Rules 2021, Non-Resident Indians (NRIs) can now register an OPC (One Person Company) in India. This amendment has opened up new opportunities for NRIs who wish to invest in and start their own business in India. The NRIs should follow the same registration process and provide the necessary documents required for OPC registration in India. However, it is important to note that the NRI should have a valid Indian address for the registration of OPC in India as per the clarification issued by the Ministry of Corporate Affairs.
Eligibility Criteria for OPC Registration
In India, OPCs were introduced under the Companies Act, 2013. They are suitable for small businesses and start-ups that are run by a single person. To register an OPC in India, the following requirements need to be fulfilled:
– Only a natural person, i.e., an individual, can register as an OPC. No other legal entities, associations of persons, or artificial persons are allowed
– The company must have only one director and one shareholder
– The shareholder and director can be the same person
– The company must have a registered office address
– The minimum authorized capital of Rs.1 lakh should be there, but there is no minimum paid-up capital requirement
– The company must file its annual returns and financial statements with the Registrar of Companies (ROC)
– The sole director of the OPC must be a resident of India. This means the person should have stayed in India for at least 182 days in the immediately preceding financial year
– The law restricts an individual from being a member or nominee of more than one OPC at any given time
Documents needed for the registration of an OPC
– Identity proof and address proof of the proposed director or shareholder, a PAN card or passport In the case of NRIs and foreign nationals
– Proof of Registered office of the company, proof of ownership
– No objection Certificate (NOC) from the owner of the registered office, if rented
– Memorandum of Association (MOA) of the company
– Articles of Association (AOA) of the company
– PAN Card of the proposed director or shareholder
– A passport, Voter ID, and a driver’s license in scanned form
– Most recent gas or energy bill, bank statement, mobile phone bill, or landline bill
– Signature on a specimen Passport-size photograph
– The documentation has to be self-attested.
The Incorporation Process
The incorporation/registration process involves obtaining a Director Identification Number (DIN) and Digital Signature Certificate (DSC) for the director, obtaining the name approval, preparing the relevant documents, and filing them with the ROC. The registration process for an OPC involves several crucial steps:
SPICe+ Form
In India, the registration procedure of a One Person Company (OPC) has become more convenient and streamlined with the introduction of the Form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus). This comprehensive form replaces several previous forms and allows entrepreneurs to register an OPC efficiently.
The Form SPICe+ is an electronic form designed to facilitate the incorporation of companies in India. It is particularly useful for OPC registration. The form is available for online filing through the Ministry of Corporate Affairs (MCA) portal. It consists of two main parts:
Part A: This section serves two primary purposes:
- Company Name Approval. Apply for name reservations through the RUN service. Ensure that the name is unique and complies with the naming guidelines. Choosing a unique name for your OPC is crucial. You can reserve it through the RUN (Reserve Unique Name) service, ensuring it adheres to naming guidelines.
- Director Identification Number (DIN) or Permanent Account Number (PAN) and Digital Signature Certificate (DSC). Part A also includes the application for DIN or PAN for the proposed director of the OPC. DIN is essential for any individual looking to become a director in a company, while PAN is necessary for taxation purposes. Obtain the Director Identification Number (DIN) and Digital Signature Certificate (DSC) for the director. Any individual who is proposed to be appointed as a director of a company, whether an existing company or a new company, needs to apply for DIN using Form DIR-3.
Part B: This section focuses on providing essential incorporation-related details. It includes:
- Proof of Registered Office Address. Specify the address where the registered office of your OPC will be located. This address is important for legal correspondence.
- Share Capital. Indicate the share capital of the OPC, including the number of shares and their value.
- Details of the Director. Provide comprehensive details of the director, including their name, address, DIN or PAN, and other relevant information.
- Details of the Shareholder. Include the details of the shareholder, who is typically the same as the director in an OPC.
Step-by-step process of registering an OPC using the SPICe+ form – Registration procedure
1. Preparation of Documents:
Before you begin, ensure that you have all the necessary documents ready, including the Memorandum of Association (MOA), Articles of Association (AOA), and consent to act as a director (Form INC-9). Given that an OPC has only one director and member, it’s a requirement to designate a nominee. This nominee’s role comes into play if the director faces incapacity or passes away, preventing them from fulfilling their duties. In such cases, the nominee steps in to assume the director’s responsibilities. To formalize this arrangement, the nominee’s consent, supported by their PAN card and Aadhar Card, is obtained using Form INC-3.
2. Part A Filing:
Start by filing Part A of the SPICe+ form online. This involves applying for the approval of your company name and obtaining a DIN or PAN for the proposed director. Pay the applicable fees for name reservation and DIN or PAN application.
A Director Identity Number (DIN) is a unique identification number for company directors. Here’s how to obtain one:
– File the e-form DIR 3 or apply for DIN through the SPICe+ form. SPICe+ allows a maximum of 3 directors to apply for DIN. Any individual who is proposed to be appointed as a director of a company, whether an existing company or a new company, needs to apply for DIN using Form DIR-3. Form DIR-3 can be filed electronically on the Ministry of Corporate Affairs (MCA) portal. The form is typically processed by the Central Government upon submission, and the DIN is issued if the application is approved.
– It is important to note that a single Director Identification Number (DIN) can serve as a director in multiple companies. There is no restriction on the number of businesses that a director can serve in with one DIN.
A Digital Signature Certificate (DSC) is essential for verifying and attesting electronic documents. Follow these steps to obtain one:
– Choose a Class 2 or Class 3 DSC issued by a Government Certifying Agency (CA).
You can either opt for Aadhar e-KYC-based verification by approaching Certified Authorities (CAs), or submit supporting documents such as proof of identity, address proof, and PAN to complete the verification process.
– DSCs typically have one or two-year validity and are mandatory for witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
3. Name Approval:
Wait for the approval of your company name. Once approved, you’ll receive an email notification, and the name will be reserved for you.
To reserve a name for your OPC, follow these steps:
Use the SPICe+ 32 application form for name reservation.
Specify one preferred name along with the reason for choosing it.
4. Part B Filing:
After name approval, proceed with Part B of the SPICe+ form. Fill in the incorporation-related details, including the registered office address, share capital, and director/shareholder information.
5. Document Upload:
Once your chosen name is approved, proceed with company registration using the SPICe form. Submit it on the Ministry of Corporate Affairs (MCA) portal along with the following documents:
- Memorandum of Association (MOA)
- Articles of Association (AOA)
Upload the required documents, including the MOA, AOA, and consent to act as a director (Form INC-9).
6. Payment of Fees:
Pay the prescribed incorporation fees based on the share capital and other factors. The payment can be made online.
7. Verification:
Review the information entered in the SPICe+ form carefully and ensure accuracy. Any discrepancies or errors can lead to delays in the registration process.
8. Submission:
Once you are satisfied with the details and documents, submit the SPICe+ form electronically through the MCA portal.
9. Incorporation Certificate:
Upon successful verification by the Registrar of Companies (ROC), you will receive the Certificate of Incorporation for your OPC. This marks the official registration of your company.
Post-Incorporation Formalities
After OPC registration, there are post-incorporation formalities to consider:
PAN and TAN. Apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) to guarantee adherence to tax regulations and separate applications are not required. PAN and TAN are generated automatically at the time of incorporation.
Bank Account Opening. Open a separate bank account for your OPC, keeping business finances separate from personal finances.
Annual Compliance. Fulfill annual compliance requirements, including filing financial statements and annual returns, to maintain your OPC’s legal status.
As per the provisions of the Companies Act, 2013, a One Person Company (OPC) is required to convert itself into a Private Limited Company if it crosses a certain threshold of paid-up capital or turnover. According to the rules, an OPC shall be converted into a Private or Public Limited Company if:
– Its paid-up share capital exceeds Rs. 50 lakhs
– Its average annual turnover during the relevant period exceeds Rs. 2 crores. The relevant period is the immediately preceding three consecutive financial years. If the OPC crosses any of the above-mentioned thresholds, it shall be required to file the necessary forms with the Registrar of Companies for conversion into a Private or Public Limited Company within a period of 60 days from the date on which the thresholds are crossed.
Board Meetings
One Person Company (OPC) is required to hold at least one board meeting in each half of a calendar year, with a gap of at least 90 days between two board meetings. In other words, an OPC must hold at least two board meetings in a calendar year. The board meeting can be conducted through physical presence or video conferencing. However, if the OPC has only one director, then board meetings are not necessary. Instead, the decisions can be taken by the sole director through a resolution entered in the minute book and signed and dated by the director. The board meeting agenda must be given to all the directors at least seven days before the date of the meeting.
The minutes of the meeting must be prepared and signed by the chairperson of the meeting or by the director authorized by the chairperson. The minutes must be entered in the minutes book of the company and must be signed and dated by the chairperson of the meeting or by the director authorized by the chairperson. Non-compliance with board meeting requirements may result in penalties and fines. Therefore, it is important to adhere to the rules and regulations regarding board meetings in OPC.
Advantages of OPC
One Person Company (OPC) is a popular type of business structure in India due to its numerous advantages, some of which are:
1. Limited Liability:
The biggest advantage of OPC is that it offers limited liability to the owner, which means the personal assets of the owner are not at risk in case of company liabilities.
2. Separate Legal Entity:
OPC gets a separate legal entity status from its owners, which means it can enter into contracts, acquire assets, and carry out business activities in its own name.
3. Easy to Set Up:
OPC can be easily set up with a single person, and the registration process is simple compared to other business structures. No minimum capital requirement. Authorized Capital of Rs.1 lakh
4. Perpetual Succession:
Perpetual succession in the context of an OPC implies that the company maintains its existence, enduring even in situations where the owner or promoter passes away or decides to resign.
5. Better Credibility:
OPC is a registered company and enjoys better credibility with its customers, vendors, and financial institutions. Since there is only one person, the decision-making process is quick.
6. Lesser Compliance:
OPC is subject to fewer compliance requirements and regulations compared to other companies, which reduces the cost and time involved in complying with various legal formalities i.e. there are certain exemptions in relation to compliance in the case of OPC. The requirement for the company secretary to sign the books of accounts and annual returns is not mandatory; these documents can be signed solely by the director. Additionally, there is no obligation for the company secretary to prepare a cash flow statement.
7. Tax Advantages:
OPC enjoys various tax benefits, including lower tax rates and deductions for business expenses, which is beneficial for the owner’s personal income tax returns.
Overall, OPC is an ideal choice for small businesses and entrepreneurs looking for a structure that offers limited liability, easy setup, minimal compliance, and better credibility.
Sole Proprietorship Firm v. One Person Company
Sole Proprietorship Firms and One Person Companies are two different types of business structures. OPC is a separate legal entity and is registered with the ROC, while Sole Proprietorship has no formal registration requirements. OPC offers protection against limited liability and is governed by the Companies Act, 2013, while Sole Proprietorship is simpler to set up and manage but offers no protection against limited liability. The choice between them depends on various factors such as the size and nature of the business. Professional advice should be sought before making a decision.
Conclusion
Registering a One Person Company (OPC) in India has been simplified and streamlined through the SPICe+ form, which consolidates various registration processes into one. Thus, it is easy to incorporate as compared to the other forms of company and it also provides limited liability protection. By following the steps outlined in this guide and ensuring compliance with all regulatory requirements, you can successfully register your OPC and embark on sole proprietors’ entrepreneurial journey with the assurance of limited liability protection and legal recognition. It’s advisable to seek professional guidance when needed to ensure a smooth registration process and ongoing compliance with legal obligations. With determination and the right foundation, your OPC can flourish and help you achieve your business goals.
