One Person Company Registration

Advantages Of OPC:

• 1. Independent Legal Status:

  The OPC is granted a separate legal entity status, providing protection to the individual who incorporates it. The member's liability is limited to their shares, shielding them from personal liability for the company's losses. Consequently, creditors can only sue the OPC and not the member or director.

• 2. Easy Fundraising:

  Being a private company, the OPC can easily raise funds through avenues such as venture capitalists, angel investors, and incubators. Banks and financial institutions are more inclined to grant loans to companies rather than proprietorship firms, making it easier for the OPC to obtain funds.

• 3. Reduced Compliance Burden:

  The Companies Act, 2013 grants certain exemptions to the OPC regarding compliance requirements. For instance, the OPC is not obligated to prepare a cash flow statement, and the company secretary does not need to sign the books of accounts and annual returns. These tasks can be accomplished solely by the director, simplifying the compliance process.

• 4. Simple Incorporation:

  OPCs can be incorporated with just one member and one nominee. The member can also serve as the director. While a minimum authorized capital of Rs. 1 lakh is required, there is no minimum paid-up capital requirement. Consequently, OPCs are easier to incorporate compared to other forms of companies.

• 5. Easy Management:

  The ability for a single person to establish and run an OPC ensures streamlined management. Decision-making processes are quicker, and the member can easily pass ordinary and special resolutions by recording them in the minute book and signing them personally. This eliminates internal conflicts and delays, making the company easy to manage.

• 6. Perpetual Succession:

  Despite having only one member, the OPC enjoys the benefit of perpetual succession. During incorporation, the member appoints a nominee who will take over the company's operations in the event of the member's death.

Disadvantages Of OPC:

• 1. Limited for Small Businesses:

  OPCs are suitable primarily for small business structures. The maximum number of members allowed in an OPC is always one, and additional members cannot be added to raise further capital as the business expands and grows.

• 2. Business Activity Restrictions:

  OPCs are prohibited from engaging in non-banking financial investment activities or making investments in securities of other corporate entities. Additionally, they cannot be converted into companies with charitable objectives under Section 8 of the Companies Act, 2013.

• 3. Ownership and Management Overlap:

  Since the sole member can also be the director, there is a lack of clear distinction between ownership and management in OPCs. This blur in roles may lead to unethical business practices, as the sole member has the authority to make and approve all decisions without checks and balances.

Frequently Asked Questions (FAQ):

1. Who is eligible to be a member of a One Person Company (OPC)?

Only an Indian citizen who is a natural person and resides in India is eligible to act as a member and nominee of an OPC. "Resident in India" refers to a person who has stayed in India for at least 182 days during the preceding financial year.

2. Can a person be a member of more than one OPC?

No, a person can be a member of only one OPC.

3. Are there any tax advantages to forming an OPC?

An OPC does not have any specific tax advantages compared to other types of companies. The tax rate is a flat 30%, and general tax provisions like Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) apply, just as they do to any other company.

4. Is there a threshold limit for an OPC to be mandatorily converted into a private or public company?

No, the requirement for compulsory conversion of an OPC upon exceeding the minimum paid-up capital and average annual turnover was removed in the Companies (Incorporation) Second Amendment Rules, 2021. Therefore, currently, an OPC is not required to convert into a private or public company based on an increase in its paid-up capital and average annual turnover.

5. What are the mandatory compliance requirements for an OPC?

The basic mandatory compliance for an OPC includes:

• Holding at least one Board Meeting in each half of the calendar year, with a minimum time gap of 90 days between the two meetings.
• Maintaining proper books of accounts.
• Conducting a statutory audit of financial statements.
• Filing business income tax returns annually before September 30th.
• Filing Financial Statements in Form AOC-4 and ROC Annual Return in Form MGT 7.

6. Who cannot form an OPC?

Minors, foreign citizens, non-residents, and individuals incapacitated by contract are not eligible to become members of an OPC.

7. How can I convert an OPC into a Private Limited Company?

An OPC can be voluntarily converted into a private limited company by passing a special resolution and increasing the minimum number of members and directors to two. Additionally, a written No Objection Certificate (NOC) must be obtained from creditors for the conversion. You can click here to learn more about the conversion process.

Disclaimer:

The information provided here is for informational purposes only. Accessing or using the site or the materials does not create an attorney-client relationship. The information presented on this site should not be considered legal or professional advice and should not be relied upon as a substitute for advice from a licensed attorney in your state.