One Person Company (OPC) is a separate business entity in which there is only one owner with limited liabilities, who can act both as a shareholder as well as the director.
One Person Company Registration (OPC) is a new concept in India introduced with the Companies Act 2013. Before the One Person Company was introduced, an individual could not establish a company, rather he/she could opt only for the Sole proprietorship firm. Through the enforcement of the Companies Act, it is possible now to form a company with one single number. Here an individual can be a resident or non-resident Indian to register an OPC in India.
The One Person Company primarily fixes the limitations of the Sole Proprietorship and gives the benefits of the Company without needing a host of employees, thus the person is liable only to the amount he has invested in. As per Section 2(62) of the Company’s Act 2013, an OPC company can be formed with one Director and one member. OPC is a form of a company where the compliance requirements are lesser than a private company.
Process for One Person Company Registration:
- Digital Signature Certificate:
The first step is to obtain the Digital Signature Certificate (DSC) of the proposed Director with the following documents required to submit at Certified Authority:
- Pan card
- Aadhar card
- Address proof
- Phone number
- Email ID
- Apply for Digital Identification Number (DIN):
Once the Digital Signature Certificate (DSC) is received, the next step is to apply for the Director Identification Number (DIN) of the proposed Director in SPICe Form and supply the Address proof and ID proof of the director. Form DIR3 is only meant for companies that already exist. DIN number can be applied within the SPICe form for up to 3 directors.
- Apply for name approval:
After getting the DSC and DIN, the approval of the name has to be obtained. The name of your company will follow the format of [Name] (OPC) Private Limited. You can either get the name approved while filling out the SPICe form or through the RUN service that is available on the Ministry of Corporate Affairs (https://www.mca.gov.in/) website. The preferred name has to be submitted, along with a few other name options. Once you receive the approval, you can move on with further steps.
- Required Documents:
- The Memorandum of Association (MOA), this document highlights the objectives that the company aims to follow
- The Articles of Association (AOA), this document highlights the by-laws within which the company plans to operate
- Since there is 1 person and 1 director in OPC, a nominee on behalf of such a person has to be appointed, in case something unfortunate happens or becomes incapacitated. The nominee must offer their consent in form INC-3 and submit his/her PAN and Aadhar card
- Proof of ownership along with the proof of registered office of the proposed company, and a NOC from the owner
- Consent and an affidavit of Form INC-9 and DIR-2 from the proposed Director
- A declaration that certifies that all the compliances have been made.
- Filing Forms with MCA:
All the documents will be attached in the SPICe Form, The MoA and the AoA must be uploaded on the MCA site for approval.
- Issue of the Certificate of Incorporation:
Upon verification, the Registrar of Companies (ROC) will issue a Certificate of Incorporation and commence the business.
Benefits of One Person Company Registration:
Separate legal entity: One Person Company is a separate legal entity and capable of doing everything that an entrepreneur would do.
Limited Liability: Since the liability of the One Person Company is limited to the shares they hold, the individual could take more risk in business without affecting or suffering the loss of personal assets. It is a good encouragement to new, young, and innovative start-ups.
Fundraising: OPC Company can avail of the various benefits provided to Small Scale businesses like a lower rate of interest on loans, easy funding from banks without depositing any security to a certain limit.
Less Compliance: OPC has to face little compliances as compared to private limited companies and therefore it can focus more on the niche they belong to improve.
Quicker Actions: As there is only one person to take and decide on actions and management of the business, the turnaround time is much faster and the execution can be done soon too.
Easy incorporation: It is easy to incorporate OPC Company as only one member and one nominee are required for its incorporation.
Company taxation – The One person company (OPC) is registered as a private limited company, thus, taxed under the income tax act for private companies. The Income Tax is 30% of profits.
Disadvantages of One Person Company Registration :
- High Tax Rate:
As a corporate form, one cannot avail the tax slab advantage. In the one Person Company, you are directly charged 30% income tax whereas in Proprietorship Company the tax is based on salary. The high tax rate is a big disadvantage of an OPC company.
- Consistency Cost:
Compliance cost of One Person Company is high whereas proprietorship firms don’t need to register with the government and hence do not pay the incorporation charges.
- Higher compliance costs:
An OPC company incurs a compliance costs yearly, as compared to the proprietorship, to get its accounts audited and file the returns every financial year with the Registrar of Companies (ROC) like any other corporate entity.
- Need for Change:
One person Company will only support small businesses. If turnover crosses Rs. 2 crores, on average, for three consecutive years, the OPC must be converted to a private limited company, public limited company or LLP in the given limited time.
- One Person Management:
A shareholder is one, and that person makes all the decisions. Thus the company’s success and growth are all dependent on one person’s decision-making ability. This sometimes the line between the ownership and control is thus blurred which results in unethical business practices
To conclude, there are two major factors to be kept in mind while registering an OPC. The OPC has got straight tax slab of 30%, as same as a private limited firm, which is the biggest demerit of an OPC. The most significant merit of a One Person Company is the limited liability. Thus an OPC would better suit only for Small business and those have the highest turnover on scale, it better to opt for Private Ltd option.
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