If you are a person who wants to set up or run your business all alone, then there are two business vehicles available. One is the traditional mode i.e. sole proprietorship and another is one person company (OPC). Sole proprietorship model comes with lots of drawbacks such as Unlimited Liability, no separate entities, higher tax rates, etc. Due to these negatives, OPC is one of the most opted forms of business as it gives all benefits of a private company such as limited liability, separate legal entity, better recognition, legal protections, more market accessibility, credits, etc.
In India, now OPC is being adopted by many young entrepreneurs since it is easy to incorporate with lesser capital and formalities.
However, since it is an artificial person coming into existence, therefore, all legal provisions need to be taken care of. This piece of write-up will guide you about the features of OPC, the incorporation process of OPC, and the relaxations available to OPC.
1. Features of One Person Company
- One member: The biggest feature of OPC is one member. OPC structure allows a natural person to incorporate a company as against minimum 2 or 7 members required in case of a private or a public company.
A natural person can be a resident of India or may be from out of India. The term resident means a person who has stayed in India for a period of not less than 120 days during the immediately preceding one calendar year.
- Minimum and maximum number of directors: Unlike private or public companies, An OPC can have only 1 director. Therefore, the shareholder can himself hold the post of director. However, the threshold limit of a maximum number of directors is the same as private or public companies, i.e., 15.
- One nominee: A single shareholder shall nominate another person who will become the shareholder in case of death/incapacity of the original shareholder. Such nominee shall become a member of the OPC, shall be entitled to the shares of OPC and he shall bear all liabilities of OPC.
A nominee is required to give his/her consent in Form INC-3 for being appointed as the nominee for the sole shareholders.
- Status of OPC: An OPC is incorporated as a private limited company, however, every OPC is required to mention the word “OPC” in its name.
- Two OPCs by one member: A single shareholder can incorporate one OPC only and is not allowed to incorporate more than one OPCs. Moreover, a single person cannot become a nominee in more than one OPC
- No minimum share capital: Every Private company is required to have a minimum paid-up share capital of INR 1 Lacs and public company is required to have a minimum paid-up share capital of INR 5 Lacs. However, there is no mandatory paid-up share capital required for OPC.
Further, if paid-up capital exceeds Rs. 50 lakh, OPC must mandatorily convert to a private limited company.
2. Incorporation of One Person Company
An OPC business vehicle allows an individual to enter into a business venture with limited liability without wasting time and energy in the hunt for a partner. Thus, a natural person be a resident of India or not can incorporate an OPC with the following process:
- An OPC can be formed with one member and one director. Therefore, the first step is to obtain a Digital Signature Certificate (DSC) of the proposed director with his identity proof, address proof, photo, email- id, and contact number.
- Apply for Director Identification Number (DIN) for the proposed director in case he/she does not already have the same. DIN can be applied directly in SPICE+ along with name and address proof.
- The next step is to choose the name of the company and one preferred name can be given for approval in SPICE+.
- Thereafter, prepare a memorandum and articles of association of OPC.
- Collate the following documents to be attached with SPICE+ for incorporation application:
- Proof of address of registered office/correspondence address (if the registered office is not finalized at the time of incorporation application) of proposed OPC i.e. rental agreement or utility bill.
- Consent of proposed director in Form INC-2.
- Consent of nominee of member in Form INC-3 along with PAN and Aadhar.
- Declaration by subscribers in Form INC-9.
- Declaration by a practicing company secretary or chartered accountant stating that all compliances are made.
- Prepare incorporation application in SPICE+ with a request for PAN and other statutory registrations, memorandum, and articles of association and attach aforesaid documents.
- Upload SPICE+ on the MCA portal (www.mca.gov.in) and pay the requisite fees.
- Once documents are vetted by the Registrar, he will issue a certificate of incorporation to OPC.
3. Relaxations to OPC
There are various relaxations/exemptions given to OPCs to encourage small entrepreneurs for doing business in India. The illustrative list is enumerated as under:
- An OPC is not required to include cash flow statements in financial statements.
- Financial statements and board reports can be signed only by one director.
- CARO, 2020 is not applicable to an OPC.
- OPC is not required to report on internal financial controls with reference to financial statements and the operating effectiveness of such controls in an audit report.
- An OPC is not required to conduct an annual general meeting of shareholders.
- In case a single person is acting as a shareholder and director in OPC, there is no requirement to conduct a board meeting. In other cases, the time gap between two board meetings is 90 days minimum, and only one board meeting every six months in a calendar is required to be conducted.
- An OPC is also not required to comply with the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).
- The annual return of an OPC is permitted to be signed by the director where there is no company secretary.
- A detailed board report is not required and only an explanation with regard to qualification, reservation, adverse remark, or disclaimer by the auditor in the audit report is required.
- Now at any time, OPC may be converted into a private or public company except for section 8 companies. The condition is that it has to increase the minimum number of members and directors.