One Person Company (OPC) - Detailed Notes

Author: Vivek Ranjan

Overview

A One Person Company (OPC) is a type of company that allows a single entrepreneur to run a business entity with limited liability protection. It was introduced under the Companies Act, 2013 in India to encourage small businesses and single entrepreneurs.

Key Features

  1. Single Shareholder: An OPC can have only one shareholder, who must be an Indian citizen and resident in India.
  2. Limited Liability: The shareholder's liability is limited to the amount unpaid on the shares held by them.
  3. Separate Legal Entity: An OPC is a separate legal entity distinct from its owner, meaning it can own property, incur debts, and enter into contracts in its own name.
  4. Perpetual Succession: OPC has perpetual succession, which means it continues to exist even if the owner dies or becomes incapacitated. A nominee must be appointed who will take over in such cases.
  5. No Minimum Capital Requirement: There is no prescribed minimum paid-up capital requirement for an OPC.
  6. Less Compliance: OPCs have to comply with fewer regulatory requirements compared to private limited companies, making it easier for single entrepreneurs to manage.

Formation of OPC

  1. Director Identification Number (DIN) and Digital Signature Certificate (DSC): The single shareholder must obtain DIN and DSC.
  2. Name Approval: Apply for name approval with the Registrar of Companies (RoC).
  3. MoA and AoA: Draft the Memorandum of Association (MoA) and Articles of Association (AoA) specifying the objectives, rules, and regulations of the company.
  4. Nominee: A nominee must be appointed who will take over the company in case of the shareholder's death or incapacity.
  5. Incorporation Form: File the incorporation form along with required documents to the RoC.
  6. Certificate of Incorporation: Upon approval, the RoC issues a Certificate of Incorporation, and the OPC is officially formed.

Advantages of OPC

  1. Limited Liability Protection: The owner's personal assets are protected in case of business liabilities.
  2. Ease of Management: Simple to manage with fewer compliance requirements.
  3. Separate Legal Entity: Provides a professional image and can own property and enter into contracts independently.
  4. Continuous Existence: The company continues to exist even if the owner passes away, ensuring business continuity.
  5. Tax Benefits: Various tax advantages compared to sole proprietorship.

Disadvantages of OPC

  1. Ownership Restrictions: Only one person can be the shareholder.
  2. Higher Compliance Costs: Compared to a sole proprietorship, an OPC has higher compliance costs.
  3. Limited Growth Potential: Cannot convert to a Public Limited Company directly.
  4. Restrictions on Business Types: Certain business activities (e.g., non-banking financial activities) cannot be conducted by an OPC.

Frequently Asked Questions (FAQ)

Q1: Who can form an OPC? A: Only a natural person who is an Indian citizen and resident in India can form an OPC. A person can form only one OPC.

Q2: Can an OPC have more than one director? A: Yes, while an OPC can have only one shareholder, it can have more than one director. However, the maximum number of directors is limited to 15.

Q3: What is the nominee requirement for an OPC? A: A nominee must be appointed during the formation of the OPC. This nominee will take over the company in the event of the original shareholder's death or incapacity.

Q4: How can an OPC convert to a Private Limited Company? A: An OPC can convert to a Private Limited Company voluntarily after two years of incorporation or mandatorily when its paid-up share capital exceeds INR 50 lakhs, or its annual turnover exceeds INR 2 crores.

Q5: Are there any restrictions on the business activities of an OPC? A: Yes, OPCs cannot engage in non-banking financial investment activities, including investment in securities of anybody corporate.

Q6: What are the compliance requirements for an OPC? A: An OPC needs to file annual returns, financial statements, and have its books of accounts audited annually. The compliance is simpler compared to other types of companies.

Q7: Can an OPC get funding from investors? A: Typically, OPCs face challenges in raising equity funding as they have only one shareholder. Investors prefer companies where they can get equity stakes.

Q8: Is an OPC suitable for small businesses? A: Yes, an OPC is ideal for small businesses and solo entrepreneurs who want to take advantage of limited liability while enjoying simpler compliance.

Q9: Can a minor become a shareholder or nominee in an OPC? A: No, a minor cannot become a shareholder or nominee in an OPC.

Q10: How long does it take to incorporate an OPC? A: The incorporation process typically takes 7-15 days, depending on the submission of required documents and processing time by the Registrar of Companies.

Conclusion

A One Person Company (OPC) provides a viable business structure for individual entrepreneurs seeking limited liability protection and a formal corporate identity. It strikes a balance between the simplicity of a sole proprietorship and the advantages of a corporate structure. However, potential owners should carefully consider the limitations and compliance requirements before choosing this form of business entity.

Thank you for reading this write up, for further queries regarding OPC registration, LLP Registration, Section 8 Company. please connect to our team at 9988424211 or write us at info@ccoffice.in.