One Person Company OPC
OPC Company: An Overview
An OPC (One Person Company) is a unique type of company structure introduced under the Companies Act, 2013 in India. As the name suggests, an OPC is a company that is owned and managed by a single individual, offering limited liability to the sole member. It is ideal for entrepreneurs who wish to run their business independently without the need to involve other people as shareholders or directors, while still enjoying the benefits of a company structure.
An OPC is a relatively new concept in India and was introduced with the aim of encouraging individual entrepreneurs to start their own businesses while maintaining limited liability and legal recognition.
Key Features of OPC Company
Single Member Ownership: An OPC is a company that can have only one shareholder or member. This is the most distinctive feature of an OPC, allowing a single person to take full control of the company and its operations.
Limited Liability: The liability of the sole member is limited to the extent of the unpaid shares held by them in the company. This means that the personal assets of the member are protected, and they are not personally liable for the debts and liabilities of the company beyond their investment.
Separate Legal Entity: An OPC is a separate legal entity from its owner. This means the company can own assets, incur liabilities, and enter into contracts in its own name, distinct from the individual running it.
Nominee Requirement: Even though an OPC is owned by one person, it is required to appoint a nominee. The nominee is an individual who will assume control of the company in the event of the sole member’s death or incapacity. The nominee has no power or responsibility until such an event occurs.
No Need for Board of Directors: Since there is only one member, an OPC does not require a board of directors like other companies. The sole member acts as the director of the company. However, the company must have at least one director.
Conversion: If an OPC crosses the prescribed turnover limit or if the member decides to add more shareholders, it can be converted into a private limited company or a public limited company. The process of conversion must comply with the regulatory requirements.
Minimum and Maximum Capital: There is no minimum capital requirement for an OPC. However, the member must have at least one share in the company. The maximum number of members in an OPC is one, and the company can issue only one type of share, i.e., equity shares.
Transferability of Shares: In an OPC, since there is only one member, the concept of share transfer is not applicable. However, the ownership can be transferred to another person when the sole member decides to convert the OPC into a private limited company or if the member dies and the nominee takes over.
Perpetual Succession: An OPC has perpetual succession, which means the company will continue to exist even if the sole member dies or becomes incapable of managing the business. This ensures continuity of the company’s operations, subject to the nominee taking over.
Eligibility to Form an OPC
Individual: Only a natural person who is an Indian citizen and a resident of India can form an OPC. The individual must not be a minor.
Only One Member: As the name suggests, an OPC can have only one person as a member, who acts as both the shareholder and the director.
Nominee: The member must nominate a nominee at the time of registration. The nominee must be an individual who will take over the company in case the sole member dies or becomes incapable of managing the business.
Not More than One OPC: A person can only form one OPC at a time. They are not allowed to form multiple OPCs.
Advantages of OPC Company
Limited Liability: Just like a private limited company, an OPC provides limited liability protection to the sole member, meaning that their personal assets are protected from the company’s debts and liabilities.
Full Control and Decision-Making: The sole member has complete control over the company’s decisions and operations, without having to consult other shareholders or directors. This is ideal for solo entrepreneurs who want to maintain full authority.
Separate Legal Entity: The OPC enjoys the status of a separate legal entity, meaning the company can enter into contracts, own assets, and undertake legal obligations in its own name, distinct from the owner.
Easy Compliance: OPCs have relatively simplified compliance requirements compared to other types of companies. They do not need to hold annual general meetings (AGMs) or have a board of directors, making it easier to manage the company.
Flexibility to Convert: If the OPC grows and exceeds certain thresholds (like turnover or capital), it can be converted into a private limited company or a public limited company, offering the flexibility to scale the business.
Tax Benefits: An OPC is eligible for the same tax benefits available to other companies under the Income Tax Act, 1961. This can include deductions, credits, and exemptions available for business entities.
Perpetual Succession: The company continues to exist regardless of changes in the ownership of the sole member. This ensures the continuity of the business, even in the event of the member’s death.
Disadvantages of OPC Company
Restriction on Members: The biggest limitation of an OPC is that it can have only one member. While this is ideal for solo entrepreneurs, it may not work well for businesses that eventually require additional investors or partners.
Nominee Requirement: While the requirement of a nominee ensures the continuity of the business, it may cause issues if the nominee does not wish to take over the business or if the nominee is unavailable.
Limited Fundraising: OPCs may face challenges in raising capital as they cannot issue shares to the public or to other investors. This restricts their ability to attract funds beyond the owner’s personal resources.
Not Suitable for Large-Scale Business: Due to the limitation on the number of members and shareholders, OPCs may not be suitable for large-scale businesses that require significant capital or involve complex management structures.
Conversion Requirement: If the OPC’s annual turnover exceeds ₹2 crore or its paid-up capital exceeds ₹50 lakh, it is required to convert into a private limited or public limited company, which can be a cumbersome process.
Process of Incorporating an OPC
Obtain Director Identification Number (DIN): The sole member of the OPC must apply for a Director Identification Number (DIN) by filing Form DIR-3.
Apply for Digital Signature Certificate (DSC): The sole member and the nominee must obtain a Digital Signature Certificate (DSC), which is required for signing electronic documents.
Name Approval: The name of the company must be approved by the Registrar of Companies (ROC). The proposed name should end with the word “Private Limited”.
Filing of Incorporation Documents: The necessary documents like the Memorandum of Association (MOA) and Articles of Association (AOA), along with the prescribed forms, must be submitted to the ROC for approval.
Obtain Certificate of Incorporation: Once the ROC approves the documents, the company will be issued a Certificate of Incorporation, marking the legal formation of the OPC.
Apply for PAN and TAN: After incorporation, the OPC must apply for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) from the Income Tax Department.
Compliance Requirements for OPC
Annual Filings: OPCs are required to file their annual financial statements, including the balance sheet, profit and loss account, and director’s report with the Registrar of Companies (ROC).
Tax Returns: OPCs must file their Income Tax Returns (ITR) annually with the Income Tax Department. The OPC is subject to the same tax filing requirements as a private limited company.
Audit: Like other companies, OPCs are required to have their financial statements audited annually by a Chartered Accountant (CA).
No Annual General Meeting (AGM): OPCs are not required to hold an Annual General Meeting (AGM), unlike private limited companies.
Conclusion
An OPC (One Person Company) is an ideal structure for solo entrepreneurs and small business owners who want to enjoy the benefits of a limited liability company without the need for partners or multiple shareholders. It offers the advantages of full control, limited liability, and simple compliance. However, it may not be suitable for larger businesses that require significant investment or have plans to expand with multiple partners. The OPC structure is perfect for individuals starting a business with limited resources and those who prefer to manage their enterprise independently.
