One Person Company in Company Law
Section 2(62) of Companies Act defines a one-person company as a company that has only one person as its member. Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.
Features of a One Person Company
A one-person company (OPC) allows a single entrepreneur to operate a corporate entity with limited liability protection, ensuring personal assets are safeguarded. It simplifies compliance and administrative requirements, making it easier for solo entrepreneurs to manage their businesses. Here is a list of the features of a one-person company
- Single Ownership: An OPC is formed by a single person, who is both the shareholder and director.
- Limited Liability: The liability of the member is limited to their shares, protecting personal assets.
- Perpetual Succession: An OPC can continue its existence even after the death or incapacity of the owner, through the nomination of another person.
- Separate Legal Entity: An OPC is a distinct legal entity from its owner, allowing it to own property, sue, and be sued in its own name.
- Minimum Compliance: OPCs have fewer compliance requirements compared to other types of companies, making them easier to manage.
Privileges of One-Person Companies
Registering as a one person company provides many added advantages and functioning ease. Here are some privileges of an one person company
- Simplified Annual Returns Filings: OPCs are required to file fewer documents with the Registrar of Companies.
- Exemptions from Holding Annual General Meetings (AGMs): OPCs are not required to hold AGMs, simplifying their operational processes.
- Access to Loans: Banks and financial institutions are more likely to offer loans to OPCs due to their formal structure and limited liability.
Legal Status and Ownership Structure
A One Person Company enjoys a unique legal status, distinguishing it from sole proprietorships. The ownership structure of an OPC allows for a single individual to control the entire company but with the added benefit of having a nominated successor. This ensures continuity and stability for the business, even in unforeseen circumstances.
Advantages of a One Person Company
A One Person Company (OPC) offers limited liability protection, ensuring the owner’s personal assets are not at risk. It also provides a separate legal identity, enhancing the credibility and continuity of the business. Here are the advantages of one person company
Business Operation Benefits
- Full Control: As the sole owner and director, the individual has complete control over the company’s operations and decisions.
- Ease of Management: With fewer regulatory requirements, OPCs are simpler to manage compared to other company structures.
- Flexibility: OPCs can easily convert to other types of companies as the business grows, providing flexibility for future expansion.
Legal and Compliance Advantages
- Limited Liability Protection: The owner’s personal assets are protected, as their liability is limited to the capital invested in the company.
- Separate Legal Entity: OPCs have a distinct legal identity and a simple business structure enabling them to enter into contracts, own property, and initiate legal proceedings in their own name.
- Fewer Compliance Requirements: OPCs are exempt from several compliance obligations that apply to other company forms, such as holding annual general meetings, having fixed minimum capital requirements and is best suitable for small business.
Funding and Succession Planning
- Increased Credibility: Being a registered company, OPCs often find it easier to secure funding from banks and financial institutions.
- Succession Planning: The nominee director ensures business continuity in case of the owner’s death or incapacity, providing a clear succession plan.
OPC Registration Documents Required
Here is the list of documents required for OPC registration in India:
- Director’s PAN Card: Copy of the PAN card of the sole shareholder and nominee director.
- Identity Proof: Aadhar card, Driving License, voter ID, or passport of the sole shareholder and nominee director.
- Address Proof: Latest utility bills, such as water or electricity bill, Mobile Bill or bank statements of the sole shareholder and nominee director.
- Registered Office Address Proof: Rent agreement and a no-objection certificate (NOC) from the property owner, or utility bills if the property is owned.
- Passport-Size Photographs: Recent passport-sized photographs of the sole shareholder and nominee director.
- Memorandum of Association (MOA): A document outlining the company’s objectives and business activities.
- Articles of Association (AOA): A document detailing the rules and regulations governing the company’s internal management.
Taxability of OPCs in India
One-person companies (OPCs) in India are subject to various tax obligations similar to other corporate entities. However, they also enjoy certain benefits
- Corporate Tax: OPCs are required to pay corporate tax on their profits. The tax rate for OPCs is in line with the rates applicable to other private limited companies.
- Tax Deductions: OPCs can avail of various deductions under the Income Tax Act, such as depreciation on assets, business expenditures, and specific allowances.
- Dividend Distribution Tax (DDT): OPCs must pay DDT on any dividends distributed to shareholders.
- Goods and Services Tax (GST): If the annual turnover exceeds ₹20 lakhs, OPCs must register for GST and comply with GST filing requirements
FAQs on One Person Company Registration
Find answers to frequently asked questions about One Person Company (OPC) registration in India, including eligibility criteria, compliance requirements, conversion thresholds, and nominee roles, to help you make well-informed decisions
Is there any threshold limits for an OPC to mandatorily get converted into either private or public company?
Yes, an OPC must convert into a private or public company if its paid-up share capital exceeds ₹50 lakhs or its average annual turnover exceeds ₹2 crores over three consecutive financial years.
How to intimate RoC that the OPC has exceeded the threshold limits and require conversion into private or public company?
File Form INC-5 within 60 days of exceeding the threshold limits to intimate the RoC about the need for conversion.
Who can become a partner in an Indian Partnership Firm?
In India, any individual, including minors (with certain limitations), as well as companies and LLPs, can become partners in a Partnership Firm, subject to the provisions of the Partnership Deed and the Indian Partnership Act, 1932.
How is the profit-sharing ratio determined in a Partnership Firm? Firm?
The profit-sharing ratio is determined by the Partnership Deed. If the deed does not specify, profits and losses are shared equally among the partners. 1932.
What is the role of a nominee in an OPC?
The nominee steps in as the member in case the original member becomes incapacitated or dies, ensuring continuity of the company.
How to inform RoC about change in membership of OPC?
In the event that an OPC member is terminated due to death, incapacity to enter into contracts, or ownership changes, the company is required to submit form INC-4. The user must fill up the same form with the new OPC member’s details.