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One Person Company (OPC) is a revolutionary concept introduced in the Companies Act, 2013, to support entrepreneurs who want to venture into business with limited liability but without the need for a partner. This structure allows a single individual to own and manage the business, offering a blend of sole proprietorship and corporate frameworks. This detailed guide explores the intricacies of OPC in India, including its formation, benefits, and regulatory requirements.
WHAT IS A ONE PERSON COMPANY?
A One Person Company (OPC) is a type of private limited company which can be formed with just one director and one member. It provides the individual entrepreneur with the benefits of limited liability and a separate legal entity, without the need to share control or profits with others.
KEY CHARACTERISTICS
Single Ownership: OPC is owned and managed by a single individual.
Limited Liability: The owner's liability is limited to the extent of their shareholding.
Separate Legal Entity: OPC has a distinct legal identity separate from its owner.
Perpetual Succession: The company continues to exist even after the death of the owner, managed by a nominee.
No Minimum Share Capital Requirement: No mandatory minimum capital is required to form an OPC.
FORMATION OF A ONE PERSON COMPANY
Steps to Register an OPC
Obtain Digital Signature Certificate (DSC): The sole owner must obtain a DSC for online form submissions.
Acquire Director Identification Number (DIN): The owner must obtain a DIN.
Name Approval: The desired company name must be approved by the Registrar of Companies (RoC).
Drafting Memorandum of Association (MoA) and Articles of Association (AoA): The owner must draft MoA and AoA, specifying the company’s objectives and operational guidelines.
Filing with RoC: Submit the incorporation documents, including MoA, AoA, consent of the nominee, and proof of the registered office, to the RoC.
Certificate of Incorporation: Upon verification, the RoC issues the Certificate of Incorporation, signifying the formation of the OPC.
Documentation Required
Identity Proof: PAN card of the owner.
Address Proof: Aadhar card, voter ID, or driving license of the owner.
Registered Office Proof: Utility bill and a No Objection Certificate (NOC) from the property owner.
Nominee Consent: A written consent from the nominee, who will take over in case of the owner’s death or incapacity.
ADVANTAGES OF A ONE PERSON COMPANY
1. Limited Liability Protection:
Protects the personal assets of the owner.
Owner’s liability is limited to the investment in the company.
2. Separate Legal Entity:
OPC can own property, sue, and be sued in its own name.
Ensures the owner is not personally liable for the company’s debts.
3. Perpetual Succession:
The company’s existence is not dependent on the owner.
The nominee takes over in case of the owner’s death, ensuring continuity.
4. Simplicity in Compliance:
Less compliance burden compared to other private limited companies.
Simplified annual filings and meetings.
5. Ease in Raising Funds:
Easier to raise funds through equity or debt as compared to sole proprietorship.
Increased credibility among financial institutions.
6. Tax Benefits:
Eligible for various tax deductions and benefits available to private limited companies.
Potential for significant tax savings.
DISADVANTAGES OF A ONE PERSON COMPANY
Restriction on Conversion: Mandatory conversion to a private limited company if the annual turnover exceeds INR 2 crore or if the paid-up capital exceeds INR 50 lakh.
Single Ownership Limitation: Cannot have more than one member which limits growth potential compared to other business structures that can have multiple owners.
Higher Formation Cost: Higher initial setup costs compared to a sole proprietorship. Professional fees for incorporation and compliance may be higher.
Compliance Requirements: Despite being simplified, there are still compliance requirements that must be met such as regular filings with the ROC and adherence to the Companies Act, 2013.
REGULATORY COMPLIANCE FOR ONE PERSON COMPANIES
1. Annual General Meeting (AGM):
Not mandatory for OPC.
However, annual financial statements and returns must be filed with the RoC.
2. Annual Returns:
File annual returns and financial statements with the RoC.
Requires certification by a Company Secretary if the paid-up capital exceeds INR 50 lakh.
3. Income Tax Filings:
Annual income tax returns must be filed.
Tax audits are mandatory if the turnover exceeds specified limits.
4. Statutory Registers:
Maintain registers such as the Register of Members, Register of Directors, etc.
TAXATION FOR ONE PERSON COMPANIES
1. Corporate Tax Rates:
OPCs are taxed at the same rate as private limited companies.
Basic tax rate is 22% (plus applicable surcharge and cess) for companies not availing any exemptions.
2. Minimum Alternate Tax (MAT):
Applicable at 15% of book profits (plus surcharge and cess) for companies availing exemptions.
3. Dividend Distribution Tax (DDT):
Abolished from April 1, 2020.
Dividends are now taxed in the hands of shareholders.
CONCLUSION
One Person Company (OPC) is an innovative business structure in India that offers the advantages of limited liability, perpetual succession, and ease of raising funds while maintaining simplicity in compliance. It is ideal for solo entrepreneurs looking to venture into business without the complexities of partnership or multiple ownerships. However, it also comes with certain limitations, such as restrictions on ownership and mandatory conversion under specific conditions. Entrepreneurs must weigh these factors carefully to determine if an OPC is the right choice for their business aspirations.
By understanding the formation process, benefits, compliance requirements, and taxation, entrepreneurs can make informed decisions and effectively utilize the OPC structure to their advantage. Consulting with legal and financial experts can further ensure that all statutory obligations are met and the business is set up for success.
To get your One Person Company registered today, click here.
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