The introduction of OPC in the legal system is a move which would encourage corporatization of micro businesses and entrepreneurship with a simpler legal regime, so that small entrepreneurs are not compelled to devote considerable time energy and resources on complex legal compliances. One Person Company of sole-proprietor and company form of business has been provided with concessional /relaxed requirements under the Companies Act, 2013. With the implementation of the Companies Act, 2013, a single national person can constitute a Company, under the One Person Company (OPC) concept.
Procedure for Incorporation of OPC:
One person company is a private limited company which could be formed by one person alone. This new concept is introduced in the Companies Act, 2013 and is available for a business with a capital up to 50 Lacs and a turnover up to 2 Crore. One person company has some benefits in the terms of Companies Act, as some of the provisions which are applicable to public and private companies are not applicable to OPC. However, the moment the capital crosses the limit of 50 Lacs or the turnover crosses 2 Crore, an OPC has to be converted into a private company.
An OPC can be incorporated under the Companies Act, 2013, but there are some minimum criteria which should be followed for the incorporation of an OPC
- Minimum one person: Acc. to Rule 3(1) Companies (Incorporation) Rules, 2014, a person who is a natural person, who is an Indian citizen and a resident of India could only incorporate an OPC
- Minimum capital of 1,00,000 Rs.: For the incorporation of an OPC, a minimum paid up share capital should be of 1 Lacs Rupees.
- DIN of one person: For the Incorporation of an OPC a director should have a DIN number according to the Companies act.
- Consent from owner and nominee : As per first proviso of Sec. 3(1) of Companies Act, 2015, at the time of incorporation of OPC, the sole member of OPC is required to appoint another person as his nominee and his name shall have to be featured in the Memorandum of Association of the OPC.
The nominee so appointed shall, in the event of the sole member’s death; or in the event of the sole member becoming incapacitated to contract; become the member of OPC. A nominee so appointed is required to give his written consent for the same. The said written consent will also have to be filed with the ROC at the time of incorporation of the OPC along with its MoA and AoA. A nominee may also withdraw his consent if he so desires. Form No. INC-3 has to be filled for applying nominee consent form.
- Proof of registered address
- NOC from the owner of premises ( if the office is rented)
If a person could comply with these minimum requirements then he/she is eligible for the incorporation of an OPC. The procedure for incorporation is given below in following steps:
Application for DIN- First and foremost, any person who is willing to incorporate a company has to obtain a DIN (Director Identification Number). Central Government (Office of Regional Director (Northern Region), Ministry of Corporate Affairs) allots the DIN upon processing the form DIR-3 filed by the applicant. Further person who is appointed as a director upon filing form INC-29 will be issued a DIN by the approving authority (Central Registration Centre). Any person who intends to obtain a DIN number has to follow the following procedure.
- Offline E-filing- E form DIR 3 has to follow an offline e-filing procedure.
- Supporting Documents- Attach the photograph and scanned copy of supporting documents. i.e. proof of identity, and proof of residence as per the guidelines.Along with the supporting documents, verfication by the applicant for applying for allotment of Director Identification Number (DIN) shall also be attached. This shall contain the Name, Father’s name, date of birth, present address, text of declaration and physical signature of the applicant.
- Digital Signature- The eForm shall have to be digitally signed and shall be uploaded on MCA21 portal.
- Fee Payment- Upon upload, Pay the fees for DIR-3 eForm. Only electronic payment of the fees shall be allowed. The user is required to get himself / herself registered on the MCA21 Portal to obtain login id, Login to the MCA21 portal and click on ‘eForm upload’ link available under the ‘eForms’ tab for uploading the eForm DIR- 3. eForm DIR-3 will be processed only after the DIN application fee is paid.
- Generation of DIN- Upon upload and successful payment, In case Form DIR-3 details have not been identified as potential duplicate, Approved DIN shall be generated and if the details have been identified as potential duplicate, Provisional DIN shall be generated.
- Application fees for DIN number is 500 rs only and it takes almost 7 days to process DIN number.
- Government website for knowing about DIN number http://www.mca.gov.in/MinistryV2/din.html
Step- 2: Name of Company
After a DIN number is approved by government to person, a person could file for applying the name for his company. Form INC-1 has to be filled for the approval of the name of the company. ROC would take 3-7 days to accept or reject the name of your company. For filling this form a fees of 1,000 rs. has to be paid by the director by electronic transfer.
Points to be taken care at the time of selection of Name:
- A One person company must end with the word “OPC”.
- The company cannot have a name which in the opinion of the Central Government is undesirable.
- A name which is identical with or the nearly resembles the name of another company in existence will not be allowed by the Registrar of Companies.
- A company cannot use a name which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1952.
- The Name of the Company should reflect the proposed main objects which the Company intends to undertake.
- A minimum of six names for the proposed New One Person Company has to be decided in the order of Preference (The concerned ROC will sanction the Name on the basis of availability).
Note: MCA has prescribed certain rules for the name availability so it is advisable to check guidelines for the same before applying the name. Guidelines for the same could be referred to Rule-8 of companies Act, 2014.
Step- 3: Consent form
The subscriber to the memorandum of ‘one person company’ shall nominate a person, after obtaining written consent of such person, who shall, in the event of subscriber’s death or his incapacity to contract, become the member of that one person company. . Form No. INC-3 has to be filled for applying nominee consent form. This form does not require any fees to be paid.
Step- 4: Incorporation
Within 60 days of the name approval, form INC-2 shall be filed for incorporation of the OPC. It has to be submitted to the registrar along with the following attachments-
- Memorandum of Association
- Articles of Association
- Proof of identity of the member and the nominee.
- Residential proof of the member and the nominee.
- A copy of PAN card of member and nominee.
- Consent of nominee in form INC- 3.
- An affidavit from the subscriber and first director to the memorandum in Form INC-9.
- List of all the companies (specifying their CIN) having the same registered office address, if any.
- Specimen signature in form INC- 10.
- Entrenched articles of association.
- Proof of registered office address.
- Copies of the utility bills. (not older than 2 months)
- Proof that the company is permitted to use the address as the registered office of the company if the same is owned by any other entity/person.
- Consent from the director.
- Optional attachments.
The fees for this form differ from state to state, and time to approve the incorporation of this form is a month.
Also, This shall be accompanied by Form DIR-12 except if promoter is the sole director of the OPC. Once company is incorporated, form INC-22 is also required to be filed within 30 days in case the address of registered office was not mentioned in form INC-2.
Forms required to in incorporating an OPC could be downloaded from the link below
Step- 5: Final Incorporation certificate
After doing all the formalities and verification of documents the digitally signed “Certificate of Incorporation” would be e-mailed to director. Once company receives its final incorporation certificate, it is ready to commence its business.
Advantages of incorporating an OPC
- OPCs would provide the start-up entrepreneurs with new business idea.
- OPC provides an outlet for the entrepreneurial impulses among the professionals.
- The advantages of limited liability. The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
- OPCs are not proprietorship concerns; hence, they give a dual entity to the company as well as the individual, guarding the individual against any pitfalls of liabilities. This is the fundamental difference between OPC and sole proprietorship.
- Unlike a private limited or public limited company (listed or unlisted), OPCs need not bother too much about compliances.
- Businesses currently run under the proprietorship model could get converted into OPCs without any difficulty.
- OPCs require minimal capital to begin with. Being a recognized corporate, could well raise capital from others like venture capital financial institutions etc., thus graduating to a private limited company.
- Mandatory rotation of auditor after expiry of maximum term is not applicable. The annual return of a One Person Company shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
- The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a One Person Company.
- A One Person Company needs to have minimum of one director. It can have directors up to a maximum of 15 which can also be increased by passing a special resolution as in case of any other company.
- For the purposes of holding Board Meetings, in case of a one person Company which has only one director, it shall be sufficient compliance if all resolutions required to be passed by such a Company at a Board meeting, are entered in the minutes-book, signed and dated by the member and such date shall be deemed to be the date of the Board Meeting for all the purposes under this Act. For other One Person Companies, atleast one Board Meeting must be held in each half of the calendar year and the gap between the two meetings should not be less than 90 days.
- The financial statements of a one person company can be signed by one director alone. Cash Flow Statement is not a mandatory part of financial statements for a One Person Company. Financial statements of a one person company need to be filed with the Registrar, after they are duly adopted by the member, within 180 days of closure of financial year along with all necessary documents.
- Board’s report to be annexed to financial statements may only contain explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
Disadvantages of incorporating an OPC
- One person Company can have Minimum or Maximum no. of 1 Member.
- A minor shall not be eligible to become a member or nominee of the One Person Company or can hold share with beneficial interest.
- Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
Suitable only for small business:
OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs.50Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.
- One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
- One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
The concept of One Person Company is not a recognized concept under IT Act and hence such companies will be put in the same tax slab as other private companies for taxation purposes. As per the Income Tax Act, 1961, private companies have been placed under the tax bracket of 30% on total income. On the other hand, sole proprietors are taxed at the rates applicable to individuals, which mean that different tax rates are applicable for different income slabs. Thus, from taxation point of view this concept seems to be a less lucrative concept as it imposes heavy financial burden as compared to a sole proprietorship.
The basic income tax rate for a one person company is 30% which may result in a higher tax as compared to the income tax slab rates of an individual (i.e. 10% to 30%).
(Proprietorships have a clear advantage here in that a proprietor is subject to individual income tax slab rates from 10% to 30% and get benefits of basic exemptions. Hence, if you select a one person company over a proprietorship you will have to give up these advantages.)
The very concept of a separate legal entity being created for a perpetual succession, that is continuation of the company, even after the death or retirement of a member is also challenged. Because the nominee whose name has been mentioned in the memorandum of association will become the member of the company in the event of death of the existing member. However it is doubtful that it would do any good for the company because the person was not a member of the company and was also not involved in the day to day operation of the company, because of which he/she would be able to succeed the business after the death of the member.
Higher incorporation costs:
As compared to proprietorships: One person companies need to be registered with the registrar of companies under the Companies Act, 2013. This would entail upfront expenditure on government charges and professional fees which you will have to pay your CA or CS. Proprietorships don’t need to register with the government and hence don’t incur these incorporation charges.
Though the Act extends slew of exemptions to a One Person company in terms of conducting AGM, EGM, Quorum of meetings, restriction on voting rights or filing its financial statements, yet the incorporation of such a company requires lots of paper work as compared to a sole proprietorship. These procedural complexities with respect to incorporation of One Person Company might make this concept less attractive for sole entrepreneurs
Separation of Owner and Control:
This is one of the characteristics of the company ,which is seriously challenged by the new Companies Act ,2013, where the line between the ownership and control is blurred which might result in unethical business practices.