Features of a One Person Company
- OPC is owned and managed by a single individual, the sole shareholder and director.
- Limited liability protection ensures the personal assets of the owner are safeguarded.
- OPC offers perpetual succession, meaning the company continues to exist even in the event of the owner's demise.
- There is no minimum capital requirement for incorporating an OPC, making it accessible to small business owners.
Characteristics of One Person Companies (OPC)
A One Person Company (OPC) comes with specific rules and conditions that define its structure, ownership, and operations.
Eligibility: Only a natural person who is an Indian citizen and resident of India can incorporate an OPC and act as its sole member.
Nominee requirement: The sole member must designate a nominee at the time of registration. A person cannot incorporate or join more than one OPC as a nominee.
Restriction on minors: Minors cannot hold beneficial shares, nor can they become members or nominees of an OPC.
Section 8 restriction: An OPC cannot be incorporated or converted into a company under Section 8 of the Companies Act.
Financial activities restriction: OPCs are barred from engaging in non-banking financial investment activities, such as purchasing corporate securities.
Change in structure: The corporate structure cannot be changed within the first two years of incorporation, except if paid-up capital exceeds Rs. 50 lakh or average turnover crosses Rs. 2 crore.
Dual membership restriction: If a person who is already a member of one OPC becomes a nominee in another OPC, they must resign from one within 180 days.
Naming requirement: Wherever the company’s name is used, the words “One Person Company” must be mentioned in brackets under the name.
Formation of One Person Companies
- OPC registration involves a single person acting as both the shareholder and director.
- The individual must appoint a nominee who will take over the company's operations in the event of their death or incapacity.
- The process includes obtaining Digital Signature Certificates (DSC), Director Identification Numbers (DIN), and registering the company with the Ministry of Corporate Affairs.
Taxation of One Person Company (OPC) in India
A key difference between a One Person Company (OPC) and a Sole Proprietorship is how they are taxed, as an OPC is treated as a corporate entity for tax purposes.
Corporate Tax Rate: An OPC pays tax on its profits at the corporate tax rate under the Income Tax Act, 1961.
Typically, OPCs with a turnover up to ₹400 crore in the previous financial year are taxed at 25%.
New or eligible OPCs can opt for the concessional tax regime under Section 115BAA, with a tax rate of 22% (plus applicable surcharge and cess), provided certain deductions and incentives are foregone.
Dividend Taxation: Dividend Distribution Tax (DDT) was abolished in 2020. Now, dividends are taxed in the hands of the shareholder (the sole member) according to their individual income tax slab. The OPC must deduct TDS before distributing dividends.
Remuneration to Member: The sole member or director can receive a salary or remuneration from the OPC. This amount is tax-deductible for the OPC as a business expense and is taxed as salary income for the member.
Advantages of One Person Company (OPC)
The OPC structure provides several advantages designed for solo entrepreneurs:
- Limited Liability Protection: Safeguards personal assets, giving the owner financial security and peace of mind.
- Full Control: The sole member/director has complete authority over business operations, management, and decision-making without needing approval from partners or multiple shareholders.
- Improved Credibility: Being a registered company, even as an OPC, enhances trust with banks, vendors, and customers compared to unregistered Sole Proprietorships.
- Simplified Compliance: OPCs follow compliance requirements similar to a Private Limited Company but benefit from exemptions, such as holding only two Board Meetings per year (one in each half) and no need to conduct an Annual General Meeting (AGM).
Disadvantages of One Person Company
Entrepreneurs should also be aware of these limitations:
- Restricted Membership: Only one person can form a single OPC, which limits the possibility of running multiple ventures under the same structure.
- Compliance Requirements: While simpler than a Private Limited Company, OPCs still need to comply with regulations such as mandatory annual audits and filing annual financial statements with the Registrar of Companies (ROC), which can be more complex and costly than a Sole Proprietorship.
- Limited Funding Opportunities: With a maximum of one shareholder, OPCs may face challenges in accessing large-scale funding, such as venture capital or equity financing.
One Person Company (OPC) registration process
Setting up an OPC in India is a simple online process overseen by the Ministry of Corporate Affairs (MCA):
Obtain DSC and DIN: The proposed director must first acquire a Digital Signature Certificate (DSC) for signing forms and a Director Identification Number (DIN).
Name Approval: Apply through the MCA portal using the RUN service to secure a unique company name, which must end with “(OPC) Private Limited.”
File Documents via SPICe+ Form: Submit the integrated SPICe+ form to the Registrar of Companies (ROC), including:
Certificate of Incorporation: Once approved, the ROC issues the Certificate of Incorporation, officially forming the OPC.
To cover incorporation costs such as filing fees, DSC charges, and initial working capital, entrepreneurs often consider financial support. A business loan can provide the necessary funds to ensure smooth operations right from the start.
Compliance requirements for a One Person Company (OPC)
While One Person Companies (OPCs) enjoy fewer compliance obligations compared to other company structures, they still need to follow certain provisions under the Companies Act:
Board meetings: An OPC is exempt from holding frequent board meetings but must conduct at least one meeting in each half of the year.
Annual financial statements: OPCs are required to prepare annual financial statements, which must be audited and certified by a Chartered Accountant.
Annual return: Each OPC must file an annual return with the Registrar of Companies (ROC). Even though an annual general meeting is not mandatory, this filing ensures transparency and accountability.
Annual income tax return: OPCs are obligated to file their income tax returns every year, along with fulfilling all other applicable tax compliance requirements.
Conclusion
In conclusion, One Person Company (OPC) offers a unique business structure for solo entrepreneurs seeking limited liability protection and full control over their ventures. While OPCs come with advantages such as simplified compliance and credibility, it's essential to weigh the limitations before making a decision. By understanding the registration process entrepreneurs can embark on their entrepreneurial journey with confidence and determination.
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