One Person Company (OPC) has emerged as a pivotal paradigm shift in the corporate world, offering solo entrepreneurs a unique avenue to navigate the complexities of single ownership. But what is One Person Company, and what sets it apart from other business structures? To answer this, let’s delve into the detailed definition of One Person Company in this blog.
At its core, a One Person Company is a structural entity governed by the Companies Act, encapsulating the essence of autonomy and limited liability. This innovative model allows a single individual to establish a company, with a separate legal identity and financial recognition. As we unravel the intricacies of what constitutes a One Person Company, exploring its formation process, defining features, and strategic advantages, will provide a comprehensive understanding of this entrepreneurial venture.
What is One Person Company?
A One Person Company is essentially a Private Limited Company at its core, incorporated with a single owner at the helm, who is entitled to all its capital and profits. The single owner must be an Indian citizen, who is a non-minor and is eligible for owning an OPC in India. As far as the liability of the owner is concerned, it is restricted to his due subscribed capital, as is in a Pvt Limited Company.
Similarly, the shares of the OPC are also restricted in terms of their transfer to the general public or on public platforms like Stock Exchange Markets. They can only be transferred to the rightful shareholder or nominee in the event of his departure. We’ll discuss all these features of an OPC in detail further. However, before proceeding, let’s first understand what is the legal framework under which a One Person Company operates.
Legal Framework and Definition of One Person Company
A One Person Company or OPC is incorporated and regulated under the Companies Act of 2013. Section 2 (62) of the Companies Act, 2013, defines a One Person Company as “a Private company which has only one member”. Additionally, Section 3 of the Act which lays down the provisions regarding “Formation of a company” further clarifies that a One Person Company, which is to be formed with only one person as its owner, is essentially a “Private Company”. In fact, its incorporation by the ROC (Registrar of Companies) is also done as a Private Limited Company (The term “OPC” is mentioned in the brackets at the end of the incorporated name). Thus, the Companies Act distinctly clarifies OPC as a Private Company at its core. For further reference, you can check the meaning of a Private Company here.
Play Video
Features of One Person Company
Understanding the features that define an OPC is not merely a legal necessity but a strategic imperative for entrepreneurs. These features, ranging from limited liability protection to its distinct legal identity, form the foundation of what makes an OPC a nuanced and advantageous choice. Let’s unveil these significant features one by one, so that you have a clear understanding before you make the informed choice to opt for OPC as your business structure.
- Distinct Legal Identity: One of the fundamental features of an OPC is its distinct legal identity. As a separate legal entity, the company is recognized independently of its owner. This separation ensures that the business can enter into contracts, own assets, and incur liabilities in its own name.
- Mandatory Incorporation: Unlike other business structures, the formation of an OPC is a mandatory process regulated by the Companies Act. This formal incorporation ensures that the company adheres to legal standards, enhancing transparency and accountability.
- Single Ownership: The hallmark of an OPC is its single-member ownership structure. This unique feature allows a sole entrepreneur to own and manage the entire business, fostering a streamlined decision-making process without the complexities of a multi-member board.
- Indian Ownership: Another notable feature is the requirement for Indian ownership. Only Indian citizens and residents are eligible to establish and operate an OPC, ensuring that the business remains rooted within the country.
- Limited Liability Protection: One of the key attractions for entrepreneurs is the limited liability protection offered by an OPC. The owner’s personal assets are safeguarded, and their liability is restricted to the extent of their investment in the company. This financial insulation is a significant advantage for individual business owners.
- Separate Management and Ownership: In an OPC, the roles of management and ownership are distinctly separate. While the individual owner retains full control over the company, the day-to-day management can be delegated to professionals or employees, allowing for efficient business operations.
- Perpetual Succession: The concept of perpetual succession ensures the continuity of the OPC beyond the lifetime of its founder. In the event of the owner’s demise or incapacitation, the nominee director steps in, ensuring the seamless continuation of the business.
- Restricted Transfer of Shares: One notable feature of an OPC is the restricted transfer of shares. The ability to transfer ownership is limited, preventing the company from easily changing hands. This restriction contributes to the stability and control retained by the single owner.
Essential Requirements for One Person Company
- Unique and Valid Name: A company cannot exist without a name. In fact, it is the most prominent and communicative aspect of its identity. It is through its name that the company builds its brand value. Hence, it is necessary that the name of a company must be unique yet revealing of its purpose of establishment.
- Registered Office Address: A One Person Company must have a primary place / office for conducting its business operations and attending official correspondence. The place could either be rented or owned by the owner in the name of the company. Additionally, the premises must be lockable to avoid any misplacement of significant documents and account books.
- Adequate Capital: The capital of a company is the amount of money that the shareholder invests in the company after buying the same worth of shares. It is this investment for which the shareholder shall receive 100% returns as in the profits earned by the company. Since all the capital is invested by a single shareholder in a one person company, the amount should be sufficient for the business to run smoothly and conduct its operations without any hindrance.
- One Shareholder: A One Person company can have one member or shareholder who will be entitled to 100% ownership of the company. Since he is the sole investor, he is bound to pocket all profits earned by the company in the due course of business. Ownership transfer to the shareholder is done by the transfer of shares in his name. Also note that, the shareholder must be an Indian citizen, whether resident or non-resident in India.
- At Least One Director: Unlike a Sole Proprietorship where the single owner is completely responsible for controlling the management of the company, the sole owner or shareholder of a one person company does not involve himself in the management of the company. For this purpose, he must appoint directors. A one person company must have at least one director and can have a maximum of 15 directors. Note that, at least one of them must be resident in India for more than 120 days during the previous financial year.
One Person Company Formation
To establish a One Person Company in India, several steps need to be navigated through successfully. The first of these steps is obtaining a Digital Signature. Digital Signature is required to authenticate the online application for OPC Registration. Usually, it’s the authorized director that needs this document; however, we advise that all promoters of the OPC should apply for DSC for future use. Another essential requirement is Director Identification Number (DIN) for all directors of the OPC.
After securing these prerequisites, the next step will be to select and get a name approved for the One Person Company. You can read our detailed blog on the guidelines you need to follow while naming your OPC. The selected name has to be applied for ROC approval and once approved, you can proceed with the process of OPC Registration. The OPC Registration process is completely online. The application is filed on the MCA portal with documentation and DSC. If the application is approved by the ROC, a Certificate of Incorporation will be granted in the OPC’s name.
Advantages of OPC Registration
The decision to register as a One Person Company (OPC) unfolds a spectrum of strategic advantages for entrepreneurs. From limited liability protection to operational flexibility, each facet of OPC registration bears significance in shaping the landscape for solo business ventures. The table below explores and articulates diverse benefits that come with OPC registration, offering insights into why it stands as an attractive choice for individual entrepreneurs.
| S.No. | Benefits of OPC Registration |
|---|---|
|
1. |
Limited Liability Protection |
|
2. |
Distinct Legal Identity |
|
3. |
Operational Autonomy |
|
4. |
Nominee of Shareholder for Continuity |
|
5. |
Easy Access to Funding Opportunities |
|
6. |
Tax Benefits |
|
7. |
Limited Compliance Requirements |
Compliance & Closure Of One Person Company
Sustaining a One Person Company (OPC) requires a nuanced understanding of compliance requirements. Compliance with legal obligations is not only fundamental for the seamless functioning of the company but also contributes to its credibility and transparency. Additionally, as the business evolves, entrepreneurs may find themselves contemplating the closure of their OPC. So, here we are to discuss both these processes briefly, so that you have a clear and complete picture before establishing your company.
Compliance Requirements for OPC
Ensuring compliance with regulatory requirements is imperative for the sustained operation and credibility of an OPC. The key compliance obligations include the preparation and filing of the Annual Financial Statements, which encompasses the Balance Sheet, Profit and Loss Account, and other cash flow statements. Alongside, OPCs must also submit their Annual Returns, a comprehensive report detailing the company’s performance, financial position, and shareholder information. Timely submission to the RoC is essential to meet compliance standards.
Next annual requirement is submission of the Director’s Report. The Director’s Report is a crucial component of compliance, providing insights into the company’s operations, performance, and future plans. OPCs are required to compile and submit this report annually as part of their yearly compliances. Engaging a qualified auditor to conduct a statutory audit is a pivotal compliance step as well. The auditor examines the company’s financial records and submits an audit report to the RoC, ensuring financial transparency and regulatory adherence. Additionally, OPCs must fulfill taxation obligations, ensuring timely payment of corporate taxes and the filing of income tax returns in alignment with prevailing tax regulations.
| Annual Compliances | Due Dates |
|---|---|
|
Annual Financial Statement (AOC-4) |
27th September |
|
Annual Return Filing |
28th November |
|
Director Report |
28th November |
|
Statutory Audit |
31st March |
|
Income Tax Returns |
30th September |
Closure Process for OPC
When contemplating the closure of an OPC, entrepreneurs must follow a systematic process to ensure legal dissolution and adherence to regulatory protocols. The initiation of the closure process involves convening a board meeting where the director proposes a resolution outlining the decision to close their OPC. The decision passed is later sent for approval from the sole shareholder. Subsequently, the shareholder must notify creditors of the OPC, settling outstanding debts and obtaining a No-Objection Certificate (NOC) to demonstrate their acknowledgment and consent for closure.
To successfully navigate the process of closure, securing shareholder approval through a special resolution is crucial, necessitating at least 75% of the members’ consent for the closure of the OPC. Following this, the entrepreneur must file an application for closure with the RoC, submitting necessary documents, including financial statements, and obtaining approval for the closure. Clearance from tax authorities and other regulatory bodies is then sought to ensure that all statutory obligations are fulfilled, streamlining the closure process. Finally, upon receiving RoC approval, the entrepreneur proceeds with the cancellation of the OPC’s registration. Simultaneously, a closure notice is published to formalize the process.
A One Person Company is the most preferred choice for solo entrepreneurs embarking on their business journey. It offers numerous advantages through unparalleled features, like limited liability protection, a distinct legal identity, and simplified compliance with complete entitlement to 100% ownership and profits. This makes OPC the perfect synergy of individual control and flexible management. At Setindiabiz, we provide complete assistance in OPC formation, from incorporation to compliance, making sure your business is founded on the right legal foot. Get detailed consultation on the definition of One Person Company for a more comprehensive understanding.
FAQs
Q1: What is One Person Company?
The definition of One Person Company is mentioned under Section 2 (68) of the Companies Act. It is defined as a Private Company with one member who enjoys Limited Liability protection.
Q2: Can a foreign national or an NRI register an OPC in India?
Both Indian and Non-Resident Indians can open an OPC, provided they are Indian Citizens. Foreign citizens are barred from opening an OPC in India.
Q3: Is there a minimum capital requirement for OPCs?
No, the government has removed all minimum and maximum capital requirements for setting up an OPC. You can set up an OPC with any amount of adequate capital.
Q4: Can an OPC be converted into a private limited company?
Yes, OPC can easily be converted to a Private Limited Company anytime when it meets all the requirements. These include at least 2 shareholders, 2 directors, and an adequate amount of capital. Note that the threshold limit of capital for conversion has now been eliminated by the Government.
Q5: Is a physical office required for OPC registration?
Yes, an OPC must maintain a registered office address within India. This office will be the official correspondence address and the principal place where it maintains all important documents and account books.
Q6: What is the role of the nominee in an OPC?
The nominee is the successor of the shareholder who steps in the event of his demise or departure from his office. His appointment ensures the continuity of the OPC and is made during the registration process of the company itself.