ONE PERSON COMPANY
According to the Companies Act of 2013, a One Person Company (OPC) represents a distinctive entity, enabling individuals to establish a company, integrating the principles of limited liability and succession. It allows for sole ownership and operation under an individual's name.
Before the enactment of the Companies Act of 2013, only two individuals could establish a company. The Companies Act of 2013 facilitates the establishment of One Person Companies (OPCs) in India, regulating their registration and operations. Unlike public or private companies, which require multiple directors and members, an OPC can be formed with a single director and member, as mandated by Section 262 of the Companies Act of 2013. This legal framework streamlines the registration process, imposing fewer compliance obligations compared to private corporations.
BENEFITS OF ONE PERSON COMPANY
Legal Status
By granting OPC registration, a separate legal entity status is established, safeguarding the sole incorporator from personal liability. The member's liability is limited to the value of their shares, shielding them from the company's losses. Consequently, creditors may only sue the OPC, not the member or director.
Easy Funding
As a private company, OPCs in India enjoy simplified access to funding from venture capital, angel investors, and other sources, facilitating the process of raising capital.
Reduced Compliance
OPC registration benefits from exemptions under the Companies Act of 2013, alleviating the burden of compliance. Cash flow statement preparation and annual report maintenance are not mandatory for OPCs.
Seamless Incorporation
Integration of OPCs in India is hassle-free, with no minimum paid-up capital requirement. Approval for integration can be provided by a member serving as a director, simplifying the process.
Efficient Management
With a single person overseeing the OPC, decision-making is straightforward and prompt. The member can easily pass resolutions by documenting them in the minutes book and obtaining another member's signature, ensuring smooth management without internal disputes or delays.
Perpetual Succession
Despite having only one member, OPCs maintain perpetual succession. During incorporation, the single-member appoints a nominee who would assume control in the event of the member's demise, ensuring continuous operation of the company OPCs in India are taxed similarly to Private Limited Companies (PLCs), with a flat 30% tax rate on net profits, and they are also subject to Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) if applicable.
Documents Required For Registering OPC
As part of the OPC registration process, it is necessary to prepare and submit several essential documents to the Registrar of Companies (ROC):
1. Memorandum of Association (MoA)
2. Articles of Association (AoA)
3. The nominee's consent, accompanied by their PAN card and Aadhaar card, submitted through Form INC-3.
4. Proof of Registered Office
5. The proposed director is required to provide a declaration in Form INC-9 and their consent in Form DIR-2.
6. A declaration by a qualified professional certifying compliance with all necessary legal requirements.
Compliances for the OPC
However, there are specific tax considerations for OPCs:
No Dividend Distribution Tax (DDT): If the sole shareholder of an OPC opts not to receive dividends, DDT is not applicable, offering a potential tax advantage compared to PLCs.
Perquisite Taxation: Perquisites provided to the sole director, like car allowances or mobile phone bills, are taxable as part of their salary income, mirroring the treatment for employees in any company.
Fringe Benefit Tax (FBT): Fringe benefits provided to employees, such as free meals or club memberships, are subject to FBT at a flat rate of 30%.
Goods and Services Tax (GST): OPCs registered under GST must adhere to the same filing and compliance requirements as other businesses. The applicable GST rate depends on the category of goods or services.
Income Tax Return (ITR): OPCs file their ITR using Form ITR-6, similar to other companies, with the deadline for filing being September 30th of each financial year.
Tax Audits: OPCs with a turnover exceeding Rs. 2 crores in a financial year must have their accounts audited by a Chartered Accountant.
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Frequently asked questions
Who is eligible for the OPC?
An OPC can only be formed by a natural person who is both an Indian citizen and a resident of India. Furthermore, an individual is not permitted to be a member of more than one OPC simultaneously.
Can an OPC have a minor as its member?
An OPC cannot include a minor as a member.
Is OPC public or private?
OPC functions as a private company, possessing all its characteristics, except for its unique attribute of having only one shareholder.
What is the tax rate for OPC?
As of my last update in September 2021, the tax rate for OPCs in India aligns with that of other private companies. Companies with a turnover of up to 400 crore INR are subject to a corporate tax rate of 25%, while those with a higher turnover face a rate of 30%. Additionally, there may be additional taxes depending on the business's nature and activities.
What is the role of a nominee in an OPC?
A nominee is designated to assume control of the OPC if the director passes away or becomes incapacitated.
Can OPC have directors?
Certainly, an OPC may appoint directors, but it must maintain a minimum of one director consistently. By default, the sole shareholder also serves as the director.
Can a one person company issue shares?
No, a one-person company is prohibited from issuing shares to the public, as it cannot raise funds through public share issuance. It is limited to having only one shareholder who possesses 100% of the shares.