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One Person Company (OPC) is a type of business entity in India where a single person has full control and ownership of the company and is responsible for all its debts and obligations. An OPC provides the benefits of a limited liability company to the owner while still allowing them to have complete control over the business operations.
When compared to other business structures, a One Person Company (OPC) has numerous advantages. Some of them are:
Sole Ownership:
Sole ownership refers to the situation where a single person has complete control and ownership over a business or property. In the case of a one-person company (OPC), the owner owns the entire company and has complete control over its operations, profits, and assets. The owner is responsible for all the debts and obligations of the company and has complete authority to manage it as they see fit.
Ease of Formation:
Easy formation is one of the key benefits of a one-person company (OPC) in India. The process of registering an OPC is relatively simple and straightforward compared to other forms of business entities. It requires fewer compliance checks and fewer documents. It makes it an attractive option for entrepreneurs and individuals who want to start their own business but want to avoid the complexities associated with other forms of companies.
Limited Liability:
Limited liability refers to the protection of an individual's personal assets in the event of business debts or liabilities. In the case of a one-person company (OPC), the owner's personal assets are protected from the debts or obligations of the company. It means that in the event that the company is unable to pay its debts, the owner's personal assets, such as their home, car, or savings, cannot be seized to repay the debts. This provides a level of financial protection for the owner and helps to minimise the risks associated with starting and running a business. The limited liability feature of an OPC makes it an attractive option for entrepreneurs and individuals who want to start their own business but are concerned about the potential risks involved.
Single Person Management:
The single-person management structure of an OPC makes it an attractive option for entrepreneurs and individuals who want to start their own business and have complete control over its operations. A single person can manage the company without the need for a board of directors or regular meetings. This allows the owner to make all decisions related to the operations, profits, and assets of the company without the need for consultation with or approval from others. It is also a cost-effective option, as it eliminates the need for additional employees or board members.
Better Recognition:
As an OPC is recognised as a separate legal entity, it can carry out commercial transactions in its own name and enter into contracts with third parties. This can increase the credibility and trust of the company, as customers and suppliers are assured that they are dealing with a legitimate business that is separate from the personal finances and assets of the owner. Banks are also more likely to provide financial assistance to a separate legal entity as it reduces their risk of non-repayment.
Cost-effective:
An OPC has fewer compliance and maintenance costs, which can help reduce the financial burden on the owner. This can make it a more attractive option for entrepreneurs and individuals who want to start their own business but have limited resources or budget. Additionally, the single-person management structure of an OPC eliminates the need for additional employees or board members, which can further reduce the costs associated with running the business.
Capital restrictions:
One-person companies are limited to a single owner, making it difficult to raise capital for business expansion or growth.
Mandatory Conversion:
If the paid-up share capital of a one-person company (OPC) exceeds INR 50 lakhs or if its average annual turnover in the immediately preceding three financial years exceeds INR 2 crores, the OPC must convert it into a private company or a public company. It involves more government fees and paperwork.
Only suitable for small businesses:
One-person companies (OPCs) are primarily suited for small businesses or solo entrepreneurs who are looking for a simple and flexible business structure.
NRIs Are Not Allowed:
NRIs are not permitted to incorporate an OPC.
Not allowed to do banking activities:
One-person companies (OPCs) are not allowed to carry out non-banking financial investment activities, including investments in securities. The Reserve Bank of India (RBI) has issued guidelines prohibiting OPCs from engaging in these activities as they are considered high-risk and require a more stringent regulatory framework.
OPC can be converted into other forms of company in two ways:
Voluntary Conversion:
According to the provisions of the Companies Act, 2013, a one-person company (OPC) can voluntarily convert into a private limited company or public company only if two years have elapsed from the date of its incorporation. If the OPC’s paid-up share capital exceeds Rs. 50 lakhs or if its average turnover exceeds Rs. 2 crores, then the OPC can convert into a private or public limited company within two months. In such a case, the OPC must inform the Registrar of Companies (ROC) by filing form INC-5 within 60 days.
Mandatory/Compulsory Conversion:
According to the Companies Act 2013, if a One Person Company (OPC)'s paid-up share capital exceeds INR 50 lakhs or its average annual turnover in the three preceding fiscal years exceeds INR 2 crores, the OPC must convert itself into either a private or public company. This conversion is necessary to ensure that the business operates in compliance with the legal requirements and to provide better protection to its stakeholders.
It is mandatory for a one-person company (OPC) to notify the Registrar of Companies (ROC) about its intention to convert. The process of converting an OPC involves various steps and requires compliance with the provisions of the Companies Act, 2013, and the Companies (Incorporation) Rules, 2014. The OPC must discuss its conversion plans with the ROC and follow the procedures as outlined in the Act and the Rules. Intimation shall be filed on Form INC-5.
The OPC's board of directors must pass a resolution to approve the conversion and the proposed changes to the Memorandum of Association (MOA) and Articles of Association (AOA) of the company. This resolution must be recorded in the minutes of the board meeting and must be filed with the Registrar of Companies (ROC) as part of the conversion process.
After passing the Board Resolution, the next step in the process of converting to OPC is to file an application in e-Form INC-6 with the Registrar of Companies (ROC).
E-Form INC-6 is used to file the altered Memorandum of Association (MOA) and Articles of Association (AOA) of the company, reflecting the change in its status. The application should include the details of the proposed changes to the MOA and AOA, as well as the board resolution approving the conversion. It's important to ensure that all the required information and attachments are complete and accurate, as any discrepancies or incompleteness in the application may result in the ROC rejecting the form or seeking additional information.
According to the Companies Act 2013 in India, an individual who is not a minor, is an Indian resident, and holds a valid PAN card is eligible to act as a member of a one-person company (OPC). The individual must also be of sound mind and not be disqualified from being a member of a company under any law for the time being in force.
An individual can act as a member of only One Person Company (OPC) at a time. This means that an individual cannot be a member of more than one OPC simultaneously.
Yes, while forming an OPC, the sole director/shareholder must appoint a nominee, and this appointment must be recorded in the articles of association of the company. The nominee is appointed to ensure the continuation of the business in the event of the death or incapacity of the sole member.
No, a non-resident Indian (NRI) is not eligible to act as a member of a one-person company (OPC) in India. According to the Companies Act 2013 in India, only Indian residents who hold a valid PAN card and meet the other eligibility criteria can act as members of an OPC.
According to the Companies Act 2013 in India, a one-person company (OPC) must mandatorily convert into a private company if the following criteria are met:
Once the OPC meets either of these criteria, it must make the conversion within a period of six months from the end of the financial year in which the criteria were met. The conversion process involves filing the necessary forms and documents with the Registrar of Companies (ROC), and the OPC must also comply with the requirements for private companies under the Companies Act 2013.
One Person Companies (OPCs) are not allowed to carry out non-banking financial investment activities, including investments in securities. The Reserve Bank of India (RBI) has issued guidelines prohibiting OPCs from engaging in these activities as they are considered high-risk and require a more stringent regulatory framework.
Yes, an audit is mandatory for a one-person company (OPC). The Companies Act of 2013 requires an OPC to appoint a qualified chartered accountant to conduct an annual audit of its financial statements.
No, a one-person company (OPC) cannot be incorporated as a public limited company. An OPC is a special type of company designed for single-person businesses, and it has specific characteristics that differentiate it from other types of companies, including public limited companies.
An OPC must hold a minimum of two board meetings in a year, but holding an annual general meeting (AGM) every year is not a requirement. Additionally, it is necessary to file the required annual returns, statements, and financial documents every year, including income tax returns, Form DIR-3 KYC for KYC of directors, and financial statements.
The compliance requirements for a one-person company (OPC) can be relatively simple compared to those of other business structures, but they still need to be followed to ensure legal compliance.
MyLegalBusiness.com team has extensive experience with business registrations. We can help with the registration of OPC in very easy steps.