Raising a simple business idea to that of a full-fledged corporation is something most one-person businessmen or businesswomen dread. The Ministry of Corporate Affairs (MCA) has recently released its data of companies registered by individuals. It states that at the end of the first year of registration under the provisions of the Companies Act 2013 a total number of 1.5 lakh companies were registered as One Person Company in India.
This was a clear sign that there is a massive shift happening in how a sole businessman looks at liability and credibility. So this piece serves as your reference for a one person company where you will learn the registration process, costs, and other important aspects, among others.
What is a One Person Company (OPC) Under the Companies Act, 2013?
One Person Company (OPC) represents the corporate business model that the Companies Act, 2013 brought about for the first time in India. The concept was that only one person can be a member of the company as well as a shareholder, and get all the benefits that come with the corporate status, while holding absolute ownership.
The idea is to give entrepreneurs who want to do business with limited liability but are not inclined to take the multi-member company route due to the administrative burden. The main attributes of an OPC are having a single shareholder/member, being a separate legal entity, and naming a nominee through whom the company will be handed in case the shareholder goes away due to death or loses their capacity for any reason. In that respect it has become a perfect middle ground which allows the sole proprietor to benefit from a limited company in a full manner without having some of the drawbacks.
Advantages of One Person Company: Why Choose an OPC?
The company structure allows business to grow by attracting different levels of investors. The investors know that they can have a certain level of control over their investments because company structure usually allows them to vote on big decisions in the company. So if you want your business to grow fast and become big, setting up a company structure should be one of your steps.
The idea behind the Companies Act’s introduction of one-person companies is to encourage small businesspersons, entrepreneurs, professional experts, independent contractors and the like to set up independent businesses as a one-person company and still enjoy a business entity status as company and be able to benefit from the various legal forms available to the Indian Company.
Limited Liability
When it comes to an OPC, the liability remains only limited to the amount of shares subscribed (paid-up) by the sole members or shareholders. But, in certain cases, even an OPC can have the same limited liability as a general company, but the members shall have liability only up to the amount outstanding to them after their subscription to the shares in question. In general, this limitation of liability may apply both in cases of OPCs and of general companies, depending upon the circumstances and the interpretation of the Companies Act.
Separate Legal Identity
The company has both a separate legal entity as an OPC is treated as a distinct person under the law. This feature enables the company to own property and incur debt in its own name. It allows the company to have bank accounts in its name, which is very important for day-to-day operations of the company, as it means the financial affairs of a sole proprietorship business will be quite distinct from the sole proprietor/owner’s accounts.
Less Administrative Burden
One of the main benefits of forming a one-person company is that you can take advantage of the limited liability and also enjoy the benefit of being incorporated as a company. A one-person company brings you with a shield in case of any business-related claims or liabilities. But, a single proprietorship or a partnership firm would leave the sole/owners’ personal assets vulnerable against business debts and claims.
Easier to Secure Loans
Banks are also likely to be more comfortable lending larger amounts of money to a business that has a company structure and hence, a higher perceived capacity to generate profits. This makes it easier, on one hand, to raise capital in the form of debts and on the other hand, to obtain credit on a more permanent basis from the bank to fund operations. A company incorporated in the way of a company has a higher capacity to raise debts because it shows a better risk profile to lenders.
One Person Company Registration Process: A Step-by-Step Guide
The registration of an OPC as one person company is a legal procedure carried out by the Ministry of Corporate Affairs (MCA) at the MCA portal. On an average, if documents are properly prepared, it takes 7-10 days for incorporation.
Step 1: Obtain Digital Signature Certificate and DIN
The first and fundamental task is to register for the Digital Signature Certificate (DSC) for the prospective Director since most of the filings at ROC are in paperless mode. After that, it is necessary to obtain a Director Identification Number (DIN) by completing the DIR-3 form filing. DSC and DIN are mandatory requirements for the incorporation of business.
Step 2: Name Reservation and Filing of SPICe+ Form
You need to use the RESERVE Unique Name (RUN) form on the MCA portal to check the names and apply for a unique name approval. Then, to file the application of incorporation, you have to register SPICe+ (INC-32) – the one form that will also include the forms for PAN, TAN registration, and getting the company on the list of the ESI scheme and EPFO scheme. Besides the certificate (CPR), Memorandum of Association (MOA) and the Articles of Association (AOA) of the company must be attached.
Step 3: Payment of Fees and Issuance of Certificate
After submitting the eForm SPICe+, you ought to make a payment of the prescribed company registration fees and stamp duties as per the applicable rules of your state. The registration fee of OPC will differ given the registered capital. When the application is reviewed and approved by the ROC Registrar, they will issue the Certificate of Incorporation, and that means your OPC is legally incorporated!
Is GST Registration Mandatory for an OPC?
GST is one of the questions that often comes to mind of an entrepreneur who just started the business – the question of the requirement of getting the tax ID for an OPC. It is not an automatic requirement though. The only condition when GST registration is compulsory is the excess of the annual turnover of OPC over the threshold, i.e. ₹40 lakhs for goods and ₹20 lakhs for services.
If the turnover is below these limits, then GST registration is optional. Yet, it is still advantageous to get registered voluntarily and this allows claiming input tax credit and issuing a GST invoice which is required when it comes to B2B transactions.
Quick Glance at the One Person Company Checklist
Sure, the first thing to do is to get your one person company registered. So here is a fast way of getting everything together before embarking on the journey of company registration:
- Select a nominee: Select a nominee who will assume control if you are unavailable, absent, or incapacitated.
- Pick a company name: Make sure your company’s name stands out by doing a check and also ensure it complies with MCA naming policies.
- Gather the necessary documents: You will need your PAN card, Aadhaar, and ID proof, and passport-sized photographs.
- Find a registered office address: Obtain and hold a physical office address that is going to be the company’s registered address.
- Determine share capital: You need to find out how many shares are going to be authorized since this aspect plays a role in computing the registration fees.
Conclusion
Entrepreneurs running alone who are seeking a corporate identity without having partners should consider one person company (OPC). It gives limited liability protection, corporate entity, and easier running. Still, the OPC comes with certain downsides like restricted access to external capital and the obligation to adhere to higher levels of corporate compliance.
To help small and medium enterprises, these disadvantages may still pale compared to the benefits. So if you fit this business persona, register your business as a one person company (OPC) with Foxtax. Besides, we can also assist you throughout the OPC registration process enough that the launch will become a smooth and a legal-compliant event for your business venture.
Frequently Asked Questions (FAQ)
Q1: What are the advantages and disadvantages of a one person company?
Some of the benefits that one person company offers are that the director/shareholder will not be personally liable in case of company’s debts, there will be separation of legal entities (i.e. the company and its shareholders are legally different entities), which can improve the firm’s reputation, and in addition, the company gets the opportunity of better tax plans to choose from.
However, there are some limitations like that one person company cannot raise public capital, it is a more tedious procedure to keep one person company in order from the compliance perspective, and if the turnover goes beyond the threshold limit then the company has to be automatically converted into a Private Limited Company.
Q2: What is OPC registration?
OPC registration is the process of legally incorporating a company whose sole shareholder and director is one person following section 3(1)(c) of the Companies Act 2013. It includes getting a Digital Signature Certificate (DSC), Director Identification Number (DIN), reserving a company name, and then filing the incorporation documents (SPICe+ form) with the Registrar of Companies (ROC) to have the Certificate of Incorporation issued.
Q3: What is the turnover limit for an OPC?
An OPC has to be automatically transformed into a Private Limited Company whenever the firm’s average annual turnover exceeds ₹2 crore for three consecutive years. Also if its paid-up share capital is more than ₹50 lakh the company will be mandatory transformed into a Private Limited Company.
Q4: Is a one person company the same as a one person LLC?
No, they are different. A one person LLC stands for (Limited Liability Company) a business entity which is mainly found in the United States and has features of taxation being ‘pass-through’ while a one person company is a company law concept (Companies Act 2013) and this is a separate legal entity which is taxed at a corporate level (Companies Act 2013). Each has different legal and tax implications.
Q5: What is the full form of OPC certificate?
OPC certificate’s expansion refers to “Certificate Of Incorporation Of One Person Company,” the only document which will authenticate the legal existence of OPC and will be issued by the Registrar of Companies (ROC) for that purpose.
Q6: What are the registration charges for an OPC?
OPC registration charges are dependent on the authorized capital of the company and the state where the company is being incorporated. Registration fees consist of government fees (stamp duty, ROC filing fees) and professional charges for services like getting the client’s DSC/DIN and document drafting. The full amount is generally between ₹6,000 and ₹15,000.