Incorporation of One Person Company: Analysis

Incorporation of One Person Company: Analysis

One Person Company has only one member this is why it is known as one person Company.

Incorporation of One Person Company is not a new concept in the world rather it was legally recognized by many countries. In India, The Ministry of Corporate Affairs brought the concept of One Person Company to encourage the small entrepreneurs and businesses in 2013. Thus, the Companies Act, 2013 introduced the One Person Company system. OPC is an efficient and effective mechanism for small businesses as  Incorporation of OPC requires less tax and other legal compliances as compared to other kinds of Companies.

 

 

What is One Person Company?

Section 2(62) of The Companies Act, 2013 defines One Person Company as

“A Company which has only one person as a member”. 

 

What is the Eligibility to Incorporate One Person Company (OPC)?

Rule 3 of the Companies (Incorporation) Rules 2014 –

    1. Any natural Person can incorporate an OPC who is Indian Citizen and Resident in India.
    2. One Person Company must appoint a nominee so that when the sole member of the company dies or becomes incapacitated to act as a member.
    3. Minimum and Maximum number of Members – 1
    4. Minimum number of Directors – 1
    5. Maximum Number of Directors – 15
    6. Minimum Authorized Share Capital for OPC having Share Capital shall be 100,000/-
    7. Maximum Authorized Share Capital – 5 Lakh
    8. The One Person Company must use the word ‘OPC’ in brackets after its name. Section 3(1)(c)
    9. Easy conversion of Proprietorship into OPC
    10. The provisions of Companies Act, 2013 relating to General Meetings shall not apply to One Person Company [Section 98 and Sections 100 to 111] 

 

What are the benefits of OPC?

1. Limited Liability – Shareholder of OPC enjoys the Limited liability. Shareholder shall be liable to the extent of amount invested in the OPC.

2. Separate Legal Entity – Legal identity of OPC is different from that of Directors so the assets of the Company and of Directors are different. Hence, personal assets of the OPC are not used to pay the liabilities of OPC.

3. Perpetual Existence – The Company continues to exist even if it has zero members unless it’s closed in accordance with law.

4. More Credibility – OPC enjoys more credibility as it is registered with MCA.

5. Less ROC compliances – OPC has to comply less ROC Compliances as compare to Private limited company both at the time of Incorporation and while operating the Company.

6. Not required to prepare Cash Flow Statement as a part of Financial Statement.

7. Not required to hold Annual General Meeting.  

 

What are Prohibited Activities for OPC under Companies Act, 2013?

  1. OPC cannot be converted or incorporated into a Company under Section 8 of the Companies Act, 2013.
  2. OPCs cannot execute Non-Banking Financial Investment and other investments in Securities of any other body corporate.

 

What is the main Objective of OPC?

The main Objective of introducing OPC is to encourage the small businesses or individuals having resources to incorporate a company with less complications and challenges. Thus, Small Businesses are not required to observe a lot of complex legal compliances.

 

What are the Mandatory Documents required from First Director, Share Holder & Nominee for Incorporation of One Person Company?

  • PAN and Aadhar Card
  • Voter ID card or Driving Licence
  • Passport Size Photograph
  • Latest Bank Statement
  • Registered Office Address Proof

 

What is the process of OPC Incorporation?

1. Digital Signature Certificate (DSC)

The First step to Incorporate OPC is to obtain Digital Signature Certificate (DSC) for the proposed Directors.

Documents required for applying DSC are –

    • Aadhar Card
    • PAN Card
    • Photograph
    • Address Proof
    • Email Id
    • Phone Number

Apply for DSC

2. Name Approval (RUN) – Form INC-1

The next step is to decide the name of the Company. The name of the Company shall also have ‘OPC’ in its name in bracket. Thereafter, such name shall be approved by MCA.

3. Apply for Name Reservation – Form SPICe+ (Part A)

Since the name is decided so now apply for the reservation of name by filing Part A of SPICe+ Form with the ROC. Two names are required to be proposed for reservation, if Central Registration Centre (CRC) accepts the name then proceed with further steps and in case the CRC rejects the name then again 2 new names required to be filed within 15 days from the date of rejection.

Applicant can submit two name proposals for approval and is also allowed for one resubmission (RESUB) of name.

Apply for Name Approval

4. Appointment of Nominee – Form INC-3

It is mandatory for an OPC to be incorporated to appoint a Nominee, so in case the owner of the company loses its capacity than the Nominee shall become the member of the company. The consent of Nominee has to be obtained in Form INC-3.

Apply for filing of Form INC-3

5. File Form SPICe+ Part B

As the name gets reserved, now fill the Part B of Form SPICe+ online with the ROC within 20 days from the date of name approval.

This form shall contain all the required details such as Total number of members and directors, Authorized Share Capital, Details of Company. This form shall be annexed with following documents and forms –

    • SPICe+_Memorandum of Association (E-MOA)
    • SPICe+_Article of Association (E-AOA)
    • AGILE for GSTIN
    • INC-9 – Declaration of Subscribers or First Director of Company

File SPICe+ Part B

6. Issuance of Incorporation Certificate

Lastly, the ROC shall verify all the documents and forms and then ROC shall issue the Certificate of Incorporation in Form INC-11.

After the issuance of Incorporation Certificate, OPC can start its business.

Apply for the Incorporation of OPC

 

What are the types of OPCs on the basis of Incorporation?

  1. OPC Limited by Shares
  2. OPC Limited by Guarantee without Share Capital
  3. OPC Limited by Guarantee with Share Capital
  4. Unlimited OPC without Share Capital
  5. Unlimited OPC with Share Capital

 

When the status of OPC shall be ceased?

According to the Rule 6(1) of the Companies Incorporation Rules, 2014, the status of OPC shall be ceased on following grounds –

  1. When the Paid-up capital of OPC exceeds 50 lakh, or
  2. When the average annual turnover of the OPC exceeds 2 crore during the immediately preceding 3 consecutive financial years, or
  3. When the intimation to increase the threshold limit of the OPC has been filed in Form INC-5.

But in the Union Budget 2021, Finance Minister Nirmala Sitharaman has announced Changes regarding Incorporation of One Person Company w.e.f. 1st April 2021

  • Incorporation of One Person Companies with no restriction on paid-up capital and turnover.
  • Paid-up capital in one-person companies will now be allowed up to Rs 2 crore, while turnover limit has been increased till Rs 20 crore.

 

Conclusion

We can say that OPC is a hybrid structure of both Sole Proprietorship and of Company. This is why, the concept of OPC has become very popular among entrepreneurs looking forward to pursue a business with utmost freedoms with less personal liabilities and legal compliances.

Incorporating an OPC is a lengthy and complex process; if you are looking for professionals’’ help to incorporate your company then seek assistance from your trustworthy advisor, Manthan Experts.

Apply for the Incorporation of OPC


Knowledge Source:

LLP Registration Process in India

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