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One Person Company

With a view to encourage entrepreneurship Companies Act 2013 introduced a new form of business structure termed as One Person Company, which provide platform to entrepreneurs and sole proprietors to start a business in a corporate framework.

Details about One Person Company

As the name suggests one person company is a company registered with only one person as a shareholder/director. OPC is form of proprietorship firm which possess distinct features of a private limited i.e. it is a separate legal entity having perpetual succession and limited liability of its member .These companies avail various exemptions under Companies Act 2013, although the act compels conversion of OPC in private limited if capital of OPC exceeds 50 lakh rupees.

Features

  • One Shareholder & one director

    One shareholder and one director is required, although maximum 15 directors can be appointed in an OPC. The sole director can be the sole shareholder himself and such sole person is required to be a Indian citizen/resident.

  • Eligibility to register OPC

    To start OPC in India Minor, Foreign National, Overseas Citizen of India and Non Resident Indian and Company/LLP/Body Corporate are not eligible.

  • Perpetual succession

    One person companies have perpetual succession therefore it has uninterrupted existence even on insolvency of its shareholder, on account of death of sole shareholder the nominee person act on his behalf. Existence of OPC ends only when the company is legally dissolved.

  • Not required to hold AGM and EGM

    Unlike Private limited Companies , OPC is not bound under the Companies Act 2013 to conduct Annual general meeting or extra ordinary general meeting, Thus for any business which is required to be transacted at an annual general meeting shall be transacted at a board meeting and such matters transacted are required to be entered in the minutes book.

  • Complete control over management

    In One Person Company the single director/share holder has complete control over the management of the company, unlike private limited company where minimum 2 director/shareholder are required and the controlling interest is divided among these two director/shareholder.

  • Conversion of OPC

    One person company to lose its status and is required to convert as a private limited company when its paid up capital exceeds Rs.50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years.

Pros & Cons

Pros

  • One person company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured. Even banking and financial institutions prefer to lend large financial assistance to a company rather than partnership firms or proprietary concerns.
  • Unlike a private limited or public limited company one person company is required to do very little compliance with the ROC. Provisions of holding annual general meeting, extra ordinary general meeting, rotation of auditors/directors as prescribe under the act does not apply to OPC .
  • The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability. One person company avails the advantages of limited liability and therefore the personal assets of the members are not liable for the debts of the company.
  • OPC is beneficial to sole proprietors because businesses currently running under the proprietorship model could get converted into the business of OPCs without any difficulty.

Cons

  • A OPC Cannot continue with its existence with a large amount of capital, Act compels conversion of OPC into a private limited company, if paid up capital of OPC exceeds Rs.50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years.
  • A one person company cannot have Foreign National, Overseas Citizen of India, Non Resident Indian and Company/LLP/Body Corporate Restricts as director/shareholder, thus OPC restricts foreign direct investments and only Indian resident can incorporate One Person Company.
  • Option of voluntarily conversion into any other business form say Private limited is not available to a one person company unless two years have expired from the date of incorporation of One Person Company. Conversion is possible only when it crosses the threshold limit of capital i.e. 50 lakh rupees.
  • OPC cannot voluntarily convert into any other kind of company before expiry of 2 years of its date of incorporation except if paid up capital is increased beyond Rs. 50 lakhs or annual turnover crosses Rs.2 Crores, it becomes mandatory for OPC to convert into private or public company within a period of 6 months of crossing the limits.

Applicable Taxes & Compliances

One person companies are subject to tax rate of 30% on tax profits. Tax profits are computed based on certain adjustments over book profit as per Indian Income tax law. The aforesaid tax rate is to be increased by surcharges and applicable cess as well. Currently surcharge is 7% of such tax, where total income exceeds one crore rupees but not exceeding ten crore rupees and at the rate of 12% of such tax, where total income exceeds ten crore rupees. Further 2% Education Cess and 1% Secondary and Higher Education Cess is also payable on tax amount and surcharge.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level legislation attracts on intra state sale of goods in India and on Inter-state sale of goods Central sales shall apply. It is a type of consumption tax which is imposed on the value of goods and services on each stage of its production and at final sale. Normally, the rate of Vat varies from state to state. The standard rate of VAT is 20% on the selling price.
In India, excise duty is liveable on manufacturing of goods and it is ultimately borne by the consumer as it a consumption based tax. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. The Liability to pay excise duty to the government lies with the producer of goods. At present, the rate of excise duty is 12.5% as per the excise law.
Import Export (IE) Code is mandatorily required to be obtained by any person/business entity importing or exporting goods and services to/from India unless specifically exempted. IE Code is a 10 digit unique code issued by Director General of Foreign Trade, Ministry of Commerce and Industries, Government of India to facilitate and identify all import and export to/from India. Private Limited Company engaged in export/import activities is required to obtain IE Code.
It is a tax imposed on the transaction value of goods imported in India and exported outside India. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. Custom Duties are usually levied with ad valorem rates on the base value of the transactions in the event of Import/Export of goods.
One person companies are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code, ROC registration, Professional Tax and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.
Labour laws in India are those bodies of laws which define the rights and obligations of workers, union members and employees working in an organization. Labour law covers Industrial relations, health and safety measures at workplace, define Employment standards and interlinks relationship between employees, employers and the government. Labour law is further divided into two broad categories i.e. collective labour law & individual labour law. Individual Labour law covers the rights of employees at workplace or at any contract of work whereas the collective labour laws governs the tripartite relationship between employee, employer and union

Some of the laws included in it are:

Employees Provident Funds and Miscellaneous Provisions Act, 1952

The Act is applicable to every establishment in which twenty or more persons are employed and a factory engaged in any industry specified in Schedule I of Act. Under this act both the employer and employee has to contribute 12% of the basic + Dearness Allowance of the employee’s salary to the EPF and EPS on monthly basis. The objective of this act is to provide financial security and stability in cases where employee no longer fir to work or at the time of retirement.

The Employees State Insurance Act –

Under this act the employer and employee has to contribute 4.75% and 1.75% each of the gross salary to ESIC. Its objective is to provide benefits to employees in case of sickness, injury or related matters. This act is applicable to the employees whose wages are up to 15000 pm.

The Payment of Gratuity Act –

Gratuity is a reward offered by the employer to his employee in the event of termination of his employment provided continuous service for not less than 5 years except in case of death or disablement of employee. Payment of gratuity is mandatory for those employers having more than 10 employees in an organization/factory/plantation/port/shops/mines etc. as per the provisions contained in Gratuity Act, 1972. Gratuity shall be payable @ 15 days wages for every year of completed service.

Procedure

How long Does It Take?

Obtaining DIN & DSC of the proposed director

1-5 Days

Obtaining DSC is the first and foremost step while incorporating private limited company and it can be applied online through any of the authorised dealers. Application for DIN is filled through online mode in prescribed Form DIR-3 based on the information of the applicant and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in along with the requisite documents of the applicant and prescribed fees.

Obtaining Name Approval from ROC

5-10 Days

Application for reservation of the name for the proposed company is required to be filed online in prescribed Form INC-1 along with minimum one and maximum six proposed name in order of preference and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in by paying the prescribed fees.

Drafting and Filling MOA, AOA and other incorporation documents with ROC

5-10 Days

Incorporation documents Such as Memorandum of association (MOA) and Articles of association (AOA) along with several/various declaration from directors/members are drafted and filled before the registrar in Form- INC-2 along with the prescribe fees and stamp duty as prescribe rates of Government.

Obtaining certificate of incorporation

2-3 Days

After due scrutiny and verification of documents submitted by the applicant, the ROC will issue certificate of Incorporation if everything goes fine otherwise requirement of resubmission would be raised up. The time period in receiving Certificate of Incorporation may vary and depending on the location and other factors.

FAQ

  • What are the requirements for starting a One Person Company?

    Minimum requirement: • One person, who should be a Indian resident and not an Foreign national or NRI. • Valid proofs have to be obtained by the person, who is going to start the company. • Valid proof for the registered office of the company.

  • Whom can I appoint as Nominee?

    Nominee should be any Resident of India. The term \"resident in India\" means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

  • Is an office required for starting a One Person Company?

    An address in India where the registered office of the One Person Company will be situated is required. The premises can be a commercial / industrial / residential where communication from the MCA will be received.

  • What are the requirements to be a Director or Nominee in an OPC?

    Only a natural person who is an Indian citizen and a resident in India is eligible to incorporate a One Person Company or be a nominee member. The Director or Nominee must also be over 18 years of age. A person can incorporate up to five One Person Companies.

  • I’m a foreign resident, can I incorporate a One person company in India?

    No, a Indian resident can only become Member/director of OPC else, Foreign National, Overseas Citizen of India, Non Resident Indian, Company/LLP/Body Corporate are not eligible to incorporate a One Person Company

  • What is the need for a Nominee?

    A one person company has only one director/ shareholder, in case of death / incapacity of such sole director/shareholder the nominee person becomes the shareholder of the company. A nominee has to be a resident Indian citizen. A nominee is a next of kin for an OPC. A nominee becomes the shareholder in case of death / incapacity for the original share holder. A nominee has to be a resident Indian citizen.

  • How many people are required to incorporate a One Person Company?

    To incorporate a One Person Company, a Director and a nominee is required. A nominee member is one, who shall, in the event of promoter member\'s death or incapacitation become a member of the Company.

  • Can I convert OPC further in Private limited company?

    Yes, a One Person Company converts itself into a Private Limited Company in following manner- Voluntary conversion When a One Person Company gets incorporated, it cannot convert itself to Private or Public company for a period of not less than two years from the date of incorporation. Means if you want to get converted voluntarily you have to wait for two years to over Compulsory Conversion When a One Person Company has a paid-up capital more or equal to Rs.50 lakhs or, the Annual turnover for the relevant financial year exceeds Rs.2 crore, then in such conditions, the company has to compulsorily convert itself into Private Limited Company or Public Limited Company.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

    Documents Required For Incorporating One Person Company Documents required from Directors/Promoters/Shareholders

  • Copy of Passport size photograph
  • Identity proof such as Aadhar Card/ Driving License/ Voter ID/ Passport
  • PAN card (Mandatory)
  • Copy of Latest Bank Statement/Telephone or Mobile/Electricity or Gas Bill.
  • NOC from landlord, if rented property

    Documents for Registered Office of Company

  • Copy of Notarised Sale deed/ Property Deed in English in case of owned property
  • Copy of Latest Bank Statement/Telephone or Mobile/Electricity or Gas Bill. (Any one,Not older than 2 months)
  • Notarised rental agreement or Lease Agreement in English along with No objection certificate from the owner
  • *Note-In case one of the shareholder or subscriber to the MOA and AOA is a Corporate Entity (Company, LLP, etc.) then Certificate of Incorporation of the Body Corporate must be attached along with the resolution passed in favour of Body Corporate to subscribe the shares of the proposed incorporated company.
  • *Note-In addition to the above proofs and documents, a number of documents and affidavits would be drafted by a Professional. These legal documents made specifically for the incorporation must be signed and notarized by the promoters of the Company.