One Person Company | Perfect Accounting

One Person Company (OPC) in India:

Introduction

A One Person Company (OPC) is a form of business structure in India that allows a sole proprietor to limit their personal liability while still enjoying the benefits of a private limited company. OPCs were introduced in India through the Companies Act, 2013, with the aim of providing an easy and hassle-free way for entrepreneurs to start and operate a business.

Main Features:

Only one person: As the name suggests, an OPC can have only one member, who acts as the director and shareholder of the company.
Limited Liability: The liability of the member is limited to the shares held by him, thereby protecting the personal assets of the member.
Separate Legal Entity: OPCs are separate legal entities from their members, meaning that the members are not personally liable for the company's debts or liabilities.
Minimum Capital: There is no minimum capital requirement for OPCs, which makes it easier for small businesses and start-ups to register as an OPC.
Annual Compliance: OPCs are required to comply with certain annual formalities, such as filing annual returns and financial statements with the Registrar of Companies (ROC)
Nominee: OPC must have nominee, who will become the member of the OPC in case of the subscriber's death or incapacity.
Name: OPC must have the last word "Private Limited" in its name.
Compliances: OPC's are subject to similar compliance as Private Limited Company, but with less compliance burden.

Procedure for registering:

Obtain a Director Identification Number (DIN) and a Digital Signature Certificate (DSC) through the Ministry of Corporate Affairs' (MCA) website. These are mandatory for all directors of the OPC.
File the INC-1 form with the Registrar of Companies (ROC) along with the necessary documents such as the Memorandum of Association (MOA) and Articles of Association (AOA), along with the required fees.
Obtain a certificate of incorporation from the ROC, which serves as the official registration of the OPC.
Obtain PAN and TAN for the company, and open a bank account in the company's name.

Documentation:

Director Identification Number (DIN) and Digital Signature Certificate (DSC) of the proposed director.
Proof of identity and address of the proposed director (such as a PAN card, passport, driving license, voter ID, or utility bill).
A copy of the proposed company's Memorandum of Association (MOA) and Articles of Association (AOA).
An NOC (No Objection Certificate) from the owner of the proposed registered office address.
An affidavit from the proposed director, stating that he/she is the sole member of the OPC.
A declaration from the proposed director, stating that the OPC is not a subsidiary of any other company.
A declaration by the proposed director, that he/she is not an undischarged insolvent.
An estimate of the company's projected turnover for the next three financial years.
A copy of PAN card and proof of address of the nominee.

Advantages of an OPC:

Limited liability protection for the owner: The OPC's owner is not personally liable for the company's debts or liabilities, limiting the risk of personal financial loss.
Separation of personal and business finances: The OPC structure allows for the separation of personal and business finances, which can make it easier to manage the business and maintain a clear record of transactions.
Ability to raise capital more easily: OPCs are considered more credible than sole proprietorships and can raise capital more easily from investors, banks, and other financial institutions.
Enhanced credibility and professionalism: OPCs are considered more professional and credible than sole proprietorships, which can help to attract more customers and business partners.

Disadvantages of an OPC:

Only one member, so no scope of partnership: As the name suggests, an OPC can have only one member, which means that the business cannot have partners or shareholders, and the owner will have to bear all the responsibility of the company alone.
Limited to raise funds from public: OPCs are not allowed to raise funds from the public, which can make it more difficult to raise capital for the business.
Annual compliance formalities are mandatory: OPCs are required to comply with certain annual formalities, such as filing annual returns and financial statements, which can be time-consuming and costly.
The business may be affected if the sole owner is unable to continue running it. If the owner is unable to continue running the business due to any reason, the business may be affected.

Difference between Sole Proprietary Firms:

A sole proprietorship and a One Person Company (OPC) are two different forms of business structure in India. The main differences between the two are:

Liability: In a sole proprietorship, the owner is personally liable for all the debts and liabilities of the business. In contrast, the liability of the member of an OPC is limited to the shares held by him, thereby protecting the personal assets of the member.
Separate Legal Entity: A sole proprietorship is not a separate legal entity from its owner, meaning that the owner is personally liable for the business's debts and liabilities. An OPC, on the other hand, is a separate legal entity from its member, meaning that the member is not personally liable for the company's debts or liabilities.
Number of Owners: A sole proprietorship can have only one owner, while an OPC can have only one member.
Credibility: A sole proprietorship may be seen as less credible by customers, suppliers and investors, while an OPC is considered more credible as it is a separate legal entity.
Compliance: A sole proprietorship is subject to less compliance requirements as compared to an OPC, which is subject to similar compliance as a private limited company.
Fundraising: A sole proprietorship can't raise funds from the public, while an OPC can raise funds from banks and financial institutions.

Conclusion

a One Person Company (OPC) is a form of business structure in India that allows a sole proprietor to limit their personal liability while still enjoying the benefits of a private limited company. OPCs were introduced in India through the Companies Act, 2013 as an easy and hassle-free way for entrepreneurs to start and operate a business. The main features of an OPC are that it can have only one member, who acts as the director and shareholder of the company, have limited liability, separate legal entities, no minimum capital requirements, annual compliance formalities and mandatory nominee. However, OPCs have some limitations such as no scope for partnership, limited ability to raise funds from public, and the business may be affected if the sole owner is unable to continue running it. On the other hand, a sole proprietorship is a business owned and run by one person, the owner is personally liable for all the debts and liabilities of the business, no separate legal entity, and subject to less compliance. Both the forms of business have their own pros and cons, it's always a good idea to consult with a professional before starting any business or for any specific advice.

It's worth noting that OPC is a recent concept in India and it's still evolving, so it's always a good idea to consult with a professional before starting an OPC or for any specific advice. An experienced professional can guide you through the process of registration and compliance, and help you to make the best decision for your business.

Enquire Now