OPC Registration– An Overview
All About OPC Registration and Overview
An OPC is a business structure that enjoys the benefits of both forms of business, i.e., a sole proprietorship and a company. Thus, it eliminates the hassles of finding the right kind of co-partner/s for starting a business as a registered entity. The structure of the one-person company (OPC) in recent times was launched as a refinement of the structure of a sole proprietorship firm. In an OPC, a single promoter gains full authority over the company thereby, restricting his/her liability towards their contributions to the enterprise. Therefore, the said person will be the sole shareholder and director (however, a director nominee is present, but has zero power until the real director proves incapable of carrying on). Additionally, in case the paid-up share capital of an OPC exceeds fifty lakh rupees or its average annual turnover of immediately preceding three consecutive financial years exceeds two crore rupees, then the OPC has to mandatorily convert itself into private or public company.
According to Section 2 (62) of the Company’s Act 2013, a company can be formed with just 1 director and 1 member. One Person Company registration in India is a type of entity where there are lesser compliances requirements than that of a Private Limited Company.
A One Person Company Registration in India can be obtained under the Companies Act 2013 with just one single member and one Director. The Director and member can also be the same person. Here an individual means Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC. For the above purpose, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty-two days during the immediately preceding one financial year.
One Person Company Registration provides various benefits beyond sole proprietor firm. The legitimacy of your business firm is enhanced by having a registered company under MCA. It assists your business in the following ways:
- A single owner can incorporate company
- Unlike Sole proprietor firm, Your company name is secure and cannot be copied by others
- Less compliances
- Limited liabilities of its director
- Suitable for availing Banking loans, credits
- Less Income Tax Rate as compare to sole proprietor
- No intervention from any third person can be involved
- Ownership easily transferable to nominee in case of death of owner
In an OPC a single person can run a company limited by shares and in sole proprietorships, the entity is owned by a person where there is no distinction between the owner and the business. Here is the difference between them:
- Limited Liability-In an OPC as it is a separate legal entity the liability of the shareholder is limited to unpaid subscription money in his name. On the other hand, the liability of the sole proprietorship is such that any claims made against him will be made against the business.
- Tax bracket– If your company is unique and has the potential to create larger employment opportunities, then you can register your OPC under the Start-up India scheme of the Government and take the Income Tax benefit for at least five years.
- Succession-A nominee is appointed by the member. The Nominee will run the Company in the event of death of the member or incapacitation. But in the case of the sole proprietorship, this can only happen by executing a will that may or may not is challenged in a court of law.
- Compliances-An OPC registered in India has to file annual returns just like a normal company and would also need to get the accounts audited for the same. Whereas the sole proprietorship would only need to get audited under the provisions of Section 44AB of the Income Tax Act,1961 once the turnover crosses the threshold.
There are various reasons to register your business as One Person Company:
- Director’s Personal Assets Have Limited Liability Protection
- Easy to raise loans and overdraft limits with a better image and reputation in the market
- No involvement of outsider third party
- Comparatively low-income tax rate compares to sole proprietor firm
- When compared to other corporate forms of business, compliance is lesser
Despite having major advantages, opening a one-person company also comes with a certain set of restrictions.
- Not Apt for Scalability-Registering your business as an OPC is a perfect option for a small business structure. However, if you are planning to scale it up on greater levels then this might not work.at any given time the total number of people in an OPC is always one. If you are planning to add more members and have more shareholders you cannot register your business as OPC. So OPC is not apt to raise further capital. This will inhibit the expansion and growth of businesses.
- Higher Restrictions on Business Activities-As per the rules and regulations, OPC is not permitted to conduct non-banking financial investment activities. Registering yourself as an OPC will not provide freedom to invest in the security of other corporations.
- No Clear Distinction Between Ownership and Management-Since the one-person company has a single person to act as both the director of the company and the management there is no clear distinction between both roles. A single person is permitted to take and approve all the decisions. So, there are higher chances of unethical practices.
One should fulfil the following eligibility criteria before registering as One Person Company: –
- A natural person who is a resident of India can form OPC in the preceding calendar year.
- Only one member can form an OPC.
- The name should be unique and should not be similar to any other existing company and trademark.
- An individual cannot incorporate more than 1 OPC, or an individual cannot be the nominee of more than 1 OPC.
- There must be a least one director.
- One Person Company must include in its name (OPC) Private Limited.
- Prior condition to indicate the name of the other individual as a nominee. As in the event of the death of the subscriber, a nominee becomes a member of the One Person Company.