A new concept has been introduced in the Company’s Act 2013, about the One Person Company (OPC). In a Private Company, a minimum of 2 Directors and Members are required whereas in a Public Company, a minimum of 3 Directors and a minimum of 7 members. A single person could not incorporate a Company previously.
But now as per Section 62 of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member. It is a form of a private company but the compliance requirements are lesser than that of a private company.
The biggest difference between a sole proprietor and a One Person Company would be that in case of a One Person Company, your liability in case the business fails, is limited to only the business assets. In case of a proprietorship, the liability is unlimited and the creditors of your business can even take hold of your home and personal assets like your house, personal bank accounts, jewellery etc which can be used to settle the business liabilities.
One share holder:
This is the fundamental concept of a One Person Company. In fact, One Person Company is defined in the Companies Act as a Company which has only one member. A single shareholder holds 100 percent shareholding.
The thing to be kept in mind is that the Company Incorporation Rules provide that only a natural person who is a resident of india and also a citizen of india can form a one person company. It means that other legal entities like companies or societies or other corporate entities cannot form a one person company.
Further it also means that Non resident Indians or Foreign citizens can not form a One person company. Further the rules also specify that a person can be a shareholder in only one one person company at any given time. It simply means an individual cannot have two different one person companies in his name.
- One Director
The other important point is that a One Person Company may have only one director. But at the same time there is no bar on more number of directors. However, as per the Act, the total number of directors shall not be more than 15.
As per the Companies Act, if nothing is mentioned in the incorporation document, it would be assumed the sole shareholder shall also be the sole director in the one person company and which shall be practically the case in most One Person Companies incorporated.
This is a very important concept where the person forming the One Person Company has to nominate a Nominee with his written consent who, in the event of death or inability to contract of the owner of the One Person Company, shall come forward and take over the reins of the one person company.
Please note that the requirements of being a resident Indian and citizen of India also apply to the nominee. Further if the person so nominated becomes the member of such a One Person Company and is already a member of another One Person Company, at the same time, by virtue of rules has to decide within 6 months which one person company he has to continue. One more thing, the member can change the nominee at any point of time.
On the death of the sole member, the nominee shall be the person recognized by the company as having title to all the shares of the member. Such nominee shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable.
On becoming member, such nominee shall nominate any other person with the prior written consent of such person who, shall in the event of the death of the member, become the member of the company
Since nothing has been specified as such by the finance ministry, it is assumed that the rates of taxation applicable for a private limited company shall apply to a One Person Company. Net profits, which are calculated by deducting all allowable expenses from the turnover of sales, shall be taxable at the rate of 30 percentage + education cess.
- Freedom from compliance
One Person Company also gets freedom from complying with many requirements as normally applicable to other private limited Companies. Certain sections like Section 96, 98 and sections 100 to 111 are not applicable for a One Person Company. Some of these are mentioned below:
– No requirement to hold annual or extra ordinary general meetings. Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
– For the purposes of holding board meetings, in case of a OPC which has only One director, it shall be sufficient compliance if all resolutions required to be passed by such a company at a board meeting are entered in a minute book – signed and dated by the member and such date shall be deemed to have the date of the board meeting for all the purposes under Companies Act, 2013.
– No requirement of preparing cash Flow in the annual financial statements
– Annual returns can be signed by the Director himself instead of A Company Secretary
- Related Party Transactions
Where One Person Company enters into a contract with the sole owner of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.
Further, the company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board.
This clause shall be very much in vogue since the business of the One Person Company may use many assets of the owner and may pay compensation for that. Examples may be rent paid for using property or machinery or Furniture owned by the Owner. It may pay interest on loans taken from the owner. It may pay salaries to the Owner. All these contracts are covered under the section.
- The person who is already a member or nominee of 1 OPC, cannot incorporate more than 1 OPC or become nominee in more than one such company
- No minor can become a member or nominee of an OPC
- OPC cannot carry out Non Banking Financial Investment activities including investment in securities of any body corporate
- No company can convert voluntarily into any kind of company before 2 years from the date of incorporation except if reached threshold limits
- 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.
- The OPC shall inform RoC in form INC-5, if the threshold limits is exceeded and is required to be converted into private or public company. Form INC-5 shall be filed within sixty days of exceeding threshold limits.
- Form INC-6 shall be filed by an OPC for conversion of an OPC into private or public company.
- Yes, the private company will also file form INC-6 for converting itself into an OPC. The paid up share capital of private company should not be exceeding fifty lakh rupees and should not have average annual turnover more than two crore rupees at the time of such conversion into OPC. The company shall be having one member and shall appoint one nominee to act as member in case of death or incapacity of the member at the time of conversion into OPC.
- Form INC-6 shall be filed within 30 days in case of voluntary conversion and within six months of mandatory conversion.
Steps to for One Person Company Registration:
- Apply for DSC: The first Step is to obtain the Digital Signature Certificate (DSC) of the proposed Director which required the following documents:
- Apply for DIN:Once the DSC is made, the next step is to apply for the DIN of the proposed Director in Form DIR – 3 along with the name and the address proof of the director.
- Name Application:The next step while incorporating an OPC is to decide on the name of the Company. The name of the Company will be in the form of “XYV (OPC) Private Limited”. We have to file INC – 1 for the name approval to the Ministry of Corporate Affairs (MCA) by giving 6 names in the order of the preference along with the significance of keeping that name. Once the name is approved by the MCA we move on to the next step.
- 4. We have to prepare the following documents which are required to be submitted to the ROC:
The Memorandum of Association which are the objects to be followed by the Company or stating the business for which the company is going to be incorporated
The Articles of the Association which lays down the bylaws on which the company will operate.
Since there is only 1 Director and member, a nominee on behalf of such person has to be appointed because in case he becomes incapacitated or dies and cannot perform his duties the nominee will perform on behalf of the director and take his place. His consent in Form INC – 3 will be taken along with his PAN card and Aadhar Card.
Proof of the Registered office of the proposed Company along with the proof of ownership and an NOC from the owner.
Affidavit and Consent of the proposed Director in Form INC -9 and DIR – 2 resp.
A declaration by the professional certifying that all compliances have been made.
- All these documents will be attached to Spice Form, Spice MOA and Spice AOA along with the DSC of the Director and the professional, and will be uploaded on the MCA site for approval.
- After uploading, Form 49A and 49B will be generated for the PAN and TAN generation of the Company which have to be uploaded to MCA after affixing the DSC of the proposed Director
- On verification, the ROC will issue a Certificate of Incorporation and we can commence our business.
When should you not register for OPC
- If you are looking for investment and want to look more credible
- If you are planning to convert into Pvt. Ltd. Company the you cannot convert before 2 years except in the case you reached threshold limits
- If you want Board Meetings and Annual General Meetings
- If you want to carry out investment in securities of any body corporate
- If you don’t have any nominee
Frankly, you can register OPC yourself and with the help of Google but it makes a whole lot of difference when you hire professionals to do the job
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