Opening doors for solo entrepreneurs, the One Person Company (OPC) format transforms how businesses are incorporated. Governed by Section 2(62) of the Companies Act of 2013, an OPC empowers a single individual to establish a legal entity with remarkable control and limited liability.
Under Section 2(62), a one person company requires only one director and one member, allowing the sole promoter absolute authority over the company. This unique setup ensures that the individual’s liability is confined to their capital contributions to the business. While the sole member serves as the director, provisions exist for a nominee director, although their powers remain inactive unless the original director faces incapacitation.
The idea behind the OPC structure was to make it easier for a single person to start and run a business with limited liability. This blog explains the OPC incorporation procedure in India, breaking down the steps to guide solo entrepreneurs.
OPC Eligibility Criteria
Before initiating the OPC incorporation procedure, it is crucial to understand the eligibility criteria specified in the Companies Act. These criteria guarantee that the person intending to register an OPC fulfils certain conditions:
- Only an individual who is an Indian citizen by birth is qualified to establish an OPC; entities like companies or LLPs are ineligible.
- The promoter must be a resident of India, with a minimum residency of 182 days in the previous calendar year.
- The OPC must possess a minimum authorised capital of Rs 1,00,000, as declared in its capital clause during registration.
- In the OPC incorporation process, the promoter must designate a nominee, who assumes OPC membership in case of the promoter’s demise or incapacity.
- Entities in financial activities like banking, insurance, or investment are barred from OPC incorporation.
- Suppose the OPC’s paid-up share capital surpasses 50 lakhs or its average annual turnover exceeds 2 Crores. In that case, it must convert into a private limited company to meet regulatory requirements for larger entities.
Documents Required for OPC Registration
Here are the documents required for One Person Company (OPC) formation in India:
Identity Proof:
- PAN Card (of the proposed director/shareholder)
- Passport (for NRIs & foreign nationals)
Address Proof:
- Aadhaar Card / Voter ID Card or Driving License (of the proposed director/shareholder)
Passport Size Photograph:
- Recent passport-size photograph (of the proposed director/shareholder)
Proof of Registered Office:
- Rental Agreement (if rented) along with a NOC from the landlord
Ownership Proof (if owned) along with an NOC from the owner
Director Identification Number (DIN):
- DIN is obtained by filing Form DIR-3 with supporting documents like PAN Card, address proof, photograph, etc.
Digital Signature Certificate (DSC):
- DSC is required to sign the documents electronically. Obtain a DSC from authorised agencies.
Memorandum of Association (MoA) and Articles of Association (AoA):
- MoA and AoA are the company’s charter documents, defining its objectives and rules of operation.
Consent and Declaration:
- Consent in Form INC-3 from the nominee for being appointed as a nominee director
- Declaration and consent of the proposed director in Form INC-9 and DIR-2 respectively
- Any other documents may be required by the Registrar of Companies (RoC) or as per the specific requirements of the OPC formation process.
Advantages of the OPC Company:
1. Limited liability protects the owner’s assets against corporate obligations.
2. Single entrepreneurship enables solo proprietors to establish a corporation without additional shareholders.
3. OPCs’ separate legal entity status allows them to enter into contracts, hold assets, and undertake legal proceedings independently.
4. Continuous ownership ensures the business continues even if the owner dies or becomes incapacitated.
5. Increased credibility builds confidence among stakeholders, suppliers, consumers, and financial institutions.
6. Minimal compliance requirements minimise administrative burdens compared to other company structures.
7. Eligibility for tax benefits and incentives can result in tax savings for OPCs.
Drawbacks of the OPC Business Structure:
1. Suited for Small Ventures: OPCs cater to small firms. However, their potential for expansion is limited because they have only one member. This limitation restricts their capacity to raise funds by attracting new owners.
2. Operational Constraints: OPCs face limitations in certain operations, such as engaging in non-banking financial investments or transforming firms with charitable purposes.
3. Ownership and Management Boundaries: OPCs must distinguish between ownership and management duties. With a single shareholder assuming the directorial position, decision-making authority becomes centralised in one person. This concentration of power may blur the distinction between ownership and control, leading to legal issues or conflicts of interest.
OPC Incorporation Procedure:
One Person Company (OPC) incorporation procedure involves several steps, to ensure compliance with legal requirements:
1. Director Identification Number (DIN) Application: The first step is to obtain DIN for the proposed director of the OPC. This is done by submitting Form DIR-3 to the Ministry of Corporate Affairs (MCA).
2. Digital Signature Certificate (DSC) Application: Next, the director needs to obtain a DSC, which is used for the online filing of documents. The application for DSC can be made with authorised DSC providers.
3. Name Reservation: The proposed company name must be reserved after obtaining DIN and DSC. This is done by filing Form INC-1 with the Registrar of Companies (ROC). The name should adhere to the naming guidelines and not resemble any existing company name.
4. Preparation of Incorporation Documents: Once the name is approved, the director needs to prepare the incorporation documents including the Memorandum of Association (MoA) and Articles of Association (AoA). These documents give the goals and regulations that govern the OPC.
5. Filing for Incorporation: After the preparation of documents, Form INC-32 (SPICe) along with the MoA and AoA, and other required documents are filed with the ROC. The application should also include details of the nominee director.
6. Certificate of Incorporation: Upon successful verification of documents, the ROC issues a Certificate of Incorporation, confirming the formation of the OPC. The OPC company comes into existence from the date mentioned on the certificate.
7. PAN and TAN Application: The newly established OPC should apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) with the appropriate authorities.
It’s essential to adhere to the prescribed procedures and timelines to ensure smooth registration of the OPC.
Conclusion
Registering a one-person company (OPC) in India is a structured process offering entrepreneurs a clear path. Following the OPC incorporation procedure mentioned above ensures you establish your business legally and efficiently. If you’re willing to start a one-person company (OPC), contact Taxxinn. We take care of the entire process from documentation to registration to setting up the company.
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