In this blog post, we’ll explore the basics of One-Person Company (OPC) Setup in India. This covers what an OPC is, the registration process, required documents, benefits, compliance requirements, costs, and disadvantages. This guide will help you understand whether OPC suits your small business needs.
If you’re starting a business alone and considering whether a One-Person Company (OPC) is right for you, this guide will help you understand its structure, benefits, and limitations. The Government of India introduced the concept of OPC in 2013 to make it easier for individuals to establish a formal business structure with limited liability without needing to form a partnership or a private limited company.
What is a One-Person Company (OPC)?
An OPC, introduced under the Companies Act, 2013, is a type of private company that allows a single person to form a company with limited liability. OPC combines the benefits of sole proprietorship and private limited companies but with fewer compliance requirements.
Key Features of an OPC (One-Person Company):
1. Single-Person Setup: Only one individual is required to establish and manage the company.
2. Limited Liability: The owner’s assets are safeguarded, as the company’s liabilities are separate from personal liabilities.
3. Efficient Management: Decision-making is simplified since a single individual handles all operational and strategic decisions.
4. No Minimum Capital Requirement: Start the company with any amount of capital you can afford—there’s no mandatory minimum.
5. Unique Business Identity: The OPC’s name is protected and cannot be reused by any other entity in India.
6. Exclusive Ownership:
Only one shareholder is permitted, holding 100% of the ownership.
No provision for issuing shares to employees (ESOPs) or involving external investors.
7. Nominee Requirement: The shareholder must nominate an individual who will take ownership of the OPC in case of their demise, ensuring business continuity.
8. Director Flexibility:
At least one director is required to form the OPC.
The company can have up to 15 directors as it scales.
Read This Also: LLP Company Registration Guide
Limitations of One Person Company:
An OPC is generally suitable for small businesses. If your business grows and reaches certain thresholds, you must convert it to a private limited company.
Conditions for Conversion:
Paid-Up Capital Limit: If your paid-up capital exceeds INR 50 lakh, you must convert to a private limited company.
Turnover Limit: If your turnover exceeds INR 2 crore, conversion is mandatory.
Additionally, OPCs cannot issue shares to raise funds, which can limit growth opportunities.
Comparison Between Proprietorship & OPC, and Private Limited Company (Pvt. Ltd.)
| Criteria : | Proprietorship | One Person Company (OPC) | Private Limited Company (Pvt. Ltd.) |
| Ownership : | Owned by a single individual | Single shareholder | Minimum of 2 shareholders, up to 200 |
| Liability : | Unlimited (owner’s assets at risk) | Limited to the company’s assets | Limited to the company’s assets |
| Legal Entity : | Not separate from the owner | Separate legal entity | Separate legal entity |
| Funding : | Limited, no option for external investors | Can convert to Pvt. Ltd. for funding | Easily allows external funding through investors |
| Taxation : | Taxed as an individual | Taxed as a company | Taxed as a company |
| Transfer of Ownership : | Not fully transferable | Transferable through shareholding | Transferable through shareholding |
Steps to Register an OPC :
Step 1: Obtain Digital Signature (DSC) :
The director must apply for a digital signature to file online forms on the Ministry of Corporate Affairs (MCA) website.
Step 2: Name Reservation
Select 2–3 unique names for the company, ensuring they’re available and not trademarked. Reserve the final name on the MCA portal.
Step 3: File SPICe+ Form
Complete the SPICe+ form on the MCA website, which includes name approval, incorporation, PAN, and TAN for the company.
Step 4: Nominee Appointment
Choose a nominee who will take over the company in case of unforeseen events by filing Form INC-9.
Step 5: Obtain a Certificate of Incorporation
Once all forms are filed, the government issues a Certificate of Incorporation digitally.
Required Documents for One-Person Company (OPC) Setup :
1. Director’s Documents:
PAN and Aadhaar card.
Address proof (bank statement, utility bill).
2. Business Location Proof:
Electricity bill or rent agreement.
No Objection Certificate (NOC) from the property owner.
3. Other Requirements:
Digital Signature Certificate (DSC).
Unique company name for MCA registration.
Cost of Setting Up an OPC :
Government Fees: Includes DSC, name reservation, and registration charges (approx. INR 2,000).
Professional Fees: For hiring Chartered Accountants or Company Secretaries for assistance (varies based on location and experience; generally between INR 5,000 – 10,000).
Annual Compliance Requirements for OPC :
Once the OPC is registered, annual compliance includes filing forms and maintaining records:
1. Financial Statements: Must file forms AOC-4 and MGT-7 for annual financial statements and returns.
2. Tax Filings: File ITR-6, as OPC has a separate PAN.
3. Director’s KYC: Submit annual KYC updates for directors using DIR-3 KYC.
4. Auditor Appointment: Hire a Chartered Accountant for annual statutory audits.
Annual Maintenance Cost: Generally ranges between INR 8,000 to INR 10,000, depending on transaction volume and compliance needs.
Tax Implications :
OPCs are taxed according to corporate tax slabs (30% and other applicable rates). However, since OPCs are separate entities, any profits withdrawn by the shareholder are taxed as personal income, leading to potential double taxation. In contrast, sole proprietors are taxed on their income, benefiting from exemptions like 80C and medical insurance.
Conclusion
A One-Person Company (OPC) offers a great structure for small businesses or startups seeking limited liability. However, it is crucial to assess your business’s growth potential and capital needs before choosing this structure. Hiring a consultant for professional advice is recommended, as they can guide you on the best structure based on your future business goals.
For additional help, consult a professional CA for guidance through the setup and compliance requirements.
FAQs on One-Person Company (OPC) Setup in India
1. What is an OPC?
An OPC is a private company with a single owner offering limited liability and a separate legal entity.
2. Who can register an OPC?
Indian citizens residing in India for at least 182 days in the preceding year can register an OPC.
3. What documents are needed for OPC registration?
PAN, Aadhaar, address proof, business location proof, DSC, and a unique company name.
4. How is an OPC registered?
Register online by obtaining a DSC, reserving a company name, filing the SPICe+ form, appointing a nominee, and receiving a Certificate of Incorporation.
5. What are the costs of setting up an OPC?
Government fees are around INR 2,000, professional fees range from INR 5,000–10,000, and annual maintenance is INR 8,000–10,000.
6. What compliance is required for an OPC?
File annual returns, financial statements, tax returns, director’s KYC, and appoint an auditor.
7. What are the tax rules for OPCs?
OPCs are taxed under corporate tax rates (30%), with profits withdrawn taxed as personal income.
8. What are OPC’s limitations?
OPCs can’t issue shares and must convert to a private limited company if turnover exceeds INR 2 crore or paid-up capital exceeds INR 50 lakh.
9. How does OPC differ from proprietorship and private limited company?
OPC has limited liability and a separate legal entity, unlike proprietorship, but offers less flexibility for external funding than a private limited company.
10. When is OPC suitable?
OPC suits solo entrepreneurs seeking limited liability but may not be ideal for businesses needing external investors.
For more details, consult a professional advisor.
