One Person Company (OPC) is a unique concept introduced in India in 2013 under the Companies Act, 2013. It is a form of business structure that allows a single entrepreneur to operate a company with limited liability. This concept was introduced to promote entrepreneurship and to enable small businesses to operate without the need for a partner or a co-founder.
An OPC is a hybrid structure that combines the benefits of a sole proprietorship and a private limited company. It is a separate legal entity that offers limited liability protection to its shareholders, which means that the personal assets of the shareholder are not at risk in case the company incurs any losses or debts.
To start an OPC, an entrepreneur needs to register the company with the Ministry of Corporate Affairs (MCA) and obtain a Certificate of Incorporation (COI). The registration process is similar to that of a private limited company, with the exception that an OPC can have only one shareholder and director.
The concept of OPC has gained popularity among entrepreneurs in India as it offers several advantages. Some of the key advantages of an OPC are:
- Limited liability protection: An OPC offers limited liability protection to its shareholders, which means that the personal assets of the shareholder are not at risk in case the company incurs any losses or debts.
- Easy to set up: The process of setting up an OPC is simple and straightforward. It requires only one shareholder and director, which makes it easier for entrepreneurs to start a business.
- Separate legal entity: An OPC is a separate legal entity, which means that it has its own identity and can sue or be sued in its own name.
- Minimum capital requirement: There is no minimum capital requirement to start an OPC, which means that entrepreneurs can start a business with a small amount of capital.
- Tax benefits: An OPC is taxed at a lower rate than a sole proprietorship, which can result in significant tax savings for entrepreneurs.
However, there are some limitations to an OPC that entrepreneurs need to be aware of before choosing this business structure. Some of the limitations are:
- Only one shareholder: An OPC can have only one shareholder, which means that the entrepreneur cannot bring in any other partner or co-founder.
- Limited to certain business types: An OPC is not allowed to carry out non-banking financial activities or to raise funds from the public.
- Mandatory conversion: An OPC is required to convert into a private limited company if its turnover exceeds Rs. 2 crores or if its paid-up capital exceeds Rs. 50 lakhs.
- Mandatory compliance: An OPC is required to comply with all the legal and regulatory requirements that apply to a private limited company, such as maintaining proper books of accounts, conducting annual audits, and filing annual returns with the MCA.
Advantages of OPCs
- Limited Liability Protection: One of the most significant advantages of an OPC is that it offers limited liability protection to its shareholders. This means that the personal assets of the shareholder are protected, and the liability of the company is limited to its assets.
- Easy to Start: OPCs are relatively easy to set up and require only one director and shareholder. It can be done quickly and with minimal documentation.
- Minimal Compliance Requirements: OPCs have fewer compliance requirements compared to other types of companies. It helps reduce the administrative burden for the entrepreneur.
- Separate Legal Entity: OPCs are separate legal entities and enjoy the same legal status as a private limited company. It allows the company to enter into contracts and hold assets in its own name.
- Better Access to Funding: OPCs can raise funds by issuing equity shares or other securities. It makes it easier for entrepreneurs to raise capital.
- Tax Benefits: OPCs enjoy tax benefits, including lower tax rates, tax exemptions, and deductions, depending on the type of business and its size.
Disadvantages of OPCs
- Sole Ownership: The OPC model is suitable for entrepreneurs who want to own and run their business alone. It is not suitable for those who want to bring in partners or investors.
- Mandatory Conversion: OPCs must convert into a private or public limited company if their turnover exceeds Rs. 2 crores or if their paid-up capital exceeds Rs. 50 lakhs. It is a legal requirement, and failure to comply can lead to penalties.
- Limited Business Activities: OPCs cannot engage in non-banking financial activities or raise capital from the public. It limits the scope of business activities that an OPC can undertake.
- Compliances: OPCs must comply with the statutory requirements, including maintenance of books of accounts, audits, filing of returns, etc. It adds to the cost and time of the entrepreneur.
Steps to Register an OPC
- Obtaining Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the proposed director.
- Name Reservation: The entrepreneur must apply for name reservation with the Registrar of Companies (ROC).
- Incorporation: The entrepreneur must file the incorporation documents along with the memorandum of association and articles of association with the ROC.
- PAN and TAN: The company must apply for PAN and TAN after incorporation.
- Compliance: The OPC must comply with all statutory and regulatory requirements, including annual audits, maintenance of books of accounts, and filing of annual returns.
OPCs have gained popularity among entrepreneurs in India, primarily because it offers limited liability protection, ease of set-up, and minimal compliance requirements. However, it is essential to evaluate the business needs and objectives before choosing this business structure. Entrepreneurs should consider factors such as ownership, funding, business activities, and compliance requirements before opting for an OPC. With the right planning and management, an OPC can be an ideal choice for entrepreneurs looking to start and grow their business in India.