A One Person company (OPC) is an innovative Indian business entity that provides the benefit of limited liability with the flexibility and simplicity of a sole proprietorship.
It is designed to help entrepreneurs and freelancers take their ventures to the next level by providing them with the legal status of a company, along with the benefits of corporate tax structure, raised capital and more. OPCs are also beneficial for startups and existing businesses as they provide legal protection to the owners of the company and also offer more credibility and trustworthiness to potential investors.
With the surge in entrepreneurial spirit in India, OPCs are fast becoming a popular choice for entrepreneurs and freelancers who want to take their businesses to the next level.
A Beginner’s Guide to Setting Up a One-Person company in India
Starting a business can be an exciting and rewarding experience. However, it can also be a daunting task, especially for those who are unfamiliar with the process.
The process of setting up a one-person company in India can be complex, but with the right guidance, it can be done.
This guide will provide the necessary information to get you started.
The first step to setting up a one-person company in India is to register the business with the Registrar of Companies (ROC). This can be done online through the Ministry of Corporate Affairs website.
The ROC will require you to provide personal and business information, such as the business name, address, type of business, and other details.
After the registration is complete, you will receive a Certificate of Incorporation, which is a legal document that confirms the business’s existence in India.
Once the business is registered, you will need to open a bank account in the name of the business. This account will be used to manage the business’s finances, so it is important to choose a bank that offers a good range of products and services.
You will also need to obtain a Tax Identification Number (TIN) from the Income Tax Department. The TIN is used to identify the business and its taxes.
The next step is to obtain a Digital Signature Certificate (DSC). This is a secure digital signature that is used to authenticate documents and transactions online. The DSC will be required for filing documents with the ROC and for filing taxes.
Once all of the necessary documents are in place, you will need to file the Memorandum of Association (MOA) and the articles of Association (AOA) with the ROC. These documents outline the company’s purpose, its registered office, and the rules and regulations that govern it.
The final step is to obtain the necessary licenses and permits from the relevant state and local authorities. Depending on the type of business you are starting, you may need to obtain a trade license, an environmental clearance, or a fire safety clearance. Additionally, you may need to register the business with the Employees’ Provident Fund Organization (EPFO) and the Employees’ State Insurance corporation (ESIC).
By following these steps, you should be able to set up your one-person company in India.
It is important to remember that the process can be complex, so make sure to seek professional guidance if needed. With the right guidance and preparation, you can be sure to have a successful business.
Background of OPC
The Companies Act, 2013 provides for a new type of entity in the form of One Person company (OPC), the introduction of OPC in the legal system is a move that would encourage corporatization of micro businesses and entrepreneurships.
In India, in the year 2005, the JJ Irani Expert Committee recommended the formation of OPC. It had suggested that such an entity may be provided with a simpler legal regime through exemptions so that the small entrepreneur is not compelled to devote considerable time, energy and resources on complex legal compliances.
OPC is a one shareholder corporate entity, where legal and financial liability is limited to the company only.
Status of OPC in other countries
Even in other countries like UK, Australia, Singapore, Pakistan, etc.; a single person can form a company.
Various countries permit this kind of a corporate entity (China introduced it in October 2005) in which the promoting individual is both the director and the shareholder.
The amended company law of Pakistan permits one person to form a single-member company by filing with the registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director.
In US, several states permit the formation and operation of a single-member Limited Liability company (LLC).
In China, one person is allowed to apply for opening a limited company with a minimum capital of 1, 00,000 Yuan. The amended law of China prescribes that the owner should pay the investment capital at one time and bars him from opening a second company of the same kind.
In most countries, the law governing companies enables a single-member company to have more than one director and grants exemption to such companies from holding AGMs, though records and documents are to be maintained.
Incorporation of OPC
Section 2(62) of the Companies Act, 2013 defines “One Person company” as a company which has only one person as member.
OPC is a type of Private company as per Section 2(68) and Section 3(1)(c) of the Act.
Rule 3 of the Companies (Incorporation) Rules 2014 says, only a natural person who is an Indian citizen whether resident in India or otherwise:-
(a) shall be eligible to incorporate a One Person company;
(b) shall be a nominee for the sole member of a One Person company.
“Resident in India” means a person who has stayed in India for a period of not less than one hundred and twenty days during the immediately preceding financial year.
Rule 3(2) of the Companies (Incorporation) Rules 2014 provides that a natural person can be member of only one “One Person company”, at any point of time and the said person shall not be a nominee of more than one “One Person company”.
Where a natural person, being member in One Person company in accordance with this rule becomes a member in another such company by virtue of his being a nominee in that One Person company, such person shall meet the eligibility criteria specified in rule 3(2) within a period of one hundred and eighty days.
No minor shall become member or nominee of the One Person company or can hold share with beneficial interest.
One Person company cannot be incorporated or converted into a company under section 8 of the Act.
Such company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporates.
The subscriber to the memorandum of a One Person company shall nominate a person, after obtaining prior written consent of such person, who shall, in the event of the subscriber’s death or his incapacity to contract, become the member of that One Person company.
The name of the person nominated shall be mentioned in the memorandum of One Person company and such nomination shall be filed in Form INC-32 (SPICe+), Single Application for
Incorporation of company, along with consent of such nominee obtained in Form INC-3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014 shall be filed with the Registrar at the time of incorporation of the company along with its memorandum and articles. Form INC-32(SPICe+) is the prescribed Form for incorporation of One Person company.
Difference between a Sole Proprietorship and an OPC
A one-person company is different from a sole proprietorship because it is a separate legal entity that distinguishes between the promoter and the company.
The promoter’s liability is limited in an OPC in the event of a default or legal issues.
On the other hand, in sole proprietorships, the liability is not restricted and extends to the individual and his or her entire assets would be liable to repay the debts due by the sole proprietorship business unlike OPC.
Common Challenges Faced by One-Person Companies in India
One-person companies in India face a number of challenges that can make it difficult to succeed. These challenges may include limited resources, lack of access to funds, limited access to technology, insufficient knowledge of the market, and a lack of support from other businesses or individuals.
First, one-person companies often have limited resources. This can limit the scope of the business’s activities and make it difficult to scale up. Additionally, these companies may not have access to funds or capital to invest in the business. This can make it difficult to purchase equipment, hire staff, or invest in marketing campaigns.
Second, one-person companies may not have access to the latest technology. This can make it difficult to compete with larger businesses that have access to the latest tools and systems. Without these tools, it can be difficult to stay competitive and keep up with changes in the market.
Third, one-person companies may lack the knowledge and expertise necessary to understand the market and create successful strategies. Without this knowledge, it can be difficult to make informed decisions about the business and its future.
Finally, one-person companies may not have access to the support and resources of other businesses or individuals. Without this support, it can be difficult to find mentors, business partners, or other sources of help. Additionally, without the support of other businesses, it can be difficult to create a strong network and find customers or investors.
In conclusion, one-person companies face a number of challenges that can make it difficult to succeed. These challenges include limited resources, lack of access to funds, limited access to technology, insufficient knowledge of the market, and a lack of support from other businesses or individuals.
Position of OPC in India under the Companies Act, 2013
The Companies Act, 2013 classifies companies on the basis of their number of members into One Person company, Private company and Public company.
As stated above, a private company requires a minimum of 2 members.
In other words, a One Person company is a kind of private company having only one member.
As per section 2(62) of the Companies Act, 2013, “One Person company” means a company which has only one person as a member.
Section 3(1)(c) lays down that a company may be formed for any lawful purpose by one person, where the company to be formed is to be One Person company that is to say, a private company. In other words, one person company is a kind of private company.
An One person company shall have a minimum of one director.
Therefore, a One Person company will be registered as a private company with one member and one director.
By virtue of section 3(2) of the Act, an OPC may be formed either as a company limited by shares or a company limited by guarantee; or an unlimited liability company.
How to Grow Your One-Person company in India
Building a one-person company in India can be a rewarding experience with many opportunities for success. Starting a business on your own can be a daunting prospect, but with the right planning, resources and dedication, it is possible to build a thriving business. Here are some tips for growing a one-person company in India.
1. Identify Your Target Market: As a one-person business, it is important to focus on a specific target market to ensure that your efforts are as efficient and effective as possible. It is also important to consider the size and potential of the market you are targeting.
2. Establish Your Brand: Establishing your brand is essential to building your business. From your logo to your website, it is important to create a unique identity that will help you stand out in the crowd.
3. Develop a Strong Online Presence: Developing a strong online presence is essential for any business in India, and a one-person business is no exception. Create a professional website, create social media accounts, and run online campaigns to help spread the word about your business.
4. Utilize Technology: Technology can be a powerful tool to grow your business. Invest in the latest tools and software to help you be more efficient and productive.
5. Network: Networking is an invaluable tool for any business. Attend business events, join local business associations, and reach out to potential partners and investors to help build connections and grow your business.
6. Invest in Professional Advice: Professional advice can be very beneficial in helping you make the right decisions for your business. Investing in an experienced advisor or consultant can help you make the most of your resources and take your business to the next level.
By following these tips, you can develop a successful one-person company in India. With the right planning, dedication and resources, you can create a thriving business that will enable you to reach your goals.
Contract by One Person company
Section 193 (1) provides that where One Person company limited by shares or by guarantee enters into a contract with the sole member 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 or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.
However, above said provision shall not apply to contracts entered into by the one person company in the ordinary course of its business.
As per section 193 (2), 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 of Directors.
As per section 152 (1), in case of a One Person company an individual being its member shall be deemed to be its first director until a director or directors are duly appointed by the member in accordance with the provisions of that section.
Benefits of One Person company
The concept of One Person company is quite revolutionary. It gives the individual entrepreneurs all the benefits of a company, which means they will get credit, bank loans, and access to market, limited liability, and legal protection available to companies by virtue of acquiring the legal status and perpetuity.
Prior to the Companies Act, 2013 coming into effect, at least two shareholders were required to start a company.
But, now the concept of One Person company would provide tremendous opportunities for small businessmen and traders, including those working in areas like handloom, handicrafts and pottery.
Earlier they were working as artisans and weavers on their own, so they did not have a legal entity of a company. But now an OPC form of organization would help them to do business as an enterprise and give them an opportunity to start their own ventures with a formal business structure.
Further, the amount of compliance by a one person company is much lesser in terms of filing returns, balance sheets, audit etc.
Also, rather than the middlemen usurping profits, the one person company will have direct access
to the market and the wholesale retailers. The new concept would also boost the confidence of small entrepreneurs.
Taxation Benefits of One-Person Companies in India
In India, One-Person Companies (OPC) are a form of corporate entity that is owned and managed by a single person.
OPCs provide the benefits of limited liability and better credibility to the sole proprietor.
Furthermore, by registering as an OPC, the owner can also avail several tax-related benefits.
The income earned by an OPC is subject to taxation in the same way as other legal entities.
Income from the OPC is taxed at the applicable tax rates based on the income earned.
However, income from the OPC may be eligible for certain tax deductions and exemptions.
For starters, the owner of an OPC may be eligible for certain deductions under Section 80C, such as investments in life insurance, provident funds and tax-saving mutual funds.
In addition, the owner may be eligible for capital gains tax exemption on the sale of shares of the OPC.
Moreover, expenses incurred by the OPC may be eligible for deductions under Section 37 of the Income Tax Act. These expenses can include costs related to the running of the OPC, such as rent, salaries, repairs and maintenance, and more.
Furthermore, the owner of the OPC may be eligible for tax credits and deductions under Section 80D, such as medical insurance premiums and medical expenses.
Additionally, the owner may be eligible for deductions under Section 80G for donations made to certain charities.
In addition to these tax benefits, the owner of an OPC may also avail certain other benefits. For instance, the owner may be eligible for certain government schemes and subsidies.
Moreover, the owner may be able to avail better credit facilities from banks due to the limited liability offered by the OPC.
Overall, the One-Person company structure provides several tax benefits to the owner. By availing these benefits, the owner can save a significant amount of money in taxes and use the savings for other needs.
Therefore, it is important for entrepreneurs to understand the taxation benefits of an OPC and make the most of them.
Best Practices for Managing a One-Person company in India
Running a business as a one-person company in India can be a challenging yet rewarding experience. While it can be difficult to manage all aspects of the company alone, there are several best practices that can help make the process easier and more successful.
1. Develop Clear Business Goals: Establishing clear business goals from the start is essential to the success of any business. Set short-term and long-term goals and make sure to review them regularly to ensure that your business is on track.
2. Create a Business Plan: A business plan is a detailed document that outlines the goals and objectives of your business. It should include a detailed description of the products or services you offer, a marketing plan, and a financial plan.
3. Find the Right Funding: Seek out investors or other sources of funding to ensure that your business can grow and succeed. Consider applying for grants or loans from various organizations that offer assistance to small businesses.
4. Make Use of Technology: Leverage technology to help streamline processes and improve efficiency. Utilize different software applications, such as accounting and project management, to help manage the day-to-day operations of your business.
5. Network and Promote: Establish a network of contacts who can be potential partners and customers. Utilize social media, traditional advertising, and other marketing strategies to promote your business and reach more potential customers.
6. Stay Organized: Organization is key to running a successful business, especially when you’re the only one managing it. Utilize time management tools to help you stay organized and on top of tasks.
7. Seek Professional Assistance: When necessary, don’t hesitate to seek out the help of professionals, such as lawyers and accountants, to help you manage certain aspects of your business. By following these best practices, you can ensure that your one-person company in India has the best chance of success.
How to Attract Investors for Your One-Person company in India
Attracting investors for a one-person company in India can be a challenging task. However, with the right approach, it is possible to secure much-needed funding for your business. Here are some tips for attracting investors for your one-person company in India.
1. Develop a solid business plan: Before approaching potential investors, it is essential that you develop a comprehensive and well-researched business plan. Your business plan should include an executive summary, a detailed description of your company, a list of market opportunities, a market analysis, a competitive analysis, a description of your products or services, a financial plan, a marketing plan, and a management plan.
2. Network with investors: Networking with investors is an important step in the process of attracting investors for your one-person company. Attend investor events, join industry organizations, and use online platforms to connect with potential investors.
3. Pitch to investors: When you have identified potential investors, you need to make a compelling pitch to them. Your pitch should highlight the unique features of your business, the potential for growth, and the competitive advantages that your company has over competitors.
4. Offer equity: When pitching to potential investors, you may want to offer them equity in your business. This can provide investors with an incentive to invest in your business and can be a good way to attract funding.
5. Leverage grant opportunities: If you are a one-person company in India, you may be eligible for certain government grants and other funding opportunities. Research grant opportunities that you may be eligible for and apply for them.
Following these tips can help you attract investors for your one-person company in India. By taking the right steps, you can secure the funding you need to grow and expand your business.
Characteristics of an OPC
- The financial statement, with respect to One Person company, may not include the cash flow statement.
- The Memorandum of One Person company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the One Person company along with its memorandum and articles.
- The words ‘‘One Person company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
- In relation to One Person company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
- For the purposes of section 114, any business which is required to be transacted at an annual general meeting or other general meeting of a company by means of an ordinary or special resolution, it shall be sufficient if, in case of One Person company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act.
- Where there is only one director on the Board of Director of a One Person company, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such One Person company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act. {sub section (4) of section 122}
- The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board only by one director, for submission to the auditor for his report thereon.
- A One Person company shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred eighty days from the closure of the financial year.
- A One Person company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days: Provided that nothing contained in this sub-section (5) of Section 173 and in section 174 shall apply to One Person company in which there is only one director on its Board of Directors. (Section 173(5))
Impact of Digitalization on One-Person Companies in India
Digitalization has had an unprecedented impact on one-person companies in India. This is mainly because digitalization has enabled one-person companies to operate more efficiently and effectively.
Digitalization has enabled one-person companies to access a wider range of customers and markets.
Digital platforms and tools make it easier for one-person companies to target potential customers and promote their products and services. This helps one-person companies expand their customer base and increase their revenue.
Digitalization has also enabled one-person companies to reduce their overhead costs. Automation and digital tools have made it easier for one-person companies to reduce costs associated with manual labor and other overhead expenses. This helps one-person companies to save money and become more competitive in the market.
Digitalization has also enabled one-person companies to become more organized and efficient. Automation and digital tools make it easier for one-person companies to manage their operations and ensure that tasks are completed in an efficient and timely manner. This allows one-person companies to save time and money, as well as increase their productivity.
Finally, digitalization has also enabled one-person companies to access a wide range of financial services. Digital tools and platforms make it easier for one-person companies to access loans, manage their finances, and make payments. This helps one-person companies to become more financially secure and stable.
Overall, digitalization has had a positive impact on one-person companies in India. Digitalization has enabled one-person companies to access a wider range of customers and markets, reduce their overhead costs, become more organized and efficient, and access a wide range of financial services. This has enabled one-person companies to become more competitive in the market and increase their revenue.
In conclusion, setting up a one person company in India can be a great opportunity for entrepreneurs who are looking to start their own business.
The benefits of setting up a one person company include reduced compliance burden, limited liability protection, and reduced costs.
However, entrepreneurs should be aware that there are certain restrictions that are imposed on one person companies, such as restrictions on the maximum number of members, the need to appoint a nominee director, and restrictions on the types of activities that can be conducted.
Despite these restrictions, one person companies can be a viable business structure for entrepreneurs in India.