An individual entrepreneur can set up a One Person Company (OPC). Sole proprietorships, interestingly, offer the same benefit. However, unlike sole proprietorships, an OPC offers limited liability and the status of a separate entity, along with a better standing in the market (increased trust and respect).
The advantages of an one person companu are as follows:
- Safety Net: Liability of the single shareholder in the OPC is limited to the unpaid subscription money in their name
- Succession: The Companies Act also provides for a person, nominated by the stakeholder, to take over the reins of the company in the event of the death or inability of the said stakeholder. This allows the OPC to have a continuous life beyond that of the founding director
- Market Value: OPCs enjoy the same privileges that come with private limited company
- Easy Credit Facilities: The legality of this type of business, and also the perpetual succession clause, makes it popular among banks and financial institutions
- Easier Returns Filing: You can easily file your annual returns with a digital signature. There is no need for a company secretary
What is the difference between a sole proprietorship and an OPC?
Because they both feature a single individual controlling the business, sole proprietorships and one-person companies may appear to be very similar, but there are some differences between them.
The nature of the liabilities they carry is the key distinction between the two. An OPC has its own assets and liabilities because it is a separate legal entity from its promoter. The promoter is not personally accountable for the company’s debts.
Sole proprietorships, on the other hand, have the same owners as their owners. As a result, in the event of non-fulfillment of the contract, the law provides for the attachment and sale of the promoter’s own assets.
Creating One-Person Businesses
A single individual can establish an OPC by signing the memorandum of association and meeting the other requirements set forth in the Companies Act of 2013. The details of a nominee who will become the company’s sole member if the original member dies or becomes incapable of entering into contractual contacts must be included in the memorandum.
This memorandum, as well as the nominee’s consent to his nomination, shall be presented with an application for registration with the Registrar of Companies. By submitting the necessary forms to the Registrar, such a nominee can withdraw his name at any moment. The member might also revoke his nomination at any time.
One person company have the following characteristics:
A corporation may be a opc company (OPC), which requires only one person to subscribe to start a company and is considered as a private company under the Act.
A person who registers a one-person company is only allowed to establish one one-person company at a time.
When the subscriber dies or becomes incompetent to contract, the memorandum of OPC must include the name of a person (other than the subscriber) who will become a member of the OPC with his previous written approval in the necessary form.
A nominee to a memorandum of one person corporation is ineligible to be a nominee for more than one of these companies.
Who can start one? Only adult Indian citizens residing in India can start an OPC. An individual cannot start more than one OPC, but you’re free to be part of other businesses. A minor can be neither member nor nominee in an OPC.
What do you need to start? There must be at least one shareholder and director (they can be the same person) and one nominee. Just as with a private limited company, the minimum authorised capital must be Rs. 1 lakh, though there is no minimum for paid-up capital.
As incorporation is now done online, the director’s signature is needed on electronic documents. To make this possible, the director in the OPC needs a Class-II Digital Signature Certificate (DSC). This is available from a vendor of any one of the six Certifying Authorities appointed by the MCA, including Tata Consultancy Services, nCode and e-Mudhra. The rates of their vendors could differ vastly. Charges would include the cost of the physical USB token and the certificate itself.
The entire process takes 3 days. The process involves couriering the hard copies of the documents to the vendor. However, online legal services companies, including VakilSearch, would need only self-attested soft copies to begin the process.
What you need to submit:
- Hard copy of completed Class-II form
- Identity Proof: Self-attested copy of PAN card or, in case of foreign national, copy of Passport
- Address Proof: Self-attested copy of (any one) Passport/Election/Voter ID/Ration Card/Driver’s License/Utilities Bill/AADHAR Card. Utility bill should be in the name of the applicant and no older than two months from filing of form.
Obtaining Director Information Number (DIN)
Time to Complete: 1 day
Cost: Rs500 per director plus CA/CS fees
The Director Information Number (DIN) is how the MCA identifies directors of the company. Anyone over the age of 18 can apply. Citizenship doesn’t matter. This can be done online on payment of Rs500. Here is the process:
- Download Form DIR-3 from the MCA website.
- Both Indian and foreign nationals can apply. Indian nationals have to provide PAN, while the foreign nationals need to submit their passport number. A soft copy of a Passport-sized photograph is also required. Ensure you don’t make common errors while filling this form.
- Identity proof: A soft (scanned) copy of the PAN card or, in case of foreign national, passport is required.
- Residence proof: A soft (scanned) copy of (any one) Driver’s License/Passport/Voter Card/Ration Card/Utilities Bill/Bank Statement. The last two of these should be no more than two months old. In case of a foreign national, it should be no older than 12 months.
- Search for Company Name Availability: You don’t need to wait for the DIN to begin this process. In fact, given how tricky it can be, it’s best that you start it as soon as you apply for DSC.
- Obtaining name approval? The RoC requires you to submit form names in Form INC-1. Each time you submit this form, you pay Rs 1,000. First-time rejections are given 15 days to come up with new name alternatives at no cost. However, you are required to pay if rejected again.
Here’s what you need to do:
- Download the INC-1 form.
- The form allows a minimum of one name and a maximum of six. The best practice is to submit the maximum number, in order of importance.
- You also need to submit the Main Objects of your business and the Significance of each proposed name. Your application should have one line on each.
- Approval can take 2 days at the earliest, but it is more likely to take 5 to 7 working days.
- Once approved, the name will be reserved for 60 days. Therefore, the application for incorporation must be approved before its expiry.
- Drafting of MoA and AoA: Once the name is approved, the MCA requires further definition of the proposed company. These will be provided through the Memorandum of Association (MoA) and Articles of Association (AoA), which can be drafted by a CS or lawyer.
In the MoA, remember to paste the exact Main Objects approved in INC-1. The RoC has the power to reject your application if even a word is changed.
- Filing of e-Forms: Once the MoA and AoA are drafted, the Final Filing process can begin. This involves the submission of the following documents:
- Memorandum of Association
- Articles of Association
- Declaration of Profession in INC-8
- Copy of utility bill no older than two months
- Copy of PAN card/Passport
- Affidavit from the subscriber to the Memorandum in Form INC-9
- Verification of signature of subscribers (Form INC-10, in case company has no share capital)
- Proof of registered office address (Conveyance or sale deed, in case property is owned, or rent receipt)
- Residential or commercial real estate, so long as it is in India
- No-objection Certificate from owner of the property
- Letters of appointment of Directors, CEO, Managers
- Declaration by first director in INC-9
- Declaration by appointee director and managing director in Form DIR-2
- Payment of RoC fees: RoC fees and stamp duty need to be paid at this stage electronically. RoC fees change according to authorised capital fee and stamp duty varies by location. In certain states, such as Punjab and Kerala, it is costlier than in others. You can calculate the fees to be paid on the MCA website.
- The ROC will verify the documents. If any changes are needed, you will be notified of the required changes. If it’s all clear, you shall receive the certificate of incorporation within 7 to 8 days. On final approval, the Certificate of Incorporation is e-mailed to the directors. The MCA now only issues digital certificates. You can print out the incorporation certificate if you wish.
One Person company Privileges The following rights and exemptions are available to OPCs under the Companies Act:
They are exempt from holding annual general meetings.
Cash flow statements are not required in their financial statements.
Annual returns do not need to be signed by a company secretary; directors can do it as well.
They are exempt from provisions relating to independent directors.
Their articles may provide further grounds for a director’s office vacation.
They are exempt from a number of meeting and quorum restrictions.
In comparison to other corporations, they can pay higher payment to directors.