One Person Company in India under Companies Act 2013

Introduction of One Person Company in India under the Companies Act 2013

• The introduction of OPCs enables sole proprietors to benefit from the advantages of limited liability and a formalized business entity.
• They can now establish a company that provides legal recognition and protection for their personal assets.
• The OPC structure allows individuals to venture into entrepreneurship without fearing jeopardizing their finances.

Key Considerations for OPC Formation in India

Formation Criteria:

• A single individual can form a one-person company for any lawful purpose.
• Only natural persons can incorporate an OPC.
• The individual must be an Indian Citizen who has resided in India for at least 182 days during the preceding financial year.
• A person is allowed to incorporate a maximum of 5 OPCs

Inclusion of another Person in OPC

Regulatory Compliance for a One-Person Company

• Mentioning OPC: An OPC must include the words "One Person Company" in brackets below its name wherever it is printed, affixed, or engraved.
• Classification as Private Company: As per the Companies Act 2013, an OPC is classified as a private company under section 2(68). Consequently, it must comply with the provisions applicable to private limited companies.
• Single Director: An OPC can have just one director. Unlike private limited companies that typically require a minimum of two directors, an OPC can function with a single director.
• Cash Flow Statement: An OPC is exempt from preparing a cash flow statement as part of its financial statement. However, preparing and submitting other financial information, such as balance sheets, profit, loss accounts, and notes to accounts, is still required.

Tax Implications of Operating as an OPC

Higher Tax Rates

Dividend Distribution Tax

Separate Legal Entity

Advantages of One Person Company (OPC):

• Limited Liability: One of the key benefits of an OPC is limited liability. The liability of the sole member is limited to the extent of their share capital, protecting personal assets from business-related debts or obligations. This provides a sense of financial security to the entrepreneur.
• Separate Legal Entity and Perpetual Succession: OPCs are considered separate legal entities distinct from their members. This means the company has perpetual succession, ensuring continuity even during the member's death or resignation. It becomes easier to transfer ownership, attract investors, and raise capital.
• Ease of Ownership Transfer: With an OPC, transferring ownership is relatively straightforward. The member can quickly transfer shares or induct new members to the company, facilitating business expansion or succession planning.
• Reduced Compliance Burden: Compared to private limited companies, OPCs have a lower compliance burden. Specific statutory requirements, such as annual general meetings, do not apply to OPCs. This makes it easier for entrepreneurs to manage and administer the company's affairs, especially for small businesses with limited resources.
• Professional Image and Credibility: Operating as an OPC provides a more professional and credible image to the business, enhancing customer trust and attracting potential clients or partners. It conveys a sense of stability and commitment to business operations.
• Access to Benefits and Incentives: OPCs may be eligible for various benefits and incentives offered by the government or specific industry sectors. These can include tax benefits, subsidies, or schemes promoting small businesses or startups.