There are various business structures such as Sole Proprietorship, One Person Company, General Partnership, Limited Liability Partnership, Private Limited Company, and Public Limited Company, that an entrepreneur can choose to start a business. Choosing an ideal legal structure would be one of the first decisions an entrepreneur would make. But how to decide which business entity is ideal for your business? 

In this article, we will discuss One Person Company.

The concept of One Person Company (OPC) was introduced in India to encourage sole proprietors to run their businesses with a corporate entity having few legal requirements. An OPC is owned by a single person having a separate legal entity than its owner. In other words, in case of loss, the personal assets of the owner shall not be used to pay off liabilities of the OPC. However, if the owner commits a criminal act then they may be held personally liable for the OPC’s debt or loss. The OPC form of business entities enjoys various relaxations from the government in respect to general meetings, board meetings, and other compliances.

Ownership & Profit-Sharing

In an OPC, a single individual is the owner of the business. Therefore, a single person has control over the assets and is entitled to receive all the profits generated by the company. 

Capital 

An OPC does not have any minimum capital requirement. However, a nominal amount is required.

Liability 

An OPC is a separate legal entity from its owner which limits the liability of its owner.

Legal Formalities

Incorporating an OPC is easy. There are a few simple regulatory compliances that have to be fulfilled to incorporate the entity. 

Advantages and Disadvantages of OPC

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Advantages

1. Separate Legal Entity

2. Easy to Obtain Loans

3. Basic Compliances

4. Quick Incorporation

5. Ease of Business Administration

6. Perpetual Succession

Disadvantages

Limited Business Activities

Not Suitable for Large - High Risk Business

No Clear Distinction Between Ownership and Management

Not Investor-Friendly

Higher Tax Requirements in Comparison to a Sole Proprietorship

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Suitability of One Person Company 

One Person Company (OPC) form of business organisation is suitable only for small businesses that have a maximum paid-up share capital of INR.50 Lakhs or a Turnover of INR. 2 Crores.

Non-Suitability of One Person Company 

OPC form of business organisation is not suitable where: 

1. Business exceeds Paid up share capital of Rs.50 Lakhs or a Turnover of Rs.2 Crores
2. Business is related to carrying out Non – Banking Financial Investment activities including investment in securities of any other corporate entity, and
3. Charitable Trust

Eligibility Criteria for OPC Registration

The following are the eligibility guidelines for registration of OPC:

1. Only a person who is a citizen of India and resident in India
2. Legal entities like companies or LLP cannot form an OPC
3. A nominee must be appointed during the incorporation process
4. A minor cannot become a member of the OPC

Documents required for One Person Company

An OPC form of the business organisation requires the following documents:

1. PAN card of sole member
2. Passport size photograph of the sole member
3. Aadhar Card
4. Rent Agreement (If rented property)
5. Electricity/ Water Bill (Office)
6. Property Title Deed (If owned property)
7. Landlord NOC (In the specific format)
8. Director Consent Form (Form DIR 2)

GST Registration

Every OPC engaged in the business of inter-state supply of goods and services is mandatorily required to obtain registration under GST. However, in case the OPC has an intra-state business then there are no mandatory requirements to get registered unless they fall in the registration bracket. 

Checklist for obtaining OPC Registration

The following requirements have to be fulfilled to obtain OPC registration: 

1. Minimum and maximum of one member. 
2. A nominee should be appointed during incorporation.
3. Consent of the nominee should be obtained in Form INC-3.
4. The name of the OPC must be selected as per the provisions of the Companies (Incorporation Rules) 2014.
5. DSC of the proposed director.
6. Proof of registered office address of the OPC.

Post Registration Compliance Requirements of OPC

The OPC form of business requires the following Post Registration compliance:

1. At least one Board Meeting in each half of the calendar year and the time gap between the two Board Meetings should not be less than 90 days.
2. Maintenance of proper books of accounts.
3. Statutory audit of Financial Statements.
4. Filing of income tax returns every year before 30^th September.
5. Filing of Financial Statements in Form AOC-4 and ROC Annual Return in Form MGT-7.

Choosing the ideal legal entity for your business should be done in consultation with a legal professional. Your Virtual Legal Counsel can guide you to set up the most preferred legal entity for your business. Your Virtual Legal Counsel will work with you as a partner in incorporating and protecting your business. Schedule a meeting with YVLC to discuss the ideal structure for your business to set up in India.