Understanding the Concept of One Person Company (OPC) Under Section 2(62)

Are you a solo entrepreneur or a salaried individual looking to start your own venture in India without the complexities of a larger company structure? If you dream of running your own business but want the benefits of a corporate entity, the One Person Company (OPC) might be the perfect fit for you. Introduced through the Companies Act, 2013, specifically under Section 2(62), the OPC structure has gained popularity among individual entrepreneurs in one person company India.

This blog post aims to be your clear guide to understanding OPC formation. We’ll break down what an OPC is, who can form one, the significant benefits it offers, the registration process, crucial compliance requirements, and how it’s taxed in India. Let’s dive into the world of One Person Company and see if it’s the right launchpad for your entrepreneurial journey.

What Exactly is a One Person Company (OPC)?

Defining the One Person Company

At its core, a One Person Company (OPC) is a type of private company that can be incorporated with just one person as its member. This unique structure bridges the gap between a sole proprietorship and a traditional private limited company.

• Unlike a Sole Proprietorship: Where the owner and the business are considered the same (meaning the owner has unlimited liability), an OPC is a separate legal entity. This grants the owner limited liability protection.
• Unlike a Private Limited Company: Which requires a minimum of two members and two directors, an OPC allows a single promoter to form a company.

The Companies Act, 2013, legally defines this structure under Section 2(62) India OPC. This status means the company can own property, enter into contracts, and sue or be sued in its own name, entirely distinct from its owner.

Key Feature: The Nominee

A crucial requirement for forming an OPC is the appointment of a nominee. This individual is designated in the Memorandum of Association (MoA) and automatically becomes the member of the OPC in the unfortunate event of the original member’s death or incapacity to contract.

• Who can be a Nominee? The nominee must be a natural person, an Indian citizen, and resident in India (meaning they have stayed in India for at least 120 days during the immediately preceding financial year – note: residency definition can vary, check current Income Tax Act provisions).
• Consent Required: The nominee must provide their written consent before their appointment. This consent is filed with the Registrar of Companies (RoC) using Form INC-3 at the time of incorporation.

This nominee structure ensures the company’s perpetual succession, allowing the business to continue operations seamlessly even if something happens to the sole member.

Key Eligibility Criteria and Restrictions for OPCs in India

While the OPC structure offers flexibility, certain criteria and restrictions apply.

Who Can Form an OPC?

To incorporate a one person company India, the individual promoter must meet the following conditions:

• Natural Person: Only a living individual can form an OPC. Corporations or other business entities cannot be members.
• Indian Citizen: The person must hold Indian citizenship.
• Resident in India: The person must qualify as a resident in India. As per the Companies Act amendments (effective from April 1, 2021), the residency requirement is simplified to having stayed in India for not less than 120 days during the immediately preceding financial year. (Previously it was 182 days).

Restrictions to Keep in Mind:

• One Person, One OPC: An individual is allowed to incorporate only one OPC. Similarly, a person can be a nominee in only one OPC at any given time.
• No Section 8 Companies: An OPC cannot be incorporated or converted into a company registered under Section 8 of the Companies Act, 2013 (these are companies formed for charitable or non-profit purposes).
• No NBFI Activities: OPCs are prohibited from carrying out Non-Banking Financial Investment activities, including investing in the securities of other corporations.
• Minors: A minor cannot become a member or nominee of an OPC, nor can they hold shares with beneficial interest.

Conversion Rules (Updated)

Previously, OPCs faced mandatory conversion into a Private or Public Limited Company if their paid-up capital or turnover exceeded certain thresholds. However, the Companies (Incorporation) Second Amendment Rules, 2021, removed these mandatory conversion limits.

• No Mandatory Conversion based on Thresholds: OPCs can now grow their paid-up share capital and turnover without being forced to convert into a different company structure. This provides greater flexibility and scalability.
• Voluntary Conversion: An OPC can choose to convert itself into a Private or Public Limited Company at any time by altering its Memorandum and Articles and meeting the minimum requirements (e.g., minimum two members/directors for a Private Limited Company). The previous restriction requiring an OPC to wait two years from incorporation for voluntary conversion has also been removed.

Major Benefits of Choosing the OPC Structure in India

Why are entrepreneurs increasingly opting for the One Person Company structure? The OPC benefits in India are quite compelling:

Limited Liability Protection

This is arguably the most significant advantage. Unlike a sole proprietorship where personal assets are at risk if the business incurs debt, an OPC provides limited liability. The member’s liability is restricted to their investment (share capital) in the company. Business creditors cannot pursue the owner’s personal assets (like house, car, personal savings) to settle business debts.

Separate Legal Entity

An OPC is legally distinct from its member. It has its own identity, allowing it to:

• Own assets and property in its name.
• Enter into contracts with suppliers, customers, and lenders.
• Sue third parties and be sued in its own name.

This distinction simplifies operations and legal proceedings.

Perpetual Succession

Thanks to the mandatory nominee appointment, the OPC enjoys perpetual succession. The company’s existence continues uninterrupted even if the sole member dies or becomes incapacitated. The designated nominee steps in, ensuring business continuity, which is not possible in a sole proprietorship (which dissolves upon the owner’s death).

Enhanced Credibility and Trust

Operating as a registered company under the Companies Act, 2013, lends significant credibility to the business. An “(OPC) Private Limited” suffix signals a formal structure, often boosting trust among suppliers, customers, banks, and potential investors compared to unregistered proprietorships.

Easier Access to Funding

While funding depends on various factors, OPCs generally find it easier to secure loans from banks and financial institutions compared to sole proprietorships. The formal structure, separate legal identity, and statutory compliance requirements often make lenders more comfortable extending credit. Venture capitalists and angel investors also exclusively invest in registered corporate entities.

Step-by-Step Guide: How to Register an OPC in India

Registering your One Person Company involves a series of steps handled through the Ministry of Corporate Affairs (MCA) portal. Here’s a simplified overview of how to register OPC in India, providing a clearer understanding OPC formation:

Step 1: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)

• DSC: The proposed director (who is also the member) needs a valid Class 3 Digital Signature Certificate (DSC). This is required for electronically signing the incorporation documents submitted online.
• DIN: Every individual intending to be a director of a company must obtain a Director Identification Number (DIN). This can now be applied for directly within the SPICe+ form. If the director already has a DIN, it can be used.

Step 2: Name Reservation

• SPICe+ Part A: The first step is reserving a unique name for your OPC. This is done by filing the SPICe+ Part A form on the MCA V3 portal. You can propose one or two names.
• Name Rules: The proposed name must be unique, not identical or confusingly similar to existing company names or trademarks, and not considered undesirable by the Central Government. Crucially, the name must end with the words “(OPC) Private Limited”.
• Actionable: Before applying, check potential name availability using the free search facility on the MCA portal: Ministry of Corporate Affairs.

Step 3: Filing Incorporation Documents (SPICe+ Part B)

Once the name is approved (valid for 20 days), you proceed with filing the integrated web form SPICe+ Part B. This single form combines applications for:

• Company Incorporation (including DIN allotment, if needed).
• PAN (Permanent Account Number) allotment.
• TAN (Tax Deduction and Collection Account Number) allotment.
• GSTIN (Goods and Services Tax Identification Number – optional). For more details, check our Ultimate Guide to GST Registration for Small Businesses.
• EPFO (Employees’ Provident Fund Organisation) registration.
• ESIC (Employees’ State Insurance Corporation) registration.
• Professional Tax registration (Maharashtra/Karnataka/West Bengal).
• Bank Account opening.

Associated forms automatically linked with SPICe+ Part B are:

• eMoA (INC-33): Electronic Memorandum of Association, outlining the company’s objectives.
• eAoA (INC-34): Electronic Articles of Association, detailing the company’s internal rules and regulations.

Key Documents/Details Required for SPICe+ Part B:

• Details for eMoA and eAoA.
• Nominee Consent in Form INC-3 along with PAN and Aadhaar card copy.
• Proof of the proposed Registered Office address (e.g., recent utility bill like electricity/phone bill, OR Rent Agreement/Lease Deed along with owner’s NOC).
• Identity Proof of Member/Nominee (PAN Card is mandatory, plus Aadhaar Card, Voter ID/Passport/Driving License).
• Address Proof of Member/Nominee (Recent Bank Statement/Utility Bill – not older than 2 months).
• Declaration by the proposed director (included within SPICe+).

Step 4: Receiving the Certificate of Incorporation (COI)

After submitting SPICe+ Part B and linked forms along with the required documents and fees, the Registrar of Companies (RoC) will scrutinize the application. If everything is in order, the RoC will issue the Certificate of Incorporation (COI). This certificate is conclusive proof of the company’s existence. Usually, the PAN and TAN are allocated simultaneously and mentioned on the COI itself.

Essential Indian OPC Compliance Requirements Post-Incorporation

Registration is just the beginning. Running an OPC requires ongoing adherence to legal and statutory requirements. Staying compliant is crucial to avoid penalties and maintain the company’s good standing. Key Indian OPC compliance requirements include:

Minimum Board Meetings

OPCs enjoy relaxed requirements for board meetings compared to other companies. As per Section 173(5) of the Companies Act, 2013:

• An OPC must hold at least one board meeting in each half of a calendar year (i.e., one between Jan-June and one between July-Dec).
• The minimum gap between these two meetings must be at least 90 days.
• If the OPC has only one director, this provision does not apply. However, maintaining minutes for decisions taken is still good practice.

Statutory Audit of Financial Statements

Like other companies, OPCs must get their financial statements (Balance Sheet, Profit & Loss Account, Cash Flow Statement, etc.) audited annually by a qualified practicing Chartered Accountant (CA). The auditor’s report must be attached to the financial statements.

Annual Filings with the Registrar of Companies (RoC)

OPCs need to file two main annual forms with the RoC:

• Form AOC-4 (OPC): This form contains the financial statements (including the auditor’s report and board’s report). It must be filed within 180 days from the closure of the financial year (i.e., by September 27th, as the financial year ends March 31st, and accounts are typically signed after that).
• Form MGT-7A: This is the abridged Annual Return form applicable specifically to OPCs and Small Companies. It contains details about the company’s member, nominee, director, share capital, etc. It must be filed within 60 days from the date of signing of the financial statements. Note: Since OPCs don’t hold AGMs, the due date is linked to the signing date, not an AGM date.

Income Tax Compliance

• Annual ITR Filing: OPCs must file their Income Tax Return annually using ITR Form 6. The due date is typically October 31st (if audit is applicable, which it is for all companies) of the assessment year. For guidance, see Step-by-Step Guide to Filing Income Tax Returns for Salaried Individuals in India.
• Advance Tax: OPCs are liable to pay Advance Tax in quarterly installments if their estimated tax liability for the year exceeds Rs. 10,000.
• TDS/TCS: If applicable, the OPC must comply with Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) provisions – deducting/collecting tax, depositing it with the government, and filing quarterly TDS/TCS returns.

GST Compliance (If Applicable)

• Registration: If the OPC’s aggregate annual turnover exceeds the prescribed threshold limit (currently Rs. 40 Lakhs for exclusive supply of goods and Rs. 20 Lakhs for exclusive supply of services, with lower limits for special category states – always verify current limits), it must register under the Goods and Services Tax (GST) regime. Voluntary registration is also possible.
• Returns: Registered OPCs must file regular GST returns, such as GSTR-1 (details of outward supplies) and GSTR-3B (summary return and tax payment), usually on a monthly or quarterly basis (depending on turnover and scheme opted).

Understanding One Person Company Taxation in India

Knowing the tax implications is vital for any business structure. Here’s how one person company taxation India works:

Corporate Income Tax Rates

An OPC is treated as a separate legal entity for tax purposes and is taxed similarly to other domestic companies.

• Standard Rate: OPCs are generally taxed at a flat rate of 30% on their profits, plus applicable Surcharge and Health & Education Cess (4%).
• Lower Rate (Turnover Based): A lower rate of 25% (plus surcharge and cess) may apply if the company’s total turnover or gross receipts in the previous year (e.g., FY 2021-22 for AY 2023-24) did not exceed Rs. 400 Crore.
• Concessional Tax Regimes: OPCs can opt for concessional tax regimes under Section 115BAA (tax rate of 22% plus surcharge and cess) or Section 115BAB (for new manufacturing companies, rate of 15% plus surcharge and cess), provided they fulfill specific conditions and forgo certain deductions and exemptions.
• Actionable: Tax rates and conditions are subject to change. Always refer to the latest provisions on the Income Tax India Website for current rates.

Minimum Alternate Tax (MAT)

If the income tax payable by the OPC under the normal provisions of the Income Tax Act is less than a certain percentage of its ‘book profit’, it has to pay Minimum Alternate Tax (MAT).

• MAT is currently levied under Section 115JB at 15% (plus surcharge and cess) of the book profit.
• Note: Companies opting for the concessional tax regimes under Section 115BAA or 115BAB are exempt from MAT.

Goods and Services Tax (GST)

As mentioned under compliance, GST applies based on turnover.

• Threshold: Registration is mandatory if turnover exceeds Rs. 40 Lakhs (goods) / Rs. 20 Lakhs (services) in most states (verify current thresholds and special category state limits).
• Tax Components: Depending on whether the supply is within the state (intrastate) or outside the state (interstate), CGST (Central GST) + SGST (State GST) or IGST (Integrated GST) will be levied, respectively.
• Actionable: For detailed GST rules, rates, and compliance procedures, visit the official GST Portal.

Conclusion: Is a One Person Company the Right Choice for You?

The One Person Company structure offers a fantastic middle ground for solo entrepreneurs in India. It provides the coveted benefits of limited liability and a separate legal identity, previously available only to larger corporate forms, while allowing a single individual to run the show. Key OPC benefits in India, such as enhanced credibility, perpetual succession, and potentially easier access to funding, make it an attractive option.

However, it’s essential to understand the process of how to register OPC in India and be prepared for the ongoing Indian OPC compliance requirements and one person company taxation India. While compliance is simpler than for larger companies, it still demands diligence in filings and adherence to regulations.

If you’re a freelancer, consultant, or small business owner currently operating as a sole proprietor and looking for a more formal, protected, and scalable business structure without needing a partner, the OPC could be the ideal solution.

Navigating the nuances of One Person Company registration and compliance can be complex. Let TaxRobo simplify the process for you. Contact us today for expert assistance with OPC formation, filings, and taxation!

Frequently Asked Questions on OPC in India (FAQ)

Here are answers to some common frequently asked questions on OPC in India:

Q1: Can an NRI or a foreign national incorporate an OPC in India?

Answer: No. As per the current rules, only a natural person who is an Indian citizen AND resident in India (having stayed in India for at least 120 days in the preceding financial year) can incorporate an OPC. Furthermore, only such a person can be appointed as a nominee.

Q2: What is the minimum capital required to start an OPC?

Answer: There is no minimum paid-up share capital requirement specified under the Companies Act, 2013 for incorporating an OPC. You can start an OPC with any amount of capital, even as low as Rs. 1000, although a slightly higher capital base might be practical for initial expenses. See How Much Capital is Required to Start a Private Limited Company? for related insights.

Q3: Does an OPC need to hold an Annual General Meeting (AGM)?

Answer: No. Section 122 of the Companies Act, 2013 specifically exempts One Person Companies from the requirement of holding an Annual General Meeting (AGM). Any business that needs to be transacted at an AGM can be done by the sole member by communicating the resolution to the company and entering it into the minutes book, signed and dated by the member.

Q4: Can an OPC have more than one director?

Answer: Yes. While an OPC, by definition, has only one member (shareholder), it can appoint more than one director. An OPC must have at least one director (who can be the member themselves). It can appoint up to a maximum of 15 directors, similar to a private limited company. If there is more than one director, board meeting provisions apply.

Q5: What happens if the turnover or capital threshold for an OPC is crossed?

Answer: This rule has changed. Previously, OPCs had to mandatorily convert to a private or public limited company if their paid-up share capital exceeded Rs. 50 Lakhs OR their average annual turnover exceeded Rs. 2 Crores. However, these thresholds for mandatory conversion were removed by the Companies (Incorporation) Second Amendment Rules, 2021. Now, an OPC can grow beyond these limits without being forced to convert. It can choose to convert voluntarily into a private or public limited company at any time.