One Person Company (OPC): Legal Framework

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One Person Company (OPC): Legal Framework

Companies Act, 2013, brought in a revolution of corporate laws in India by introducing and establishing new corporate concepts which were not included in Companies Act, 1956. The sections of the Companies Act, 2013, were brought into force in three stages. Section 1 of this Act came into force on 30 August 2013. On 12 September 2013, a total of 98 different sections came into force with a few changes. From 1 April, 2014, a total of another 183 sections came into force. The Act was introduced due to the need to establish laws which would encourage Indian companies to adapt to the domestic and global environment and to bridge the gap between the existing laws in order to promote transparency in the governance of companies. One groundbreaking concept brought by the Companies Act, 2013 was that of ‘One Person Company’. 

Before this Act, a single person was not allowed to incorporate a company. There was no provision that permitted one single person to enter into a venture having limited liability and the only option available was to establish sole proprietorship with unlimited liability. To attract the benefit of limited liability, one had to establish a private company, which would need a minimum of two shareholders. As a way to overcome that stumbling block of sole proprietorship which does not recognize itself as a separate legal entity, One Person Company was introduced. Thus, one person company is an ideal mix of characteristics of a sole proprietorship and a company form of business, as it lets one single person incorporate a business with limited liability.

Definition of OPC

OPC, short for One Person Company, is a private company which is created by only one person as a member. The members of a company are nothing more than its contributors for association memorandum or shareholders, so in case of OPC we can say that it is a company with only one shareholder as a member. These types of companies are generally formed with only one founder or promoter. OPCs have numerous benefits due to which many entrepreneurs decide to choose it over sole proprietorship. Such a company can be restricted by share or guarantee, or it might be limitless. The following standards must be met in case the shares limit the corporation:

• A minimum paid-up capital of Rs. 100,000 is mandatory
• The transferability of shares is restricted
• Inviting the general public to subscribe to the company’s shares is not permitted

Features of OPC

Comprehending the characteristics that define OPC should be considered a strategic advantage as well as a legal requirement by the entrepreneurs. These characteristics range from the unique legal identity to limited liability protection and work as cornerstones of what makes OPC so beneficial. Before choosing OPC as your business structure, you must ensure that you have a thorough understanding of each of its characteristics.

• Distinct Legal Identity: One of the main features of OPC is its unique legal identity. In OPC, the business is recognized as a separate legal entity from its owner. This separation accounts for limited liability protection to the owner while allowing the business to operate independently. The business can enter into contracts, possess property, and incur liabilities in its own name.
• Mandatory Incorporation: Unlike other business structures, the formation of an OPC is a mandatory process regulated by the Companies Act of 2013. This formal incorporation ensures that the company adheres to legal standards which enhances transparency and accountability in the system.
• Single Ownership: OPC’s single-member ownership structure is its hallmark. This unique feature allows a sole entrepreneur to own and manage the entire business, fostering a streamlined decision-making process without the complexities of a multi-member board
• Indian Citizenship: The prerequisite for Indian ownership is another aspect that is worth noting. The establishment and operation of an OPC is restricted to those who are Indian citizens and residents. This guarantees the company's national continuity.
• Limited Liability Protection: This is one of the privileges of OPC. The owner's responsibility is limited to the amount they have invested in the business, and their personal assets are protected. For individual business owners, this financial insulation is definitely a huge benefit.
• Separate Ownership and Management: In an OPC, ownership and management have quite different responsibilities. Effective business operations can be achieved by assigning day-to-day management responsibilities to professionals or workers, even when the individual owner still maintains complete control over the organization.
• Perpetual Succession: This idea guarantees that the OPC will continue even after its founder passes away. Should the owner pass away or become incapacitated, the nominee director takes over and makes sure the company runs smoothly.
• Restrictions when it comes to share transfer: One noteworthy feature of OPC is the share transfer restrictions. It is not easy to transfer ownership. Due to this limitation, single owners find it helpful to maintain stability and control in the company.

Regulatory Obligations for OPC

It is necessary to maintain regulatory compliance for OPC’s long-term viability and legitimacy. Compliance requirements include, preparing and submitting the Annual Financial Statements, which contain the balance sheet, profit and loss account and additional cash flow statements. Additionally, OPCs have to file their Annual Returns which are documents that include the information about the financial status of the company, its performance and all the shareholders. RoC must be submitted on time so that the compliance requirements can be met. Director’s report is an important document which provides details of the company’s operations, performance and future goals. This report has to be compiled and submitted by OPC every year. A certified auditor is necessary to carry out a statutory audit as a part of compliance measure. This auditor will review the financial records of the company and submit an audit report to the RoC. OPCs must adhere to the tax requirements which involves paying corporation taxes in a timely manner and filing ITRs as per the applicable laws.

Legal Documents Required for OPC Registration   

It is necessary to have all the legal documents that are essential for OPC company registration. The following documents are mandatory for the registration of OPC:

• PAN card of the owner and the nominee
• Aadhar card of the owner and the nominee
• Contact number
• Bank statement/ telephone bill/electricity bill (last two months)
• Notarized rent agreement
• NOC from the Property Owner
• In case the owner owns the property, a sales deed is required
• Passport size photo (one) each of the owner and the nominee
• Email ID

Conclusion

The Companies Act of 2013 has provided a lot of advantages to the business owners. It introduced OPC. In OPC, the business is recognized as a separate legal entity from its owner. This separation accounts for limited liability protection to the owner while allowing the business to operate independently. The business can enter into contracts, possess property, and incur liabilities in its own name. The establishment and operation of an OPC is restricted to those who are Indian citizens and residents, which promises the company's national continuity. Due to this limitation, single owners find it helpful to maintain stability and control in the company. If you are an entrepreneur interested in One Person Company registration, we recommend you to contact our Registrationwala team experts!

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