All about One Person Company form of Business Entity and its Annual Compliance Requirements
- ajay bhutada
- Mar 17, 2021
- 10 min read
Updated: Jun 9, 2021
Introduction to OPC
Ø The Companies Act, 2013 introduced a revolutionary concept of One Person Company (OPC). It was recommended in 2005, by a committee headed by Dr JJ Irani.
Ø Earlier in the old company Act 1956, where a minimum of two directors and shareholders were required. Whereas now the company can be formed with only one person as a director and shareholder.
Ø The idea of OPCs was genuinely ground breaking because it helped provide investors with an excellent opportunity to take power into their own hands and gave them several benefits.
Ø It gave young entrepreneurs benefits that an ordinary Private Limited company could avail, while, at the same time, providing them with added tax and HR benefits.
Ø OPC was established to support single person Enterprises that are small businesses with a sales turnover of less than 20s. So, the compliance requirements for OPC are also limited when compared to a private limited company.
In this article, we look at various aspect and post incorporation OPC compliance requirements.
Concept of OPC
One Person Company (OPC) is a choice of Business entity for entrepreneurs who want to have full control over the business.
Definition - Section 2(62) of Companies Act defines a one-person company as a company that has only one person as to its member.
Furthermore, members of a company are nothing but subscribers to its memorandum of association, or its shareholders. So, an OPC is effectively a company that has only one shareholder as its member.
OPC is a type of Private Company. Also, as per the Section 3 of the Act, when it comes to legal matters, OPC will be considered a Private Company. Hence, all rules which must be held in place for a Private company is also valid for an OPC.
The only exception to this rule is the Rule 3 of the Companies (Incorporation) Rules 2014 say, only a natural person who is an Indian citizen and resident in India can form an OPC or can act as nominee for the sole member of OPC. Also, another law states that one particular individual cannot create more than 5 OPCs in his or her name.
(Note: Resident in India means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.
Formation of OPC
An OPC is created the same way as a private limited company, with the only difference being that it has only one member and is prohibited from inviting members from the public to be a part of it.
Features of OPC
An OPC may be formed as either of the two:
1. Limited by Guarantee
2. Limited by Shares
o If shares limit the OPC, then it should have an internal capital of at least Rs 1 lacs and should have the power to restrict share transfers. It will also not be allowed to invite people to subscribe to it.
o An OPC must have a legally registered name, under which it operates and the term; One Person Company must be mentioned wherever the name of the company is used.
o An OPC member must nominate another with consent and have this nominee’s name filed to the Registrar of Companies.
o This nominee will run the OPC if the founding member dies or meets with some exceptional circumstances. The member may change the name of the nominee, as and when he or she desires by approaching the Registrar of Companies. If the member dies, while in power, then all the shares and liabilities that the OPC has accumulated, automatically pass onto the nominee.
Privileges/ Exemption available to OPCs
An OPC enjoys several privileges and immunities which Private companies are not eligible to receive. Here’s a look at the privileges and exemptions an OPC receives.
Ø The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
Ø Businesses currently run under the proprietorship model could get converted into OPCs without any difficulty.
Ø Mandatory rotation of auditor after expiry of maximum term is not applicable.
Ø An OPC requires only 1 Director to function. It can have directors up to a maximum of 15 which can also be increased by passing a special resolution as in case of any other company.
Ø The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a OPCs.
Ø Minimum authorized share capital required for OPC having share capital is Rs. 1,00,000/-.
Ø Minimum and maximum number of members for OPC is one only.
Ø As per Section 92 of the Act, states that annual returns of an OPC, need to be signed by either the company secretary or the director.
Ø Compliance regulations for Board Meetings will be met if decisions moved are registered in a minute book which is acknowledged and recorded by the member.
Advantages of One Person Company
Ø Lessen compliance burden – A OPC has more relaxed and less binding compliance regulations than that of the Private Limited Company. This dramatically reduces paperwork associated with running the company and hence, reduces the load on the HR department.
Ø Perpetual Succession - OPC being an incorporated entity, will likewise have the component of perpetual succession and will make it simpler for entrepreneurs to raise capital for business. The OPC is an artificial entity from its proprietor. Creditors should, therefore, be warned that their claims against the business can’t be squeezed against the proprietor.
Ø Limited Liability – Liability is treated differently in an OPC as it is a separate entity, and so shareholder liability is limited to the payment of subscription money. Hence, the member’s personal assets are not at risk.
Ø Smooth Succession - As the name of the nominee is made during the creation of OPC, succession laws are simple. In the event of the death of a member, all the shares and investments of the OPC are handed down to the nominee. There is no need for any lengthy procedure or submission of will as is the case with sole proprietorships.
Ø Simple to Get Loan from Banks - Helps in organising the unorganised proprietorship by giving it the same legal status of a private limited company. This provides better banking facilities to such companies. It also helps such companies have better status and recognition with respect to other companies.
Ø No prerequisite to holding annual or Extra-ordinary General Meetings
Ø OPCs yearly return is required to be signed by a director. The mandatory requirement of Company Secretary Signature does not apply to OPC
Disadvantages of One Person Company
Ø High Tax Rate - As a corporate form, you cannot avail of the tax slab advantage like proprietary constituent business. Tax rate @30% on income is applicable. The high tax rate is a big disadvantage of OPC.
Ø Compliance Cost - Compliance cost of partnership firm or proprietary is very low compared to One Person Company.
Ø OPC is included in Name - You are required to specify a 'one-person company' in your company name in the bracket. There is a slightly lower impression that the organization is kept running by one and only person. Another side, if you start your company with a couple of shareholders, the administration can’t be dedicated, and you can offer impressions to customers moreover.
Ø One Person Management - A shareholder is one, and that person makes all the decisions. On the off chance that he is insightful, it is excellent; however, in some cases, cross-check is required for business development. The company’s success and growth are all dependent on one person’s decision-making ability.
Ø OPC Incorporation is allowed - You can incorporate one and only OPC. If you need to start another company as OPC, it is not permitted. In today’s quick economy, more than one business can differentiate income and spare you from enormous misfortunes. One and an only stream of business is unsafe these days. Having this condition is a snag for serial business people.
Ø Not suitable for high turnover - There is the procurement of automatic conversion of OPC into a Private Limited Company. If you appraise a high turnover of your business or you have effectively high turnover, the better choice is to build up a private limited company than One Person Company.
Prohibited Activities
Such Company cannot be incorporate or converted into a Section 8 company.
Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.
One Person Company to convert itself into a public company or a private company in certain cases (Rule 6)
1. Compulsory conversion of OPC - Where the paid up share capital of an OPC exceeds Rs. 50 lacs or its average annual turnover exceeds Rs. 2 crores immediately preceding 3 consecutive financial year; such OPC shall require to convert itself, into either private company or public company in accordance with the provision of section 18 of the Act within 6 month of the date as mention above.
2. Voluntary conversion of OPC - A One Person Company can get itself converted into a Private or Public company after increasing the minimum number of members and directors to two or minimum of seven members and two or three directors as the case may be, and by maintaining the minimum paid up capital as per requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.
Annual Compliance for One Person Company (OPC)
As soon as you register a One Person Company, it needs to comply with mandatory compliance as required by ROC. List of Mandatory compliance for an OPC given hereunder:
Section 164(2), 143(3)(g) / FORM - DIR-8
Disclosure of non-disqualification in each financial year by every director.
Section 184(1) / FORM - MBP-1
By every Director at each financial year for disclosure of director interest in other entity in First Meeting of the Board of Director
Fresh MBP-1 is required to be submit whenever there is change in director interest from the earlier.
Rule 12A / FORM - DIR-3
By all the Directors of the company shall file DIR-3 on or before 30th September every year.
Section 405 / FORM - MSME-1
Company to file MSME-1, half yearly in respect of pending payments to MSME vendors as at end of half year.
April to Sep: 30th October
October to March: 30th April
Section 73, Rule 16 / FORM - DPT-3
To be filed every year on or before 30 June in respect of return of Deposit and particulars not considered Deposits as on 31st March.
Section 139 / FORM - ADT-1
Appointment of Auditor Filing - For the Appointment of Auditor, the OPC requires to file Form ADT-1 within 15 days of the conclusion of the AGM.
ü In the First AGM of the OPC, OPC shall appoint auditor who shall hold office till the conclusion of 6th AGM.
ü There is no need to file form ADT 1 for the appointment of the First Auditor who shall hold office till the conclusion of first Annual General Meeting. (Note: First Auditor has to be appointed within 1 month of incorporation)
ü However, when the Subsequent Auditor is appointed for 5 years, the OPC needs to file Form ADT-1.
Section 92 / FORM - MGT-7
Annual Return Filing - OPC file its annual return with ROC within 180 days from the closure of the FY.
ü The return should be filed as an attachment to Form MGT 7
ü The return has to be signed by the Company Secretary or the director of the company.
ü It must consists of the information and documents that include a compliance certificate, registered office address, register of members, shares and debentures details, information about the management of the company, debt details of the company.
ü The return should also disclose the shareholding structure of the Company, changes in directorship and details of the transfers of securities.
Note: Penalty for Form MGT-7: A penalty of Rs 100 per day is charged to the companies. Each member of the company and who is in default shall be deemed for paying the penalty of Rs. 50,000 and also the late fee of Rs. 100 per day if the default continues. The Penalty is subject to a maximum of Rs. 5,00,000.
Section 137 / FORM - AOC-4
Financial statement Filing - OPC is required to file its Balance sheet along with its Profit and Loss Account statement, Director Report and Auditor report within 180 days from the closure of FY.
ü The financial statement should be filed as an attachment to FORM e-form AOC-4
ü A Practicing Chartered Accountant must be appointed as the auditor of the company within 30 days of incorporation as the first auditor of the company
Note: Penalty for Form AOC-4: A penalty of Rs 100 per day on delay in filing Form. Apart from that, the penalty of Rs. 1000 per day of default is charged from the company which can go maximum up to Rs.10,00,000.
Other Compliance
1. Board Meeting (Section 173): At least one Board of Director meeting to be held in each half of calendar year and the gap between the two meetings shall not be less than 90 days.
2. Statutory Register (Section 88 and other): Company will maintain mandatory registers:
a) Director Register
b) Director Shareholding Register
c) Related Party Transaction Register
Note on Compliance requirements**
Appointment of Auditor
All companies are required to appoint the first Auditor a practicing Chartered Accountant within 30 days of incorporation of the Company.
Question - In case of appointment of First Auditors of OPC, is it required to file ADT 1?
AGM and Board meetings are not mandatory, so when first auditor should be appointed?
Answer - First Auditor of the company has to be appointed within 1 month of incorporation. There is no need to file ADT-1 for the appointment of first auditor. First auditor shall hold office till the conclusion of first AGM. In the First AGM of the company, company shall appoint auditor who shall hold office till the conclusion of 6th AGM and file ADT-1 thereafter within 15 days of appointment in AGM.
Even if, in case of OPC, AGM and Board meetings are not mandatory but provisions relating to Filing of Annual Financial Statements and Auditors report are applicable on OPC as well. So, since, audit of financial statement is mandatory for all companies therefore, auditor has to be appointed and about the compliance of meetings in OPC, you just need to make noting in minutes books of OPC.
OPC Annual General Meeting
All companies other than OPCs is required to hold an AGM each financial year with not more than 15 months elapsing between the date of one AGM of a company and that of the next. However, in case of an OPC where there is only one director on the Board, then it is sufficient for the resolution by one Director be passed and entered in the minutes-book. The signed and dated resolution by Director of an OPC is deemed to be the meeting of the Board of Directors for all the purposes under the Companies Act. Also, provisions relating to quorum for meetings of Board does not apply to an OPC where there is only one Director on its Board of Directors.
Financial Statements
All companies are required to prepare and file with the ROC, the following financial statements:
· Balance sheet as at the end of the financial year;
· Profit and loss account;
· Cash flow statement for the financial year;
· Statement of changes in equity, if applicable;
· Explanatory note forming part of any document.
In case of an OPC, the requirement for cash flow statement has been removed.
Comments