OPC Company (One Person Company) Registration and cost in India

 

OPC Company (One Person Company) Registration and cost in India

Okay, take it! Starting a business is painful by itself. Even more painful is the decision of registering the company. There used to be three options:

  • Register the company as a proprietorship firm.
  • Register the company as a partnership firm.
  • Register the company as a Private Limited Company.

OPC Company (One Person Company) Registration in India

Well, this is where things get messy. Though the decision is purely personal, people often mess things up at this stage despite the fact that they know about the business and perhaps, they even excel in the business.

To make life worse for people, there is another contender in place now – the” One Person Company”. This new variant has come in since April, 2014 and is popularly known as the OPC.

What on earth is OPC?

Isn’t this the question that has come to your mind right now? We intend to give an explanation for the same in this article. As a matter of fact, we are going to learn a number of things which include:

  • What really is OPC?
  • Eligibility conditions for OPC formation.
  • Benefits of forming OPC.
  • Restrictions that are put on OPC.
  • Steps to undertake for the formation of OPC.

These topics will help you to understand almost everything about OPC. So, in case you are thinking that this is going to be a quick article, you are wrong! Grab some tea or coffee, whatever you want, and sit back and relax and read! This is going to take a while.

Let us start…

What really is OPC or One Person Company?

OPC or the One Person Company, as the name suggests, is a company which has only one person as its member. This definition comes from Section 2(62) of the 2013 Companies Act.

As per the act, a single person can form a company for a purpose which is lawful. The company thus formed will be known as the One Person Company. It will be a Private Company wherein the person who will be forming the company will have to have his or her name subscribed to memorandum and the person needs to register the company within the guidelines outlined by the Companies Act.

According to the old 1956 Companies Act, a minimum of two people was required for company formation. These two people would become the directors and shareholders of the company which would be registered as a Private Limited Company. The new Companies Act that was formulated in 2013 states that even one single person is capable of forming a private limited company wherein, the person will himself or herself be the director as well as the shareholder of the company.

Eligibility conditions for OPC

Of course, there are rules that one needs to follow in order to open a company in India. We know that starting a new company in India has always been a hassle and the OPC is no exception to that. You need to satisfy a few criteria before you can be tagged as a person eligible for opening a One Person Company. This section outlines the eligibility conditions of the same. The conditions are:

  • The person planning on opening a One Person Company should be a natural citizen of India and also, he must be a resident of India. Put in simpler terms, he or she should be not only born in India but should also be residing in India. If this condition is not satisfied, a person cannot open an OPC.
  • Again, only a person who is a natural citizen of India and is also a resident of India can be nominated as the nominee of the OPC thus formed.

Now what does it mean when we say that the person needs to be a resident of India? What if a person is born in India but is currently living in a different country but is yet to get the citizenship of that country? Well, in that case, he or she is still a citizen of India but is not a resident of India. To be counted as a resident of India, that person needs to stay in India for a minimum of 182 days in the preceding calendar year. This means that if a person is to be considered as a resident of India in 2016, he or she should have stayed in India for a minimum of 182 days in calendar year 2015.

What are the benefits of forming OPC?

We know that creating a company is a real headache in India. However, running a company is equally difficult. There are certain rules and regulations that a normal company has to follow. Some of these rules and regulations do not apply to a One Person Company. Thus, the benefits of forming an OPC are:

  • The One Person Company which will be formed will become a separate legal entity and the member of the company will be a different entity.
  • The member of the company will have limited liability in the OPC.
  • The One Person Company is basically a Private Limited Company. This means that though it is a private limited company, the member of the company will not really need a second member’s help for formation of the company. Since the dependence on a second member is completely ruled out, many emerging entrepreneurs can now quickly set up a company.
  • In case of other types of companies, there is a mandatory requirement that an auditor should be appointed and reappointed. This requirement does not exist in case of a One Person Company.
  • Companies Act 2013 has section which states that a company (not an OPC) needs to hold what is known as general meetings. These sections are 98, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110 and 111. In case of a One Person Company, this rule of mandatorily holding general meetings do not apply.
  • In case of other companies, the Companies Act, 2013 makes it mandatory to hold board meetings with a minimum of 4 board members. In case of the One Person Company, this requirement is not applicable at all.

Are there any restrictions on One Person Company?

If there are benefits, there are some disadvantages as well. Since we do not like the word disadvantages, we are going to use the word restrictions. Yes, One Person Company has several restrictions and they are somewhat harsh. In this section, let us explore the restrictions that apply to an OPC.

Multiple nomination or membership not allowed If a person is already a member of a One Person Company, he or she cannot incorporate another OPC or become a nominee of another OPC. Similarly, if a person is already a nominee of one One Person Company, he or she is not allowed to incorporate another OPC or become a nominee of another OPC.
No minor is allowed The Companies Act 2013 expressly forbids a minor from becoming a nominee or a member of a One Person Company. The same Act also forbids a minor from holding any share in an OPC with the intent of reaping beneficial interest.
Conversion into another company A One Person Company is totally different from any other company format in India. The Companies Act of 2013 has section 8 which expressly forbids an OPC to be converted into any other company
No non-banking investments allowed Well, companies in India are allowed to invest in non-banking financial sectors such as securities. OPC however cannot do so. The only financial investments allowed is in banking sector.
Voluntary conversion into another type of company The Companies Act, 2013 prevents an OPC being voluntarily converted into any other form of company unless and until, the OPC has covered two years of existence since the date it was incorporated. The only voluntary conversion allowed before two years is that of paid up share capital.

Are there any minimum requirements for incorporating a One Person Company?

Yes, there are several minimum requirements for incorporating a One Person Company. These requirements are mentioned below in a bullet list format.

  • The minimum number of directors required for OPC is 1.
  • The minimum number of members required for OPC is 1.
  • The minimum share capital allowed for an OPC is INR 1 lakh.
  • The director is required to apply for DIN or Director Identification Number.
  • The director is required to get a Digital Signature of Class II.

What is the procedure for incorporating a One Person Company?

Incorporating a One Person Company is slightly different from that of incorporating any other kind of company allowed in India. There are fewer steps involved in case of a One Person Company. There are 8 steps in total that are to be followed. These steps are mentioned below. Read carefully to understand what you need to do in case you want to incorporate a One Person Company.

Step 1: Applying for DIN and DSC

The first step is to get the Director Identification Number and the Digital Signature Certificate. The Director Identification Number or DIN is an identification number that is provided by the MCA or Ministry of Corporate Affairs to a person who is either a director or intends to become a director. This is a must and hence, if you are planning to start an OPC, you need to get one because you will be the sole member and hence, the director of the company.

On the other hand, DSC or the Digital Signature Certificate is basically a digital signature that you will need for your official activities. We will come to the DSC later but let us first take a look at DIN in details.

The DIN application is to be made with the form known as the DIR-3. There will be several documents that you need to attach with the application form. When we are saying documents, remember that we are referring to the scanned copies of the documents because the form you will be filling up will be an e-form or online form. The documents that you will need are:

  1. Proof of Identity: You need to provide your PAN card copy as a proof of identity. No other document will be accepted. If you don’t have a PAN you need to apply for PAN with NSDL or UTI Investors Securities Ltd. The Income Tax Department has outsourced the PAN creation and distribution work to these agencies. It is very important that the details you enter in your DIR-3 form matches the details that are present on your PAN Card or Permanent Account Number Card.
  2. Proof of Address: For this, different documents are allowed. For example, you can use your Passport or your Voter ID Card or your Aadhar Card, your Driving License or your Utility Bill like the telephone bill or electricity bill. It is mandatory that if you are using your utility bill, it should, under no circumstances, be older than two months. Also remember that the address proof that you are offering should be in your and only your name. For example, if your address proof is a utility bill which is in name of your father, it will not be accepted. Hence, you should select a document which will have your name. For instance, your passport is the best bet.
  3. Passport Photograph: You will be required to provide only and only one passport photograph. It has to be recent and colored. Remember that it should be a soft copy because you will be filling up the form in electronic format. The image you are using should be in JPEG or JPG format only. No other format will be allowed for your passport photograph.
  4. Occupation: You need to provide your current occupation.
  5. Email ID: You must have an active email ID and you need to provide the same. The best bet is to go for a Gmail account because it is accepted everywhere.
  6. Contact Number: You need to provide your contact number. Usually it is your cell/mobile phone number.
  7. Educational Qualification: You will have to provide details of your educational qualification. Basically, you will have to attach the certificates.
  8. Application Verification Form: This is basically a declaration that all the documents and information that you have provided are yours and that they are authentic. This verification form is known as DIR-4. There are several other declarations as well. In case you want to know how the DIR-4 form looks like, look at the image below.

Few important points to remember:

Self-Attestation All documents that you attach should be self-attested.
DIR-3 to have digital signature There must be a digital signature of the DIR-3 form. This digital signature should be either of the person who is applying or a company secretary, a chartered accountant or a cost accountant, all of whom should be in full time practice.
The DIR-3 form can also be digitally signed by a company secretary who is a full-time employee or by the company director in which the applicant is about to become a director.
Mandatory fields in DIR-3 form Apart from all that has been mentioned above in the list of documents required, there are several other fields in the DIR-3 form which are mandatory. These fields are – first, middle (if available) and last names, details of applicant’s father even if the applicant is a married woman. In case of a married woman, if the DIN is to be issued on the post-marital name of the woman, a photocopy of her marriage certificate is a must.
Remember DIN rejection and DIR-3 rejection reasons There are instances where the DIN and DIR-3 are rejected. There are several reasons for such rejection. You should know the reasons very well in order to prevent rejection.

Now it is time to look at DSC or Digital Signature Certificate. What really is that? Well, a Digital Signature Certificate is basically an electronic format of a physical signature certificate. Some examples of physical signature certificate are your driver’s license, your PAN Card, your passport etc. These physical certificates show that you are the person in question and that you have the rights and permission to do certain things in a country. Similarly, a Digital Signature Certificate also serves as a proof that you are the intended person. It will actually prove your identity. This digital signature will be required for accessing certain vital information on the Internet. You may also need the same for electronically signing several documents. Now, MCA or Ministry of Corporate Affairs has started accepting digital form submission and hence, it is mandatory for everyone who is making an application with MCA online to have a digital signature.

The question is, ‘how to get a digital signature?’

MCA accepts digital signature that has been issued by any one of the six approved agencies. One of these agencies is Tata Consultancy Services or TCS. In order to get a Class II Digital Signature Certificate, you need to apply using a specific form.  You need to pay a fee for this. The worst part here is that different agencies charge different prices for this certificate. You will have to provide a fresh passport sized photograph and sign across the photograph.

There will documents that you need to provide for your DSC. These documents are exactly the same as the documents that you provide for the DIR-3 form. However, there is a special requirement.

The documents that you are providing for proof of your address and your identity are to be attested by Post Master, Bank Manager or Class I Gazetted Officer. The remaining documents are to be self-attested.

Step 2: Searching your company name

Do not forget that a company will need a name and you will have to find a name. The problem is that the name you thought of might already be used as the name for some other company or it may be used as a trademark for some other company. If so, you literally cannot use that name because that name has already been used and registered either as a name or as a trademark. So, you need to head over to the MCA website and scan through the names that have already been used.

In case you see that the name you have selected for your company is not in use, you can then use it as an option. Remember that Registrar of Companies gets several applications every day for name approval and it might happen that someone else has already applied for name approval using the same name that you have thought of. Since the applications are processed in order in which they arrive, if the other application comes ahead of yours, your selected name may be given to someone else who thought of the same name and applied before you did. Hence, you will have to give 6 different alternatives in order of preferences. One out of these 6 will get selected as the likelihood of someone else thinking of exactly same alternative names is nearly zero.

Also remember that you will have to follow the naming rules laid down by MCA. You cannot violate such rules because if you do, your selected name will be rejected on the grounds of violation of rules even if it is unique and available.

In case you want to know whether the name you have selected has already been used as a Trademark by a company or not, you can head over to this link. Good thing here is that even if your selected name is already under use as a trademark of another company, you can write to that company asking for explicit permissions for using the trademark as your company’s name. There are cases where several companies have actually agreed to such requests but the likelihood of such requests being declined is very high as well.

Step 3: Apply for registering the name

Once you have found the name of your choice and you have other 5 alternatives ready, you need to fill up INC-1. This is an e-form which you need to fill in to reserve the name for your company. This application will go to ROC or Registrar of Companies. Since you are opting for OPC, the name you are proposing should have the ending as Private Limited (OPC).

You should know that the MCA has given a list of undesirable names. It simply means that you can use those words as names for your company. Failure to comply will mean that the MCA or rather the ROC will cancel the name registration application. In case you have no idea of what names to avoid, here is the list that you should refer to.

Also, a general circular was released by the MCA which explicitly stated the words that should not use. These words include:

  • National
  • Bank
  • Exchange
  • Stock Exchange

These names cannot be used for naming a LLP (Limited Liability Partnership) or other companies.

If all the rules of naming a company are followed, the ROC will register and reserve the name. The name will then be shown on the MCA website. It is suggested that you check the MCA website frequently to find out whether the name has been approved or not.

Step 4: Creating or Drafting AoA and MoA

AoA stands for Articles of Association while MoA stands for Memorandum of Association. What on earth do they mean? Let us find out.

AoA or Articles of Association

The AoA is a document which outlines the rules and regulations that are followed by a company for its internal management. Basically, it is a contract which binds the company and the member of the company and defines the duties and rights of the member of the company.

MoA or Memorandum of Association

The MoA is a document which outlines the details of the company which includes details like:

  • Name of the company.
  • Registered address of the company.
  • Objectives and aims of the company.
  • Information on the company’s first shareholders and number of shares that have been allocated for each shareholder.
  • Amount of share capital the company holds and the amount of minimum paid up capital that the company has.
  • Details of the liabilities and duties of the member(s) of the company.

Basically, MoA is considered as a company’s supreme document. It is a legal binding for the company and if the company tries to go against what is being written in the MoA, it will get into trouble.

These documents can be drafted or created by you. You need to write them down using your own handwriting and sign the documents. In case you are not aware of what you need to write, you can always seek help from a company secretary.

Step 5: Filing Forn INC-2 for Incorporating the Company

The next step is to incorporate the OPC. For this, you need to submit an application to the Registrar of Companies (ROC). The form is to be filed online and the name of the form is INC-2. Several attachments will be required along with this form. The required attachments are mentioned below:

  • AoA or Articles of Association.
  • MoA or Memorandum of Association.
  • Proof of identity of the member of the company.
  • Proof of identity of the nominee of the company.
  • Proof of address of the member of the company.
  • Proof of address of the nominee of the company.
  • A copy of the PAN (Permanent Account Number) Card of the member.
  • A copy of the PAN Card of the nominee of the company.
  • A consent letter from the nominee. This consent needs to be provided in a format. The format is predefined as is provided in form of a form known as INC-3.
  • The first Director and the subscriber as mentioned in the Memorandum needs to provide an affidavit in form INC-9.
  • Form INC-10 which will contain the specimen signature.
  • DIR-2 format to be used to provide a consent to act as the company director.
  • A copy of a document that proves that the address registered for the office is valid. Documents like rent agreement along with receipts of rent, lease deed, conveyance etc. will work for this.
  • A copy of any utility bill which can prove that the office premises is valid. The bill should be a recent one (not older than 2 months).
  • In case the office space that has been registered is owned by some other person or any other entity but the applicant or the member of the company, a proof has to be provided that the company has proper permission to use the address as registered office address.
  • Form INC-8 for a declaration that is to be made by a professional.
  • Details of all subscribers to AoA or Articles of Association and MoA or Memorandum of Association.

Step 6: Paying Stamp Duty and ROC Fee

Just because you have uploaded all documents with the form for incorporation to MCA website, it doesn’t mean that the ROC will be processing the application straight away. You need to pay the necessary ROC fee and also the stamp duty for the processing to take place. Only after you make the payment, ROC will start processing your application. The amount of fee you need to pay will depend on the amount Authorized Capital designated for the company. The fee payment has to be made electronically.

Step 7: Form verification by ROC

Once you make the payment, ROC will start processing the application. It is very likely that while scrutinizing the documents (attachments) and even the form, ROC might notice some kind of error. At that point ROC will ask you to make necessary changes. You need to make sure that you make those changes and verify that the changes you have made are accurate and as asked by ROC before you submit the changes in order to avoid rejection.

Step 8: Issuing the Incorporation Certificate

After ROC verifies all documents, it will approve the incorporation application. The Certificate of Incorporation or the CoI will be generated in an electronic format and will be e-mailed to the director of the company. Do not expect a paper copy of the certificate because MCA has stopped sending paper documents/certificates as part of Green Initiative.

You will receive the soft copy of the certificate which will have the digital signature of the Registrar from ROC. The moment you receive the CoI you can immediately start your business operations. The certificate is mailed in PDF format and can be opened by any PDF reader but Adobe Acrobat Reader is suggested. When you open the file, you may see a message which reads ‘Validity Unknown’. This message will show because of the digital signature. All you have to do is to validate the digital signature. In case you are not aware of how to do the same, you can follow the steps that are mentioned here.

Formalities that are to be completed after Incorporation

Incorporation of your company is not the last step. There are number of things or rather formalities that you need to take care of after the incorporation has been completed. Things that you need to do after the incorporation are mentioned below. You need to know that these steps are not optional. They are rather mandatory as mentioned in Companies Act, 2013. The steps that you need to follow are:

  • You need to apply for TAN, PAN and Shop Act License.
  • You need to open a current account with a bank of your choice.
  • You need to ensure that you pay the subscription money that is required for maintaining a current account with a bank.
  • You need to issue to the subscriber of your company the share certificates.
  • You also need to file form INC-21 electronically. This form will go to the Registrar of Companies. This form states that you will be commencing business within 180 days from the date on which the company was incorporated. The INC-21 is known as Certificate of Commencement of Business.

One Person Company’s Annual Return Filing

Whether it is an OPC or a different company, a company needs to file an annual return. The return has to be filed in the format that has been prescribed. It will be filed at the end of the fiscal year. The return thus filed will have the following details about the company:

Company particulars Particulars of the company like the registered office of the company, its subsidiaries, its holding, its associate companies, its primary business activities etc.
Financials The pattern of shareholding of the company, the number of debentures, securities and shares it holds.
Debt The indebtedness of the company.
Members List of members of the company and even the list of the holders of debentures of the company and also any changes in those lists since the last or previous financial year was closed.
Other personnel The list of its directors, promoters, key managerial people and other including any changes that took place since the last or previous financial year was closed.
Meeting details The details of all board meetings held and the details of their attendance. Even the details of other meetings of the members held in the year.
Remuneration The amount of money that it paid to key personnel in management and that of the directors.
Penalties In case the company faced in penalty or punishment, the details are to be provided. The details will include the names of the people responsible and also the details of all offences that were mentioned. The details will also include the steps taken or appeals made by the company against such penalties.
FII In case the company is holding any shares on behalf of FII or Foreign Institutional Investors, the details of those FIIs, their addresses, their origin countries, their share and even their registration details are to be provided in format prescribed.

What about the Financial Statement?

Every company needs to have a financial statement and the OPC is no exception to that. Even an OPC needs to provide a Financial Statement to the ROC. This statement has to be filed within 180 days from the date when the financial year was closed. Necessary documents are to be attached with the filing. Here is what you need to know about the financial statement in case of OPC:

  • One director has to sign the financial statement. Then the statement has to be submitted to an auditor so that the auditor can give his comments and remarks.
  • The financial statement should have the report of BoD or Board of Directors.
  • In case of OPC, BoD report actually refers to a report which will have comments and explanations from the board members on every adverse remark, reservation or qualification or disclaimer that the auditor made in the report he gave against the financial statement.
  • The financial statement has to be filed within 180 days from the date on which the financial year closed. The statement has to be filed with ROC.
  • The cash flow statement should not be included in the financial statement.

IMPORTANT: FAQ

In this section, we will look at some of the most frequently asked questions about an OPC or One Person Company. Since we have covered several details in the main article, we will carefully eliminate those details in the FAQ section to avoid duplication.

Question: Why is nomination necessary in case of OPC?

Answer: What if the subscriber or the member of the company dies or simply becomes incapable of delivering the contract? Who will be responsible for the company. This is where the nominee will become the subscriber and assume responsibility for the company.

Question: Is it necessary to take consent of the nominee to before appointing him or her as nominee?

Answer: Yes! Express consent has to be given by the person before he or she can be appointed as nominee.

Question: Once appointed, can a nominee withdraw consent?

Answer: Yes, that is possible. However, the nominee will have to give a notice in writing. Also, the subscriber will then have to reappoint another nominee and this has to be done within 15 days after the original nominee has withdrawn.

Question: Can a subscriber of an OPC change nominee?

Answer: Yes, that is also possible. If the nominee dies or if the subscriber thinks that the nominee is not capable of the contract, the subscriber can send a written intimation to the nominee and then cancel his or her nomination. Once the nomination is cancelled, a new nominee should be appointed however, the newly appointed person must give a written consent before being appointed as a nominee.

Question: What if the subscriber of the OPC dies?

Answer: The nominee will take the place and will then appoint a new nominee as defined by rules, that is, prior written consent will be needed and the new nomination should happen within 15 days.

Question: Is it possible for an OPC to convert itself into a Private Limited Company or a Public Limited Company?

Answer: Yes, it is possible. However, an OPC cannot convert itself into a Private or Public Limited Company voluntarily before completion of two years. However, if the threshold for turnover or capital reaches the defined requirements for Private or Public Limited Company, the OPC can convert itself before the completion of 2 years.

Question: Is there a condition where an OPC has to convert itself into a Private or Public Limited Company?

Answer: Yes, there are conditions under which an OPC will become liable for converting itself into a Private or Public Limited Company. This can happen under two circumstances:

  • Either the share capital of OPC has become more than INR 50 lakhs or,
  • For previous 3 years, the average yearly turnover had been above INR 2 crores.

If any of the above conditions is satisfied, the OPC will have to convert. It can no longer operate as an OPC.

Question: When an OPC converts into Private or Public Limited Company, what are the things that are to be done?

Answer: When an OPC converts into Private or Public Limited Company, there will be some compliance requirements. These requirements are mentioned below:

  • An ordinary resolution or a special resolution has to be passed and the Memorandum of Association has to be changed.
  • The company will have to intimate the Registrar of Companies within 30 days that company is no longer a One Person Company.
  • The company has to increase the number of members and directors to the minimum required for becoming a Private or Public Limited Company.

Question: Is it possible to buy OPC that has already become established?

Answer: Yes, you can buy provided the owner is ready to sell.

Question: Is it possible to sell an OPC?

Answer: Of course you can sell it if you want to.

Question: Is it possible to have a sleeping partner in an OPC?

Answer: No! The provision for a sleeping partner is not available in case of an OPC.

Question: Is it mandatory to be 18 years old to start an OPC?

Answer: Yes, it is mandatory. You cannot be a minor if you want to start an OPC.

Question: I have a proprietorship business. Can I convert it into OPC and retain the name?

Answer: Yes, both are possible.

Question: Is it possible for an OPC member to become a Private Limited Company’s member?

Answer: Yes, that is possible. There are no restrictions for that.

Question: Is it possible for an OPC member to incorporate a company outside geographical boundaries of India?

Answer: Yes, that too is possible.

Question: What are the differences between a proprietorship firm and an OPC?

Answer: This is a brilliant question. Let us find out the differences between the two in a tabular format:

Comparison Point Proprietorship Firm One Person Company
Liability Liability is not defined in this case despite the fact that it is a single person firm. Liability is unlimited in this case. Liability of the member of OPC is properly defined in this case and the liability is always limited.
Legal Entity A proprietorship firm is not a separate legal entity from the proprietor himself/herself. A One Person Company is a different and totally separate legal entity. The member of the company is a separate entity.
Representation The proprietor cannot represent the firm. The member can represent the company.
Director demise If the proprietor dies there will be no nominee to take care of the business of the firm till legal heirs get the share. In case of the One Person Company, if the director dies, the nominee will become the director and take charge of operations until the legal heirs of the member who died get their shares.

Question: What are the different taxes that are to be paid in case of an OPC?

Answer: In case of a One Person Company, the Director needs to pay Income Tax and Profession Tax.

Question: Is it possible to nominate a family member or a friend in a One Person Company?

Answer: Yes, you can always do that. Spouse, friend, parents, relatives – anyone can be appointed as nominee of the company as long as a written consent is provided by the person who is to be nominated.

That concludes the most frequently asked questions on OPC. In case you have any further questions, feel free to drop your comments and ask the same. We will be happy to help you.

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