Nikita, my friend, is a very talented person. She is a freelancer and is very good at technology and software coding. She came to me the other day, to discuss her business plans. She told me that has plans to build an e-commerce market place like Flipkart. She wanted to give her business a proper legal structure.
We discussed about the options available to her.
She said, “I don’t want to keep it going like a sole proprietorship. I know that it is not separate from me and the liability is unlimited. How about forming a private company?”
I told her, “I agree that the liability is limited in a private company, but it has lot of regulatory compliances to be taken care of. To start with, it needs at least two directors and two shareholders. Can your mom or dad or any other friend be one of them?”
She said, “Oh, I did not know that. See, as of now I don’t want to involve anyone in my business. Will see when it grows. Also right now I don’t want to incur heavy investment or expenses to form a company.”
“Oh! I was going to suggest one more option, Limited Liability Partnership. It is similar to partnership firms but has the advantage of limited liability. Since, you don’t want to involve anyone else, this too is not suitable. So, for the kind of requirements you have, I suggest you go for One Person Company or OPC. If you are getting the advantage of limited liability with lesser compliance, you won’t mind, right?”
Let me tell you more about it.
What is an OPC?
OPC is a newly introduced form of a company. As the name suggests, it is a company which can have only one person as the owner. So, it is like a private company with lesser hassles of compliance. It has limited liability and gives your business a separate legal identity. It is best suited for start-ups and individual driven small businesses.
How many directors and shareholders are required in OPC?
OPC be incorporated with just one director. OPC is allowed to have only one shareholder. The shareholder can be the director too. The director needs to have a DIN.
Is there a minimum capital requirement?
There is no limit on the minimum capital requirement. Earlier, the minimum paid up requirement was Rs. 1 lac for a private company. But this has been removed w.e.f. May 2015. OPC has to be incorporated with share capital, unlike a private company which may or may not have a share capital.
What is going to be my maximum liability?
Suppose you commit to form the OPC with Rs. 1 lac as capital. And at the start, you invest Rs. 50,000. Then the liability will be to the extent of unpaid amount which in this case is Rs. 50,000. So, your total liability will be restricted to Rs. 1 lac only.
If I am the only shareholder, what will happen to my company in case of my death or am not able to carry on business at all for health reasons?
You have to name a person as the nominee at the time of formation of the company. The nominee will be the owner is case of your death or your incapacity to carry on business. But, that nominee should be an Indian citizen and cannot be a minor. Also that nominee should give his / her consent in writing in the prescribed form.
I am planning to nominate my mom. If my mom becomes a shareholder, will she be required to appoint a nominee too?
Yes, in case something happens to you and your mom becomes the owner, she will have to nominate a person within 15 days of her becoming the shareholder of OPC.
Is my business eligible to be formed as OPC?
Yes, an e-commerce business is allowed to be formed as OPC. However, you are not allowed to form an OPC for charitable purpose or for non-banking financial activities like lending money or any investment activities.
I may plan one more business activity in a year or two. Can I be the shareholder of one more OPC?
No, one person can be the owner / shareholder of only one OPC.
How will the income of OPC be taxed? Will it be treated like a sole proprietorship or a company?
Since OPC is treated as a Company, the tax slabs applicable to the private company will also be applicable to OPC.
Apart from Income tax return, are there any other returns / documents to be filed with other regulators?
There are few returns / documents to be filed by OPC:
- Audited Financial Statements, i.e. Balance Sheet and Profit and Loss Account should be filed with MCA by 30th September every year. Cash flow statement is not required to be filed by OPC.
- Annual Return duly signed by the Company Secretary (CS), and if there is no CS, then by the Director of the OPC.
- Service Tax return as applicable.
Since OPC will be a small organisation, is audit of books of accounts compulsory?
Yes, audit of books of accounts is compulsory regardless of its turnover.
What will happen if an investor agrees to invest in my company, say Rs. 1 crore?
Unfortunately, you cannot have more than one shareholder in OPC. You need to get converted into a private company, if you want to raise funds through equity capital. But, OPC cannot voluntarily get converted into a private company or any other type of company during the first two years of its incorporation.
Also, in case the paid up capital of OPC exceeds Rs. 50 lakhs or its average annual turnover during the preceding 3 consecutive financial years exceeds Rs. 2 crores, it automatically gets converted into a private company and has to comply with the provisions applicable to a private company.
The process for conversion of OPC into a private company is mentioned in the Companies Act, 2013 and Rules thereon.
I have read that the private and public companies have to have Board Meetings and annual shareholder meeting. Do OPCs also need to do the same if there is only one director and one shareholder?
With regards to Board Meetings:
- Where there is only one director and a resolution needs to be passed in the Board meeting, it will be sufficient if the resolution is signed by the director and entered in the minutes book to be maintained. So every time a resolution is passed by the Director, it will be treated as passed in the Board Meeting.
- If there are more than one director, at least one meeting needs to be held in each half year of calendar year and the gap between two board meetings should not be less than 90 days.
With regards to holding annual shareholder meeting, it does not apply to OPC as there is only one shareholder.
Can the OPC hire me, the shareholder, for providing any services?
Yes, there can a contract between you and the OPC. There are certain conditions:
- The contract has to be in writing
- The terms of the contract are mentioned in a memorandum or are recorded in the minutes of the first board meeting held after the contract is entered upon.
- The OPC should inform ROC about every such contract within 15 days of the date of approval in the board meeting.
One of my cousins is an NRI and was interested to open a business in India. Can he form an OPC?
No, the shareholder of the OPC should not only be an Indian but also resident in India. So if your cousin wants to form an OPC, he should be in India for 182 days during the immediately preceding calendar year. So, an NRI needs to comply with the requirements if he / she wants to form an OPC.
One Person Company v/s Private Company
Nikita was happy to know about OPC. All her questions were answered for now. I told her that once she decides to go ahead, the incorporation process and the forms to be filed, etc can be discussed.
Read more: The 7 advantages of being a small companies
Are you planning to form an OPC too? If you need any assistance in formation of your OPC, you can write to me at kruti@cskruti.com.
This is Awesome article!
I am fan of your quality content.
This article is all about one person company an option for an startup.
Thanks a lot.
Thank you Pulkit
Hello CS Kruti,
I hope you are doing good.
My name is Martin Victor Osta & I am from Kolkata.
I came across this article/blog while doing a little R&D for my future venture. It would be great if you could help me with the doubts regarding my future company registration. I am planning to start a new construction company in July 2020, and here are my questions/doubts.
1. There are no partners involved and I am starting the business with a personal investment of around Rs. 3-4 lakhs. I will be the director/shareholder, basically, the heart & soul of the company as I do not want any interference in the daily activities & the decision-making.
2. I want a separate legal entity from the company & also my liability should be limited. My assets should never be clubbed with the company, no matter what. (I know a Sole Proprietor Business Form will not work in this case)
3. What will be the best registration possible for this? Be it an LLP, OPC, or a Private Limited?.
4. Can someone invest in the business in a year or two? As I have a few, who are willing to invest/lend money in the business(Company Current Account) in return for some percentage in profit accordingly. Or should I take the money in my personal savings account as a loan & then invest the same in the Company, but what if the capital invested by me in the Company goes beyond Rs.50 lakhs?
5. Which investment goes with OPC and what banks or financial institutions prefer OPC or LLP or Private limited? This might help me in getting a loan in the future for a smooth working capital flow.
6. Do I have to register the registered business office-space(rented/owned) with The Kolkata Municipal authorities to get a Trade Licence?
7. Do I need to get my Company Name Trademarked or anything as such?
Also to inform you that currently, I am a partner in an unregistered Partnership Firm. The Firm has a Trade Licence from the Kolkata Municipal Corporation, a Partnership Deed, Company Pan Card & a Company Current Account. I will be resigning from this Company by the end of the Current Calendar Year.
I would appreciate the help of a professional. In case if required, please feel free to contact me.
Thanks a Ton in advance.
Regards,
Martin Victor Osta
Hi Martin, here is my response:
– If you do not have a partner and want a separate legal entity, best is to go for OPC registration.
– OPC has only one shareholder, so no one can invest capital in the company except you. If you want an investor, it should be a private company. OPC can be converted into private company only after 2 years of incorporation or if the limits are breached. So if you have such future plans, I suggest you go for private company registration. You can have any of your relatives as a director / shareholder. The other shareholder can have as less as 1 share of the company.
– I do not think banks have preference w.r.t structure of the corporate.
– Not aware of Kolkata local laws. But if your firm has a trade license, your company too will require the same.
– If you have a brand name, best is to get the same trademarked. Here is more information – https://cskruti.com/why-you-should-register-your-brand-as-a-trade-mark/
Hope this helps.
Good article.
One correction, OPC can have one or more directors. Max of 15 directors but only one shareholder.
Sure, thanks.
madam is it possible to change the nominee
Hi Sandeep, yes nominee can be changed.
Hi Kruti,
What is the min Share capital required by an OPC to be registered as investment advisor by SEBI.
Hi Prashant, the networth requirement for companies is Rs. 25 lacs. Networth includes capital and free reserves. So if its a newly formed OPC, the paid up capital has to be atleast Rs. 25 lacs.
Hey Kruti
1. Can my mother who is a govt employee under state govt, be a nominee for my OPC?
2. Can an OPC hire or make freelancers do some part of the works.
( Out source a major part of the work)
3. Can I Increase my capital to 50lk manually, after two years to get it converted into a Pvt LTD? ( Not automatically)
Hi Krishnapriya,
1. Yes, there are no restrictions in Companies Act, 2013. However, you need to check from the employer point of view.
2. Yes
3. You can convert the OPC to Private company only after 2 years of incorporation. The capital requirement of INR 50 lacs will not apply in that case.
Hi Kruti, Amit here. Thanks for sharing detailed information on your blog. It’s been while I follow your blog and appreciate your contribution.
I am planning for a startup that is going to be market place (like uber, ola etc). Technically this platform will be developed by another individual or company however idea is mine. Can you please guide me on whether I should go for OPC or any other kind of establishment? This being startup, I do not want to be stuck with much complaince and annual maintenance cost. I do not have any partner.
I plan to get this startup register under startup India and will look for investors later once the platform is ready and working. Also, I plan to get this platform extended outside India as well in near future.
Will appreciate your input.
Hi Amit, you should go for OPC only if you want to have a limited liability structure. If you are looking to get an investor on board in future, you should go for private company as it will not be possible in case of OPC. An OPC can be converted into private company only after 2 years of its incorporation. Also OPC has similar compliance as private company. Other alternative is to have a partnership firm. Partnership firm does not have much compliance requirements but the liability of the partners is unlimited. Hope this is useful for you to decide.
Hi
My name is vara Prasad from Hyderabad. My query is if a person opens OPC. Can he open another pvt ltd later
Hi Vara. Yes, he can be a shareholder of another private company which is not an OPC.
Can you give me a vague idea on the cost to register an OPC and PVT LTD?(One time and annual)
Sure Sudeepta. Pls let me know the authorised cap for the company and the place of business. Pls note that for a small capital say of Rs. 1 lac, the cost for OPC and Pvt. Co. will be almost the same.
Can a freelancer do freelance jobs also after registered for OPC??
Hi Sinan, can you pls elaborate your query.
Hello CS Kruti,
If you could help me with the doubts regarding OPC registration. I am planning to open a new pharmacy in JK. And here are my questions.
There are no partners involved and i am starting the pharmacy with stock of not more than 2 lakhs.
1. What be the best registration possible for small startup, LLP, OPC or Private Limited ?
2 Can someone invest in the business in year or two ? Can i get angel investment with OPC And what banks or financial institution prefer OPC or LLP or Private limited ?
3 Can my mother, pensioner with state Govt, be a partner in LLp or private Limited company ?
4 Can my brother, lawyer, be a partner in LLp or private Limited company ?
5 Do i have to register the shop(owned) with local Municipal authorities ?
6 If there is any need/requirement to register the business with Startup india initative ?
7 Can i have my shop name different from company registered name, for example my shop name be “ABC Pharmacy” and company registered name be “XYZ Healthcare Limited” ? If so, will i get shop name trademarked ?
First time i am venturing into business and would appreciate the help of professional.
Thanks a Ton in advance.
Hi Mahesh, here is my response:
1. Since you mentioned that you do not have partners, you can go ahead with OPC. Private co and LLP need atleast 2 people.
2. With OPC, you will be the only investor / shareholder. If you want to get another investor on board, better incorporate private co.
3. Yes.
4. Is your brother practicing as a Lawyer? I am not sure if lawyers in practice can do any other business too. If he is not practicing, then he can be your partner.
5. Yes.
6. There is no mandatory requirement. However, if your start up is going to work towards innovation, development or improvement of products then you can go ahead and make an application.
7. Yes company name and brand name can be different. Depending on how unique is your shop name, you can get it trademarked.
If you need help with formation of a company or register you brand as trademark, you can write to me at kruti@cskruti.com
Great Article., Just a suggestion add remuneration of director / shareholder in the article
Sure, thanks for the suggestion Girish.
We Formed OPC in this Month, Can we Know the Fees may be required for Appointing Auditor ?
Hi Pushkar, you will have to get in touch with any Chartered Accountant in practice.
One of my family member is OCI (called as 90% dual citizenship), staying in India. I expect that wlll that qualify as “Indian and resident”. Have you encountered a case or scenario where such a person be a DIN/Director in one OPC, and in future also be able to become member of BOD in another LLP or PLC for new business unit later?
Hi. I haven’t come across a case like this before.
Hi I am Vivek ,
I am in ERP consulting and want to work as independent consultant for clients on contract basis. so what is easiest way to handle my taxes. I don’t intend to hire people as of now, so can you advice me.
I know companies charge TDS and I have to file 4S? apart from that any thing else need to be done?
also I want to do recruitment agenecy for IT. so can both things go together? I mean I working as consultant for some client and also doing recuitment agent kind of thing?.
Please guide me.
Regards
Vivek
Hi Vivek
Thanks for writing in! As for your query, I don’t see any problem if you, as an individual, do both, consulting as well as being a recruitment agent. Yes, your clients will deduct TDS. Best is to contact a Chartered Accountant for your query related to taxes. If you need any help in deciding a legal structure for your business, you can get in touch with me.