How to start a One Person Company in India?

When starting a business, many options are available. For a single owner, there are usually two options: They are:
Private Limited Company and
One Person Company.

As per the Companies Act of 2013, a One Person company has many advantages and is one of the most preferred business model by single owners looking to start small and grow gradually. This blog will enumerate the processs related to how to start a One Person Company in India.

What is a One Person Company?

A One Person Company or OPC is a business structure with reduced compliance obligations compared to a private company. In this setup, a single individual, whether a resident or Non Resident Indian (NRI), can establish a business that combines the characteristics of a company with the advantages of a sole proprietorship. The Companies Act of 2013 provide various benefits for incorporating an OPC in India.

What is the minimum capital to start an OPC?

An OPC can be started with a minimum authorized capital of INR 1 lakh. There is no mandatory requirement in terms of a minimum paid up capital. However, when the paid-up capital exceeds INR 50 lakh, OPC must mandatorily convert to a Private Limited Company.

Also, when the average turnover for 3 consecutive years becomes INR 2 crore or more, there is a need to convert into a Pvt. Ltd. In India, register a One Person Company can be done in 10-15 working days. The average cost to register an OPC is around INR 12,000*.

Which is a better choice; One Person Company or Private Limited?

The main differences between One Person Company (OPC) and Private Limited (Pvt. Ltd.) are: 

  • OPC has only one member, while Pvt. Ltd. company is confidentially held for small enterprises.
  • Liability of the members of a Pvt. Ltd. is confined to the number of shares respectively held by them, while in OPC, the sole member has unlimited liability.
  • Shares of Pvt. Ltd. cannot be candidly traded, while an OPC can convert into a Pvt. Ltd. after it crosses a certain threshold. 
  • Pvt. Ltd. is a much larger version of an OPC considering the size, number of members that could participate in it, the scope for growth and expansion, and the ease in procurement of funding. 
  • A Pvt. Ltd. can participate in various business activities even in those in which an OPC cannot. 
OPC Registration Service in Hyderabad

What is a One Man Company? 

  • It is a registered company that has only one shareholder.  
  • One Person Company is also informally known as a One Man Company.  
  • It is a company having only one person as a member.  
  • Concept of OPC in India was introduced by the Companies Act, 2013.  
  • An OPC has all features of a company, which include perpetual succession, limited liability, and a separate legal entity.  
  • Compliance requirements of an OPC are lesser than those of a private company.
  • OPC receives a separate legal entity status with respect to the member.
  • The member is not personally liable for the loss of the company and his liability is limited to his/her shares.
  • An OPC can be formed with just 1 director and 1 member. The director of an OPC and its member can be the same person.
  • It is easy to incorporate an OPC as only one member and one nominee is required for incorporation.
  • An amount of INR 1 lakh is the minimum authorized capital for incorporating an OPC, and there is no minimum paidup capital requirement. 

What are the requirements to start a One Person Company?

Requirements of setting up a One Person Company

The requirements to start a One Person Company are member, nomination and Director.

  1. Member
    • A member of One Person Company should be an Indian citizen.
    • He/she should have stayed in India for not less than 180 days in the preceding calendar year.
    • More than one OPC cannot be started by a single person. 
  2. Nomination
    • A member of OPC shall nominate the name of another person with his consent.
    • In situations involving the member’s incapacity to contract, or death, the nominee would become the member of the OPC.
  3. Director
    • There must be one Director to form an OPC. 

How to start a One Person Company in India: Step by step process

Steps needed to setp an OPC

The following steps will give you an idea on how to start a One Person Company in India under Companies Act: 

  • Apply for Digital Signature Certificate (DSC) of the proposed director. 
  • Apply for Director Identification Number (DIN) of the proposed director. 
  • Selecting a name of the company
  • Making an application for the same to the Ministry of Corporate Affairs (MCA)
    • Reserve Unique Service (RUN) is a web service started by the MCA through which company can reserve a unique name. 
  • Filing an application for company Incorporation with the Registrar within the jurisdiction of company’s registered office. The application is to be made on Form No. INC2 for a One Person Company. 
  • Filing of application mentioning consent of Nominee. It is to be done as per Form No. INC3. 
  • Along with Form No. INC2 and Form No. INC3, registration fee should be given.
  • One Person Company needs Memorandum and Articles of Association filing.
  • Filing of forms with Ministry of Corporate Affairs.
  • Payment of stamp duty and fee to Ministry of Corporate Affairs.
  • Certificate of Incorporation will be issued. 

What are the compliances required by an OPC?

The following compliances are required for an OPC: 

  • Filing of Annual Returns
  • Filing of financial statements
  • Appointing of auditor
  • Filing of Income Tax Return 
  • Annual meeting
    • First meeting should be held within 30 days of incorporation.  
  • Submitting the following documents to Registrar of Companies (ROC):  
    • Balance sheet 
    • Accounts of profits and losses 
    • Cash flow statement
    • Change in equity

Conclusion

If you don’t want to spend a lot of money to start your business and want to keep control over it, starting a One Person Company is the best option. However, an OPC might not attract many investors because it doesn’t offer them much and you can’t offer employee stock options in an OPC. Through an OPC, you can start a business on a tight budget without a lot of outside interference.

In order to become a business owner in India, how to start a One Person Company can be the right step as it offers many perks and flexibility, thereby making it easier to reach your goals. For those residing outside India, seeking Legal assistance with a competent authority in your area of jurisdiction will help you better understand the rules and regulations for establishing a One Person Company. 

FAQs

1. Is there minimum requirements for Authorized Capital and Paidup Capital when initiating an OPC?

There is no mandatory requirement in terms of a minimum paid up capital. However, a minimum authorized capital of INR 1 lakh is required to start an OPC.

2. When is mandatory to convert an OPC into a Private Limited Company? 

When the paid-up capital exceeds INR 50 lakh, or when the average turnover for 3 consecutive years becomes INR 2 crore or more, it is mandatory to convert OPC into a Private Limited Company.

3. Which Act introduced the concept of OPC in India? 

The Companies Act of 2013 introduced the concept of One Person Company in India.

4. How many directors and members are required to form an OPC? 

OPC can be formed with just 1 Director and 1 member.  

5. Can the same person be the Member and Director of an OPC? 

Yes, The director of an OPC and its member can be the same person.

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