One person company benefits and compliances

Posted by neusourcestartupminds on February 24th, 2020

One person company functions on the principles of a company but is generally managed by one primary person. It has to be registered under the Companies Act of 2013. The member of such a company is one person, however, it can have multiple investors, shareholders, creditors or employees. Some of the benefits as well as features of OPC can be listed as follows-

• Ease of incorporation

The OPC can be incorporated by any person born in India, who is not regarded as foreign. Such a person will need approvals from the Registrar of Companies with respect to naming and other formalities. Following which, registration fees have to paid, e-forms to be uploaded, and the incorporation certificate is received.

• Ease of compliance

Annual Compliance for OPC is similar to a company, however, it is slightly simpler. The packages for one person compliance are about 1/3^rd times cheaper than a normal company. The process of compliance can be understood by following steps-

Step1- Registration and necessary documentation (once in a lifetime usually)

Step2- Finalization of balance sheet items and filing of income tax return

Step3- Notice preparation and if applicable board resolution is passed and the minutes of Annual General Meeting are recorded. It is not mandatory for OPC to have AGM, unlike general companies.

Step4–Filing Form ADT-1, Form AOC-4, and MGT-7

• Minimum requirements

The requirement for setting up one person company is just one. It needs one shareholder, director, and nominee. The shareholder and director both can be the same person. The minimum capital for such a company is Rs 1L. All directors need a director identification number and a digital signature certificate. The annual compliance for OPC with these minimum requirements is pretty reasonable and hence, setting up an OPC can be worth some consideration.

• Tax management options

The taxation at the company level can be minimized to a great extent. The company can get into reasonable contracts with the investors or/and shareholders allowing for the deduction of salary to directors, rent to investors, interest to creditors, etc. These act as an expense to the taxable income and can bring down the taxable income at the corporation level. OPC compliance Packages usually include tax management. These services can help create a favorable tax situation for larger profits and benefits to investors/shareholders.

• Conversion

The above 4 benefits are sometimes good enough to make the switch. A Private Limited company can switch to a one person company if it is satisfied with the ease of annual filings for one person company. Similarly, if an OPC has breached certain thresholds (like subscribed capital exceeding Rs 50L and/or turnover exceeding Rs 2 crores) and would like to convert to a private limited company, the conversion option is available too, with the permission of Registrar of Companies.

• Restrictions with OPC

One person company is not all merry and does have some restrictions that need to be overseen. A single person cannot own or create two one person companies. Additionally, foreign direct investment is prohibited for a one person company. The thresholds of the capital limit of Rs 50L and turnover of Rs 2 crores do not allow it to operate on a large scale.

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