What is an OPC for Indians, NRIs, and Foreigners?

As per Section 2(62) of the Companies Act 2013, a One Person Company (OPC) is a company that has only one member. It is started by a single person who has complete control over the company's operations and management. The member acts as the founder, owner, and shareholder of the OPC. Here, the term member refers to a person who is the memorandum's subscriber (the original founder), any beneficial owner whose name is mentioned in a depositary's record (for demat shares), and any person who agrees in writing to become a member and is registered in the register of members.

An OPC is different from a sole proprietorship, as an OPC is a legally registered entity, while a sole proprietorship is an individual doing business without being legally registered. Incorporating an OPC follows an easy process and even has fewer documentation requirements. Additionally, since it is a single-member structure, appointing a nominee is mandatory by obtaining their consent in the required form INC-3.

To register your OPC in India, you must get approval from the MCA and comply with the detailed incorporation process as stated under Section 7 of the Companies Act 2013. As per the changes made under the amendments of 2021, NRIs can also incorporate in OPCs in India, and the residency period has been reduced to 120 days. In this blog, we will walk you through all the important aspects of operating and registering an OPC in India.

What is the Difference Between Sole Proprietorship and an OPC?

Sole proprietorship and OPC (One Person Company) are two terms that sound similar, and people often get confused. However, there is a big difference between the two terms, which are as follows:

What are the Features and Benefits of an OPC?

OPC is ideal for you if you want to run an independent business while also enjoying the benefits of having a registered company. Here are some key features and benefits of incorporating an OPC in India, divided into three categories:

MSME Benefits

Advantages of MSME

Under the MSME (Micro, Small, and Medium Enterprises) scheme, OPCs are eligible to register and bid on government tenders. They can take advantage of opportunities not available to a sole proprietorship. 

• Lower Compliance Burden: MSMEs follow simple tax and regulatory compliance systems. It helps the business owner to focus on what's more important. 
• Security Against Late Payments: An OPC can charge interest on payments delayed more than 45 days under the MSME Development Act 2006. This is three times the RBI bank rate. 
• Procurement and Government Tenders: Registered MSMEs enjoy a price preference of up to 15%. They are also eligible for government procurement schemes, with 25% of government purchases reserved for MSMEs. 
• Subsidies and Reimbursement: On patent and trademark registration fees, a significant subsidy of 50% is offered. For ISO certification and technology upgrades, reimbursement of expenses is provided. 
• Profit Tax-Exemption: The OPC can avail a tax exemption of 100% on profits for three consecutive years, if it is recognized as an eligible start-up by the Department for Promotion of Industry and Internal Trade (DPIIT). 
• Collateral-Free Loans: OPCs have access to collateral-free loans to a certain limit from banks and financial institutions, often at a lower interest rate.e.g., Rs. 1 crore. 

Legal and Financial Benefits 

• Perpetual Succession: Since appointing a nominee is mandatory for forming an OPC, the business will continue to exist even if the owner passes away or becomes physically disabled.
• Separate Legal Identity: An OPC is recognized as a separate legal entity. It means the company will be considered as an artificial person, hence it can own property, sue, and be sued in its own name. 
• Limited Liability Protection: The members'/shareholders' liability is limited to the amount of capital contributed by them. It means that in case of business losses or insolvency, your personal assets will remain safe. 

Operational and Management Benefits

• Easy and Fast Formation: As compared to other company structures, the process for incorporating an OPC is easy and has fewer documentation requirements. 
• Simple Management: The complete decision-making power of an OPC lies with one person who acts as both shareholder and director. This avoids future disputes or delays that may arise when multiple partners or shareholders have to reach at one agreement, helping to receive faster solutions to market conditions. 
• Compliance Ease: OPCs are exempt from several strict compliance and secretarial rules under the Companies Act 2013. Here are the complaince requirement which OPCs are exempt from:
  • No annual general meetings: They don't need to prepare or file any AGM-related reports or documents to the ROC. 
  • Requirement for Cash Flow Statement: OPCs don't need to include a cash flow statement in their financial statement. It helps reduce the burden of documentation and compliance. 
  • Relaxed Rules for Board Meeting: OPCs need to hold only one board meeting in each half of the calendar year. Between the two meetings, there must be a gap of a minimum of 90 days. No board meeting is required if the company has only one director. 

Tax Benefits

• MAT (Minimum Alternate Tax) Exemption: OPCs who are eligible may enjoy the MAT exemption or can carry forward the MAT credit for up to 15 years, like those OPCs that qualify as startups. 
• GST Perks: OPCs can claim input tax credit (ITC) on business-related purchases if registered under GST. Additionally, it can choose a composition scheme to pay GST at a lower rate and file quarterly returns (if eligible).
• Business Expense Deduction: OPCs can deduct actual business expenses from their taxable income, which can help reduce their tax burden significantly. 
• Presumptive Taxation Scheme: Under Section 44AD of the Income Tax Act, OPCs with an annual turnover of up to Rs. 2 crore can choose the presumptive taxation scheme. It can ease compliance as the income is calculated at a pre-determined turnover percentage of generally 8%. 
• Reduced Corporate Tax: Companies with a turnover of nearly Rs. 400 crores can be taxed at a concessional rate of 25%. OPCs can even opt for a lower rate of 22% under a specific regime, provided they give up on certain deductions. This can even go up to 30%, favoring more than the personal income tax slabs. 
• Key Deductible Expenses: Employee salaries, professional fees, office rent and utilities, director's salary (paid to the owner), etc. 

What are the Key Requirements to Start an OPC?

You need to fulfill the following requirements to incorporate an OPC in India as per the law:

What are the Steps to Register an OPC for Indians, NRIs, and Foreigners?

You need to get approval from the MCA (Ministry of Corporate Affairs) and adhere to the comprehensive incorporation procedure stated under Section 7 of the Companies Act 2013 to register your OPC in India. Here are the steps based on the categorization of pre- and post-incorporation:

Pre-Incorporation Steps

Follow these pre-incorporation steps to register your OPC in India:

Step 1: Obtain a Digital Signature Certificate (DSC)

A DSC is a certificate that the proposed director and shareholder of the company must sign electronically. 

Step 2: Get Director Identification Number (DIN)

Apply for a DIN, a unique identification number for the proposed director. The DIN application is now combined into the SPICe+ form. 

Step 3: Choose a Nominee

Appoint a nominee and obtain their consent in Form INC-3. 

Step 4: Filing and Incorporation

• Apply for a Name: On the MCA portal, fill out Part A of the SPICe+ form to apply for a unique name for the company. 
• Gather Documents: Draft the Articles of Association (AOA) and Memorandum of Association (MOA). Additionally, gather the documents for the registered office, identity proof, and address for the director. 
• Complete the SPICe+ form: Fill out Part B of the SPICE+ form and attach all the required documents, including the director's declaration (Form INC-9) and consent (Form DIR-2). 
• Submit to MCA: Submit the completed SPICe+ form to the Registrar of Companies (ROC) along with the required fees and other relevant forms. 

Incorporating a company required visiting the ROC in person and had a lengthy process earlier. Now, the process can be completed online through the MCA portal easily, provided you follow every step according to the Companies Act.

Providing wrong or misleading information, even unintentially can trigger penalties. Hence, before starting the online One Person Company Registration process, you must understand the entire process carefully.

Post-Incorporation Steps

After the OPC is incorporated, you must consider the following things:

• PAN and TAN Allotment: Your company will automatically be allotted a PAN (Permanent Account Number) and a TAN (Tax collection and deduction account number) after incorporation. 
• Incorporation Certificate: After the RoC approves your application, it will issue a certificate of incorporation. This certificate is crucial as it ensures that the OPC is officially registered. Without it, you will not be allowed to commence your business activities as a registered company. 
• Complying with the Filing of RoC: Once your OPC is registered successfully in India, the RoC requires some mandatory forms, which are as follows:

Annual and Event-Based Compliance Requirements 

Here are some annual and event-based obligations that you must follow to ensure compliance and avoid hefty penalties:

Key Changes Made Under the Amendments of 2021

In 2021, the MCA introduced certain changes related to the setup of an OPC in India. Here are all the key updates made under the 2021 amendments:

• An NRI (Non-Resident Indian) can now incorporate OPCs in India. 
• To be considered a resident, the period of stay for an Indian citizen in India has been reduced to 120 days from 182 days. 
• The two-year mandatory waiting period for converting an OPC into a private or public company after incorporation has been eliminated.
• OPC-related E-forms have been rationalized, including e-form INC-6 modification for conversion applications. 
• The conversion requirement in case the paid-up capital exceeds the threshold of Rs. The 50 lakh paid-up capital or Rs. 2 crore average turnover limit has been removed. 

The Bottom Line

If you are planning to start an OPC in India, you need to stay aware of every requirement, regardless of whether you are an Indian citizen, an NRI, or a foreigner. You must also understand the difference between a sole proprietorship and an OPC, as it will directly affect your personal liability, legal status, and tax obligations. To guide you with the same, you can contact an expert at Savetaxs. 

At Savetaxs, we have a team of experts who can assist you with understanding all the requirements of incorporating an OPC in India. They can help you register your company, gather the documents, determine your tax obligations, and also adhere to the rules. Connect with us right away, as we are actively serving our clients 24/7 across the globe.