One person company benefits and compliances
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
1/3rd 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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