One Person Company (OPC)

What it means

A One Person Company (OPC) is a private company that has just one member (shareholder). It lets a solo founder enjoy limited liability and the credibility of a company without finding a second shareholder. The sole member must name a nominee who will become the member if the founder dies or becomes incapable.

How it works

• Only a natural person who is an Indian citizen can form an OPC, whether resident in India or not. The nominee must also be an Indian citizen.

• A person can be a member of only one OPC, and can be a nominee in only one OPC.

• The nominee’s written consent is filed in Form INC-3 at incorporation.

• Minimum one director, maximum fifteen. No AGM is required, and annual filings are lighter (MGT-7A instead of MGT-7).

• Since 2021 there is no compulsory conversion based on capital or turnover. An OPC can convert into a private or public company at any time by adding members.

• An OPC cannot carry on non-banking financial activities and cannot be formed as a section 8 (charitable) company.

• Tax: taxed like any domestic company, for example at an effective 25.168% under the concessional regime of section 115BAA.

Example

Meera, a freelance consultant, sets up an OPC with paid-up capital of ₹1,00,000. A client dispute leaves the OPC owing ₹30,00,000.

1. As a company, the OPC alone is liable. Meera’s personal liability is limited to her ₹1,00,000 share capital, unless she has given a personal guarantee or committed fraud.

2. Tax comparison on profit of ₹20,00,000: in the OPC under section 115BAA, tax is ₹20,00,000 x 25.168% = ₹5,03,360.

3. As an individual proprietor under the new regime, tax on ₹20,00,000 would be ₹2,00,000 plus cess ₹8,000 = ₹2,08,000.

So at this profit level the OPC is chosen for liability protection and credibility, not to save tax. Salary paid to Meera from the OPC can reduce the company’s profit, but it is taxed in her hands.

Key points to remember

• The OPC must use “(OPC) Private Limited” in its name.

• Annual compliances (accounts audit, AOC-4, MGT-7A, income tax return) apply even with zero turnover.

• Change of nominee must be informed to the ROC.

• Do not mix personal and company money; this can weaken the limited liability shield.