How To Start A Single Person Company in India

The general misconception among prospective founders is that to start up, they require at least one more co-founder. What they miss out on is the fact that with the recent reforms introduced in the Companies Act it has been made possible to form a One Person Company or OPC which can be setup by a single person. Such a company works wonders for someone who wants 100% control over his company. However, an OPC may have certain issues such as not having the ability of introducing a partner, personal liability and not being high on the priority list of investors. Through this post, we discuss how is an OPC set up and what are the legal requirements associated with the same. 

Requirements for setting up a One Person Company

Following are the requirements for setting up a One Person Company:-

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. A person cannot incorporate more than one OPC.

2. Nomination: A member of One Person Company shall nominate name of another person with his consent. In case there is death of the member or there is member’s incapacity to contract, such another person would become the member of One Person Company.

3. Director: There has to be one Director to form a One Person Company.

Following steps need to be followed in order to set up a OPC:

1. Applying for the Digital Signature Certificate of the proposed Director of the One Person Company.

2. Applying for the Director Identification Number of the proposed Director of the One Person Company.

3. Selecting a name of the Company and making an application for the same to the Ministry of Corporate Affairs. The Ministry of Corporate Affairs has started a web service by the name of Reserve Unique Service (RUN) through which a unique name can be reserved for a new Company.

4. Filing an application for Incorporation of Company with the Registrar within the jurisdiction of the registered office of the company. The application is to be made in Form No. INC.2 for a One Person Company.

5. Filing of application mentioning consent of Nominee. It is to be done as per Form No. INC.3.

6. A fee is to be paid along with Form No. INC.2 and Form No. INC.3.

7. Filing of Memorandum of Association and Articles of Association of the One Person Company. 

8. Filing of forms with Ministry of Corporate Affairs.

9. Payment of fees to Ministry of Corporate Affairs and stamp duty.

10. Issue of the certificate of Incorporation.

Compliances required by an OPC

The following compliances are required for an OPC:

1. Filing of annual returns

2. Filing of financial statements

3. Appointing of auditor

4. Filing of income tax return

5. Annual meeting: First meeting should be held within 30 days of incorporation. 

6. Submitting to ROC the following documents: 

                  *  Balance sheet

                  *  Accounts of profits and losses

                  *  Cash flow statement

                  *  Change in equity

Those who read this article also consulted a startup expert to decide what is the right company for you.

Conclusion

An OPC may seem like a natural choice for entrepreneurs who do not want to indulge in high cost of formation and want to retain control over their company. However, an OPC provides very little benefit to an investor and hence it is difficult to raise funding in such an entity. Also, ESOPs cannot be granted in an OPC. An OPC is a good entity choice if one wants to start a bootstrapped company with low cost of formation and with least outside interference.