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Corporate Status to proprietary concern – a new initiative in India

Corporate Status to proprietary concern – a new initiative in India

Hitherto if an Individual wanted to start a company, there was no choice but to set up a proprietary concern. The new initiative of One Person Company (OPC) gives a corporate status to proprietors!

OPC is introduced by the Company Act 2013. The silent features of One Person Company (OPC) are-

  • As the name suggests only one person can start a company. However, only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company
  • The term “resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding 1 calendar year.
  • OPC can nominate another person who shall become owner of the OPC in case of death/incapacity of the original member.  Such nominee shall give his/her consent and such consent for being appointed as the Nominee for the sole member.  
  • One Person One OPC Concept: which means no individual is allowed to own or be the nominee in  more than one OPC
  • Restriction in nature of business: OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of other body corporates.
  • Allowed for Small Ventures; as you grow change your status: Where the paid up share capital of a One Person Company exceeds 50 lakh rupees or its average annual turnover during the relevant period exceeds 2 crore rupees, it shall cease to be entitled to continue as a One Person Company.
  • Conversion is possible: A Private Limited company can convert itself into one Person Company if it is having paid up share capital less than Rs. 50.00 Lakhs or average annual turnover during the relevant period is less than Rs 2 Crores.

Advantage over Proprietary firm

  • Limited Liability: OPC is a separate legal entity as compared to Sole Proprietary firm and hence enjoys the limited liability like Private Limited Company.
  • Continue your proprietary firm: Just because a person is starting OPC, he need not close existing proprietary firm; if he has two or more line of business, he can register OPC for one line of business and continue the proprietary firm for other line of business.
  • OPC a symbol of status:  As OPC enjoys corporate status, it gives suppliers and customers a sense of confidence in business. Large organizations prefer to deal with corporate entities instead of proprietorship firms.

Disadvantage over proprietary firm:

  • High Cost of Compliance: Not much, but definitely more than the cost of compliance of proprietary firm.
  • A proprietorship form is easy to form and easy to wind up without much compliance cost or procedure.
  • An OPC would be taxed at same rates as that of all other companies. Basic exemption limit applicable for income tax doesn’t apply to OPC.
  • Must have a minimum of One Director, the Sole member can himself be the Director. The Company may have a maximum number of 15 directors.
  • If One Person Company or any of its officer contravenes any of the provisions of the rule, the company or any officer shall be punishable with fine which may extend to Rs.   10,000/ and with a further fine which may extend to Rs. 1000/‐for every day after the first during which such contravention continues.
  • Financial statements of a one person company needs to be filed with the Registrar within 180 days of closure of financial year along with all necessary documents.

Why not set up Private Limited Company? Why should one look at OPC as an Option?

OPC can certain advantages compared to Private Limited Company.

  • Only 1 Director is necessary in the case of a One Person Company, unlike a Private Limited Company which needs to have atleast 2 Directors. In the case of a One Person Company, it can have a maximum of 15 Directors, while in the case of a Limited Company; it can have upto 50 Directors.
  • A One Person Company need not hold any Annual General Meeting or pass any board resolutions. All that the founder needs to do is to record all the proceedings in a minutes book. 
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About CA Prakash Chartered Accountant Bangalore

CA Prakash Chartered Accountant Bangalore
CA Prakash is a practicing chartered accountant and partner in Bangalore -based CA Firm. For further information or query, please email it to [email protected]