Overview
In recent years, we have seen a considerable rise in the growth & development of start-ups. In all these years, numerous start-up companies have emerged in the Indian corporate industry and still are continually working towards the expansion of their business on a global level. While flourishing start-ups are generally focused on building unique solutions to deliver complete customer satisfaction. However, with the increasing complexity of technology and the global nature of transactions, it has become imperative to have a strong legal base for their survival. Therefore, Legal compliance management is an essential factor for ensuring the growth of any start-up business and any entrepreneur should have complete knowledge of the legal & other regulatory compliances applicable to such start-up business entity.
Speaking of legal entities in India, the Ministry of Corporate Affairs introduced the concept of One Person Company (which is a sub-category of a private company) to encourage business and entrepreneurship in India by giving concepts like sole proprietorship a more organized and legally recognized structure. This has led to the recognition of an entirely different way of starting and running a business with a flexible approach while enjoying other benefits such as limited liability and easier access to funds, which was lacking under sole proprietorship or partnerships. The concept of One Person Company has gained relevance and popularity among smaller businesses, artisans, and entrepreneurs with lesser risk capacity, other service providers in the country.
Meaning & Definition of One Person Company
Section 2(62) of the Companies Act 2013 defines a one-person company or OPC as a company that has a sole member and one director on its board. Such companies are generally created where there is a sole founder in the business or wishes to start a business solely.
It is to be noted that the sole member of the OPC should be a natural person and an Indian citizen as well as a resident in India. An OPC could only be incorporated as a private limited company which means that all the rules & regulations applicable to a private company shall apply to such OPC. If the sole member desires to convert an OPC into a private company, he can easily do so.
However, the following persons are debarred from incorporating an OPC-
- A Minor;
- Foreign Citizen;
- Non-resident;
- A person incapacitated by contract.
Further, it is also obligatory on the part of the sole member of the company to nominate a person and obtain his consent in form INC-3, who shall be a natural person and in case of any disability or death of the sole members, fill the position of sole member & sole director of the OPC. Accordingly, entrepreneurs prefer OPC over any other business entities in the early stages of the development of their start-up business due to the various privileges and advantages offered to the OPC, that are not available in case of any other forms of business.
Privileges of One Person Companies
An OPC enjoys the below-mentioned privileges and exemptions under the provisions of the Act-
i. Financial Statement of an OPC doesn’t need to include
ii. OPC need not sign their annual returns from any company secretary, but a director could sign them.
iii. They do not need to appoint an independent director and the provisions related to independent directors do not apply to them.
iv. Articles of Association of an OPC could include any additional grounds for the vacation of a director’s office.
v. They can fix higher remuneration to the sole director of the company as compared to other business entities.
What are the annual legal compliances to be followed by an OPC?
As every OPC needs to communicate information related to the assets, liabilities, income, and expenditures that have taken place during the year, it becomes mandatory for the OPC to fulfill those compliances. In the event of the failure of the OPC to do so, heavy penalties and fees are imposed for non-fulfillment of annual compliances for OPC which may go up to will 12 times normal fees.
Therefore, to adhere to the applicable rules & regulations, an OPC is required to understand and maintain all compliances applicable to such OPC. Unlike in the case of a public or a private company, it is simple & cost-effective in terms of costs of managing compliances.
In this article, we will discuss all the annual and event-based compliances applicable to the OPC, which have been provided below-
i. Appointment of statutory auditor for OPC
As per provisions of Section 139 of the Companies Act 2013, it shall be mandatory for every OPC to appoint a statutory auditor within 30 days from the date of its incorporation. The auditor shall examine the books of accounts, annual sales, expenditure, profit and loss accounts, etc. After examination and review of the same, the statutory auditor shall prepare an audit report and hand it over to the OPC.
ii. Filing of Annual Return
Every OPC shall be required to file an annual return within sixty days from the completion of six months from the end of the financial year, which is normally around 30th September every year in the form MGT-7 form. Failure to file an annual return on or before the due date will attract a penalty of Rs. 100 every day from the due date. Further, every officer in default and the sole director of OPC will be liable for a penalty up to Rs. 50,000 along with a late fee of RS. 100 per day in case of default is continued.
iii. Statutory Audit for OPC
An OPC shall get its books of accounts & financial statements audited by a statutory auditor who could be a practicing Chartered Accountant or a Chartered Accountant firm. The statutory auditor shall prepare the audit report and submit it to the OPC, who shall file a copy of the same to the MCA in form AOC-4.
If the OPC fails to file AOC-4 within the due date, it shall be liable to a penalty of Rs.100 per day in case of failure to submit the form within the due date.
iv. DIN KYC of Director
It is also mandatory to submit a KYC of all the directors of a company including an OPC who holds a valid DIN as of 31st March of each financial year. There are two types of DIN forms required to be filed-
- DIR-3 KYC – This is an e-form that is required to be filed for the sole director who is filing his KYC for the first time or the director wishes to change/update any of his particulars.
- DIR-3 KYC-WEB – This web service form is required to be used by the sole director in case he has previously filed KYC and no update in his particulars is required.
Any failure to submit KYC on time by the sole director of the OPC will attract a penalty of Rs. 5000/- per year.
v. Taxation based Compliances
There are two types of tax-based compliances applicable on an OPC-
- Under Income Tax Act, 1961 – It is necessary for each company to file their Income-tax related returns either before or on their due dates and an OPC is no exception. Other than this, the OPC should also undertake Tax Audits and file TDS returns, etc. in case it meets the eligibility criteria. Failure to file ITR either on or before the due date will attract a penalty of Rs. 10,000.
- GST Act, 2017 – It shall also be necessary on the part of the OPC, to undertake registration and fulfilling compliances such as filing returns, etc. in case it is eligible to do so.
Apart from the fulfillment of the taxation compliances, the start-up is also eligible to apply for various tax benefits and rebates available to new companies in India.
vi. Maintenance of Records & Register
Further, an OPC shall also maintain all the necessary records and registers as required under various acts. Some of the statutory registers compulsory to be maintained by an OPC include-
- Register of Directors
- Director’s Shareholding Register
- Register of Related Party Transactions
Some other annual Compliances of OPC include-
| Forms Name | Description | Section & Rules | Particulars of Description | Due Date /Timeline |
| I. Form MBP-1 | Disclosure of interest by the sole director in any contract or arrangement
|
Under Section 184 along with sub-rule (1) of Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014
|
Every director shall disclose his concern or interest in other entities which shall include the shareholding.
|
i. At the first meeting of the director acting as a director of the company
and ii. At the first Board meeting for every financial year or iii. Whenever there is any change or variation the whenever there is any change in the disclosures made before, at the first Board meeting held after such change or variation
|
| II. Form DIR-8 | Disqualification of Directors
|
Under Section 164(2) & 143(3)(g) & Rule 14(1) of Companies (Appointment of Directors) Rules, 2014
|
Every director shall inform the company concerned about his disqualification as provided under 164(2) of the Act.
|
Either
Before the appointment or re-appointment, as the case may be.
|
| III. MGT-7A
(e-form) |
Annual Return
|
Sub-clause (4) of section 92 along with sub-rule (1) of
Rule 11 under Companies (Management and Administration) Rules, 2014
|
OPC shall file its Annual Return.
As per the amendment under the the Companies (Management and Administration) Rules, 2014, One Person Company and Small Company shall file an annual return in form MGT-7A from the financial year 20-21 onwards.
|
Within 60 days of making an entry of ordinary resolution passed in Minutes of OPC. |
| III. AOC-4
(e-form) |
Financial Statement
|
Section 137 & Proviso 3 to sub-rule (1) Rule 12 of Companies (Accounts) Rules, 2014
|
OPC shall be under the obligation to submit a copy of the financial statements adopted by the member besides all the documents required to be attached to such financial statements
|
At least 180 days from the closure of the respective financial year. |
| IV. | Directors’ Report
|
Section 134(4)
|
Directors’ Report shall be signed by at least one director and then attached with the financial statements prepared under section 134 of the Companies Act 2013 including the audit report prepared by the statutory auditor.
|
N.A. |
| V. | Board Meetings
|
Section 173 (5) & SS-1
|
Every One Person Company shall hold at least one meeting of the Board of Directors
However, the provisions related to quorum shall not apply to a Person Company having a sole director.
|
In each half of a calendar year and gap between two board meetings shall not be lesser than 90 days. |
| VI. | Notice of Board Meeting
|
Section 173 (3) & Secretarial Standard(SS-I)
|
A meeting of the Board shall be called by sending a notice to the directors of the company through either hand delivery by post or by electronic means.
|
No less than a seven days advance notice in writing to every director |
| VII. MSME-1 | Half-yearly MSME Return | Section 405 | Company to file return providing details regarding pending payments to MSME vendors.
|
To be filed half-yearly as provided below- From April to Sep by 30th October
From October to March by 30th April. |
Event Based Compliances for a One Person Company
Provided below are some event-based compliances that are to be fulfilled by an OPC in case of happening of a certain event-
i. Receipt of share application money & Allotment of shares to the sole member;
ii. Transfer or Transmission of Shares
iii. Appointment or resignation of the directors
iv. Appointment of the Managing Director or a Whole Time Director (WTD)
v. Execution of any contract/agreement with any related party
vi. Re-appointment or change in the Statutory Auditor.
What Documents are required for the Annual Compliance of One Person Company?
Provided below are the documents required for the fulfillment of Annual Compliances-
i. Copies of sales & purchases receipts & invoices of expenses expended during the year;
ii. Particulars of Bank Statements during the whole financial year for all bank accounts in the name of the Company.
iii. Particulars of all the ITR returns & GST returns filed during the year.
iv. Details of any TDS Challans Deposited and TDS Return filed
v. Final Balance sheet and P&L Account
vi. Details of the Member of the OPC
vii. Details of sole Director of OPC
Conclusion
The process of registration is a simple process with lesser requirements than any other form of business establishment. Further, the process of managing compliances is even easier and more cost-effective. For instance, an OPC need not hold any physical AGM with its single member, the process could just be completed by entering details in the minutes’ books of the OPC and filing an annual return to the MCA.
Still, the company must comply with all the applicable compliances timely to avoid any unnecessary penalties or legal action. It is necessary for each OPC to have the knowledge of all the legal requirements to ensure smooth business operations and in the long run successful setup and efficient growth of start-ups and stay out of any other possible risks/difficulties. Accordingly, the longevity of a start-up could be determined by the strength of the legal foundation and the compliance management of an OPC.
Therefore, one can conclude that the OPC is one of the most advantageous forms of legal entity that provides the benefit of limited liability, flexibility in business operations, and minimal legal compliances for supporting & encouraging the spirit of entrepreneurship & innovation.
