Starting a business as a one-person company (OPC) in India is picking up pace among young entrepreneurs who want to go solo. Among the many benefits, what stands out is limited liability while allowing full control over business decisions. It is also to be understood that OPC regulations are to comply with and failure to do so can result in penalties and fines.
Key compliance requirements for one person company formation
If a one-person company is to avoid fines, these mandatory compliance requirements are important to follow:
- Annual Financial Statements and Returns: A one-person company must file its financial statements with the Registrar of Companies (ROC) every year. Additionally, an Annual Return (MGT-7A) must be submitted. Late filing can lead to penalties, so it is best to complete this on time.
- Board Meetings and Resolutions: Though an OPC does not need to hold multiple board meetings like other companies, the director must record any major decisions in a written resolution. Keeping records of these decisions ensures legal clarity and avoids compliance issues.
- Appointment of a Nominee: As per law, an OPC must appoint a nominee in case the director is unable to continue. The nominee’s details should be filed with the ROC, and any change in the nominee must also be updated.
- Statutory Audit Requirements: An OPC must get its accounts audited by a certified auditor, even if it has limited transactions. Failure to appoint an auditor can lead to penalties.
- Income Tax and GST Compliance: An OPC must file income tax returns annually and comply with Goods and Services Tax (GST) regulations if applicable. A delay in filing tax returns can result in fines and legal actions.
Common penalties for non-compliance
Failure to follow OPC regulations can result in fines and penalties, including:
- Late filing of annual returns: A fine of Rs. 100 per day until compliance is met.
- Failure to appoint an auditor: Depending on the delay, a one-person business that neglects to appoint an auditor may be subject to a penalty ranging from Rs. 25,000 to Rs. 5,00,000.
- Non-maintenance of financial records: Heavy fines and possible disqualification of the director.
- Neglecting tax compliance: This can have serious implication on the company such as tax penalties and even legal actions.
How to avoid non-compliance issues
Maintain Proper Documentation
One should devise a mechanism under which all the financial records, board resolutions, and nominee details get updated from time to time; the same should be filed with the appropriate authorities.
Set Reminders for Compliance Deadlines
Missing deadlines is the prime reason for penalties’ imposition. Therefore, invest in compliance tracking software that automates the process of notifying about deadlines. A one-person-led business may also hire a professional to meet all due dates.
Hire a Professional Accountant and Company Secretary
The company’s best option for bookkeeping, audits, and timely return filing is a competent accountant and company secretary.
Stay Updated with Regulatory Changes
Laws related to one person company formation are subject to change over some time. It is highly advised that the entrepreneurs keep tabs on the latest updates from the Ministry of Corporate Affairs (MCA).
Use Digital Filing Platforms
In the age of digitization and technology, the government has made it a lot easier to file returns online. As you use digital platforms, it is assured that the returns are filed and submitted faster whilst reducing the risk of missing deadlines.
This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.