What is the revenue limit for OPC?

 

A One Person Company (OPC) is a unique type of private company under the Companies Act, 2013, tailored for entrepreneurs who wish to enjoy the benefits of a corporate structure while maintaining sole ownership. OPCs offer several advantages, such as limited liability and simplified compliance compared to traditional private limited companies, making them an appealing option for individual business owners.

However, OPCs are subject to specific regulations, particularly concerning their revenue generation. One of the key factors that business owners must keep in mind is the revenue limit that applies to OPCs. This article delves into the revenue limit for OPCs in India, its impact on business structure, and the options available to business owners as they approach or surpass this threshold.

Understanding the Revenue Limit for OPCs

Under current regulations, an OPC can only operate as long as its revenue remains below a set threshold. This limit ensures that businesses under the OPC model stay within the small-to-medium enterprise bracket, allowing the sole owner to manage and control the company with relatively streamlined compliance processes.

Current Revenue Limit for OPCs

As per the Ministry of Corporate Affairs (MCA) and the Companies Act, 2013, the revenue limit for an OPC is ₹2 crore. This refers to the company’s turnover, which includes total sales or gross receipts during a financial year.

If an OPC exceeds the ₹2 crore turnover limit in any financial year, it is required to convert into a different business structure, typically a Private Limited Company or a Public Limited Company, depending on the company’s growth.

Implications of Exceeding the Revenue Limit

When an OPC surpasses the ₹2 crore revenue limit, there are important consequences. The Ministry of Corporate Affairs mandates the conversion of the OPC into another business entity to ensure that larger businesses comply with stricter governance and financial reporting requirements. Here’s what happens when an OPC crosses the ₹2 crore threshold:

1. Mandatory Conversion: If an OPC’s turnover exceeds ₹2 crore in any financial year, it must convert into either a Private Limited Company or a Public Limited Company within six months.
2. Increased Compliance Requirements: After conversion, the business will be subject to more rigorous compliance standards. For example, a Private Limited Company requires at least two directors and two shareholders, along with stricter rules around board meetings, financial disclosures, and annual returns.
3. Higher Costs: Shifting to a larger corporate structure will incur additional costs in terms of legal, compliance, and administrative activities, including regular board meetings, financial audits, and detailed annual filings with the Registrar of Companies (RoC).

Additional Regulatory Thresholds for OPCs

Beyond the revenue limit, OPCs are also subject to other regulatory thresholds, particularly around paid-up capital.

• Paid-up Capital Threshold: An OPC is allowed to operate with a maximum paid-up capital of ₹50 lakh. If this limit is exceeded, similar to the revenue limit, the OPC must be converted into a Private Limited Company or a Public Limited Company within six months.

Why Choose an OPC?

Despite the revenue and capital limits, OPCs offer a range of benefits that make them an attractive option for entrepreneurs and sole business owners. Below are some of the main reasons why an OPC might be the ideal business structure for certain individuals:

1. Ease of Formation: Setting up an OPC is relatively simple. The registration process is straightforward, and compliance requirements are much less demanding compared to a Private Limited Company. With the support of a top-rated consultancy, entrepreneurs can efficiently complete the registration process.
2. No Minimum Capital Requirement: Unlike a Private Limited Company, there is no minimum capital requirement to start an OPC. This allows business owners to begin operations with a small investment and scale up as the business grows.
3. Single Ownership: OPCs allow for full control by one person, making it ideal for entrepreneurs who want to retain complete decision-making authority over their business.
4. Flexibility: OPCs provide operational flexibility while offering the benefits of a corporate structure, such as limited liability and potential tax benefits.

For business owners who anticipate scaling their operations, starting with an OPC and transitioning into a larger corporate structure as needed can be a strategic and practical approach.

Conversion of OPC to Private Limited Company

When an OPC exceeds the ₹2 crore turnover limit or the ₹50 lakh paid-up capital threshold, the company must undergo a conversion process. Below are the key steps involved:

1. Board Resolution: The OPC must pass a board resolution, deciding to convert into a Private Limited or Public Limited Company.
2. Filing of Forms: The Company needs to submit Form INC-6 to the Registrar of Companies (RoC) to initiate the conversion process. Relevant documents such as financial statements and board resolutions must accompany the form.
3. Structural Changes: Conversion requires updating the company’s memorandum and articles of association to reflect the new structure. Additionally, the company must appoint at least two directors and two shareholders, as required for a Private Limited Company.
4. Registrar’s Approval: Once the application is reviewed and approved by the RoC, a new Certificate of Incorporation will be issued, confirming the conversion.
5. Post-Conversion Compliance: After converting into a Private Limited Company, the business must comply with the regulations applicable to such entities, including holding regular board meetings, filing financial reports, and meeting other statutory obligations.

Conclusion

The revenue limit for an OPC currently stands at ₹2 crore. Once a business exceeds this threshold, it is required to convert into a Private Limited or Public Limited Company. While the revenue limit may seem restrictive, it ensures that larger businesses adhere to stricter governance standards, which ultimately benefits both the company and its stakeholders.

That said, OPCs are an excellent choice for small and medium-sized businesses, offering benefits like simplified compliance, limited liability, and ease of management. Entrepreneurs who are considering forming an OPC would benefit from seeking professional help to ensure all legal and financial requirements are met.

For those looking to register an OPC, opting for online OPC registration with professional guidance can make the process smooth and efficient. Whether starting an OPC or managing the conversion process as the business grows, expert services can streamline your compliance journey, allowing you to focus on expanding your venture.