One Person Company (OPC) is a unique business structure introduced under the Companies Act, 2013. It allows a single individual to incorporate a company, offering the benefits of limited liability and corporate structure while minimizing compliance burdens. Before the enactment of Section 2(62) of the Companies Act, 2013, an individual was not allowed to establish a company. However, with the introduction of OPC, entrepreneurs and solo business owners have gained a structured corporate entity with easier compliance requirements compared to a private limited company.
As per Section 2(62) of the Companies Act, 2013, a One Person Company is defined as a company with only one member. This member is the sole subscriber to the Memorandum of Association (MOA) and is responsible for all aspects of the company. In an OPC, the same person can act as both the director and the shareholder. While OPC enjoys fewer compliance requirements than other corporate structures, it is still required to file all regulatory documents and returns even if it is inoperative. However, if an OPC is no longer operational, it is advisable to initiate the closure process to avoid unnecessary compliance costs and penalties.
Why Opt for the Closure of One Person Company?
There are several reasons why a business owner may choose to close an OPC. The primary reasons include avoiding unnecessary regulatory burdens, legal obligations, and penalties that arise from non-compliance. Even if an OPC is inactive, it is still required to fulfill annual filing requirements unless formally closed through the Registrar of Companies (ROC). Filing for closure allows the business owner to legally dissolve the company, relieving them from future legal and financial obligations.
The Ministry of Corporate Affairs (MCA) provides a structured process for closing an OPC. If not followed properly, penalties and fines may be imposed on the company and its director. If an OPC has remained inactive for more than a year from the date of incorporation, the owner can apply for closure under the normal procedure or through the Fast Track Exit (FTE) scheme. Additionally, voluntary winding up or compulsory winding up by the tribunal are other methods of closing an OPC.
The closure of a One Person Company (OPC) is an important step for business owners who no longer wish to maintain an inactive company. Whether opting for voluntary winding up or strike-off under the Fast Track Exit (FTE) scheme, it is essential to follow the legal process meticulously to avoid penalties and future liabilities. Knowing the OPC closure process, requirements, and documentation will ensure a smooth and hassle-free exit from the corporate framework. If you are considering closing your OPC, you can connect with Compliance Calendar experts through mail at info@ccoffice.in or Call/Whatsapp us on +91 9988424211.
Fast Track Exit (FTE) for OPC Closure in India
Fast Track Exit (FTE) is a simplified process introduced by the Ministry of Corporate Affairs (MCA) to facilitate the easy closure of defunct companies, including One Person Companies (OPCs). Under the Companies Act, 2013, an OPC can be closed voluntarily if it meets specific eligibility criteria. The latest updates emphasize compliance with regulatory norms, ensuring that the company has no outstanding liabilities or pending litigation before applying for closure.
To initiate the FTE process, the OPC must first settle all its business operations, clear outstanding dues, and prepare financial statements up to the closure date. The Director of the OPC must pass a board resolution for closure and file necessary documents, including Form STK-2 with the Registrar of Companies (ROC). This form must be accompanied by an indemnity bond, a statement of accounts certified by a Chartered Accountant, and an affidavit affirming that the company has no liabilities. Additionally, the Director must obtain a No Objection Certificate (NOC) from creditors, if applicable.
The ROC will conduct a verification process, and if no objections arise, a public notice will be published in the Official Gazette. If no opposition is received within the prescribed period, the company's name will be struck off from the register of companies, effectively dissolving it. It is crucial to note that failure to comply with statutory requirements before applying for FTE may result in rejection of the application.
With recent updates, the MCA has emphasized stringent scrutiny of FTE applications, particularly in cases where the OPC has engaged in financial transactions or has unresolved tax matters. Companies registered under GST must ensure proper cancellation of their GST Registration before proceeding with closure. Directors must also ensure that there are no pending ROC filings or annual returns before filing for strike-off.
The FTE process provides an efficient exit route for OPCs that are inactive or unable to sustain operations, offering relief from compliance burdens while maintaining transparency in corporate governance. Business owners must adhere to the latest regulatory requirements to ensure a seamless closure of their OPC.
Benefits of Closing an OPC
Closing an OPC offers several benefits, particularly for inactive companies that do not wish to bear unnecessary compliance costs. Some key benefits include:
Closing a One Person Company (OPC) through the Fast Track Exit (FTE) process offers several benefits, primarily by relieving the company from the burden of annual compliance and regulatory filings. Once an OPC is officially closed, the requirement to file annual returns, maintain statutory registers, and fulfill MCA and tax-related obligations ceases, reducing administrative hassles for the owner. This ensures that the business is no longer liable for penalties due to non-compliance with regulatory mandates.
Another key advantage is the elimination of penalties that would otherwise be imposed for missing statutory deadlines. If an OPC remains inactive but does not undergo proper closure, it continues to attract fines and late fees for non-filing of returns and other statutory documents. By opting for FTE, the company ensures that it is legally struck off, protecting the owner from any future financial or legal consequences related to non-compliance.
Once an OPC is officially dissolved, there is no requirement to maintain financial records or undergo audits. Businesses that are operational must keep detailed books of accounts and get them audited periodically. However, after the strike-off, the company ceases to exist, freeing the owner from the responsibility of record-keeping and compliance with audit requirements.
Another significant benefit of the FTE process is the avoidance of unnecessary costs associated with statutory filings, legal formalities, and compliance maintenance. Running a company, even if non-operational, incurs costs related to regulatory filings, professional fees, and government charges. The strike-off process helps business owners cut these recurring expenses, making it a cost-effective decision for companies that no longer wish to operate.
Finally, opting for FTE ensures a clean legal exit from the corporate framework. Without proper closure, an inactive OPC remains on record and continues to be subjected to compliance mandates. Through the FTE route, the director can formally dissolve the company, avoiding any future liabilities or complications. This legal closure provides peace of mind to the entrepreneur, ensuring that there are no lingering obligations with the Registrar of Companies (ROC) or any other regulatory authority.
Options for Closing a One Person Company (OPC)
The closure of an OPC is governed by the Companies Act, 2013, which provides specific provisions under the Companies (Removal of Names of Companies) Rules, 2016. Sections 248 to 252 of the Companies Act, 2013 outline the procedures for striking off the name of a company from the records of the ROC. There are two main ways to close an OPC:
Winding Up of One Person Company
Winding up an OPC involves obtaining approval from the creditors and fulfilling all necessary legal formalities. This process requires the appointment of a liquidator to oversee the financial affairs of the company, settle liabilities, and distribute remaining assets. The winding-up process includes passing a resolution in a general meeting, submitting the resolution to the ROC, and obtaining approval from the tribunal, if required. Since winding up is a lengthy process, it is usually considered as a last resort when an OPC has substantial assets and liabilities.
Strike Off OPC Through Fast Track Exit (FTE) Scheme
The Fast Track Exit (FTE) scheme offers a simpler and quicker way to close an OPC. If an OPC has been inactive for more than a year and has no outstanding liabilities, it can apply for strike-off under Form STK-2. This process involves obtaining a No Objection Certificate (NOC) from creditors (if any), clearing all dues, and submitting required documents to the ROC. Once the application is approved, the name of the OPC is removed from the register, officially dissolving the company.
Eligibility Criteria for OPC Closure or Striking Off an OPC
The closure or strike-off of a One Person Company (OPC) in India is subject to specific eligibility criteria as per the Companies Act, 2013. To qualify for closure, the OPC must not have conducted any business operations for at least two consecutive financial years immediately preceding the application for strike-off. If the company has been operational, it must settle all liabilities, clear outstanding statutory dues, and obtain a No Objection Certificate (NOC) from creditors before applying for closure. Additionally, the OPC should not have any ongoing legal proceedings, pending tax assessments, or unresolved disputes with government authorities.
Before initiating the closure process, the OPC must ensure that all its financial statements and annual returns are up to date and filed with the Registrar of Companies (ROC). Any pending filings, such as Form AOC-4 (for financial statements) and MGT-7 (for annual returns), must be completed before submitting the strike-off application. Furthermore, the OPC should not have any assets or liabilities at the time of closure. If there are any remaining assets, they must be disposed of, and liabilities must be fully settled before proceeding with the strike-off.
Another crucial eligibility requirement is that the OPC must not be involved in any active litigation or regulatory scrutiny. If the company has been registered under Goods and Services Tax (GST), its GST registration must be properly canceled. Similarly, if the company has obtained any licenses or registrations from regulatory authorities, necessary compliance and cancellations should be completed. The director of the OPC must provide an affidavit and an indemnity bond affirming that the company has no outstanding liabilities and is eligible for closure.
Companies that have engaged in fraudulent activities, financial misconduct, or regulatory violations are ineligible for the fast-track exit route. The ROC has the authority to reject the closure application if any discrepancies or pending matters are found. Hence, it is essential for the OPC to conduct a thorough compliance check before proceeding with the strike-off application under Form STK-2. By meeting these eligibility criteria, an OPC can ensure a smooth and legally valid closure, avoiding future liabilities or legal complications
Important Conditions Before Closing an OPC
Before applying for OPC closure, the following conditions must be met:
No Recent Name Change or Address Change: The OPC should not have changed its name or shifted its registered office from one state to another within the three months preceding the application.
No Asset Disposal for Profit: The company should not have disposed of any assets or rights for financial gain in the normal course of business within the last three months.
No Business Activity in the Last Three Months: The OPC should not have engaged in any commercial activity other than those necessary for making an application for strike-off.
Not a Section 8 Company: The strike-off procedure is applicable only to active and dormant OPCs, not to Section 8 companies (Non-Profit Organizations).
Documents Required for OPC Closure
To proceed with the closure of an OPC, the following documents must be submitted to the ROC:
- Memorandum of Association (MOA) and Articles of Association (AOA)
- Certificate of Incorporation
- PAN card and other registration certificates (if applicable)
- Financial statements prepared within 30 days before filing the application
- Indemnity Bond (STK-3) notarized by the director
- Statement regarding pending litigations (if any)
- Statement of Accounts containing assets & liabilities, audited by a Chartered Accountant (CA)
- Affidavit in Form STK-4 by the sole director
- Signed resolution by the sole member
- Bank account closure certificate and details
- No Objection Certificate (NOC) from creditors (if applicable)
- NOC from tax authorities confirming that no dues are outstanding
Procedure for OPC Closure Under Fast Track Exit (FTE) Scheme
To strike off an OPC under the FTE scheme, the following steps need to be followed:
Settlement of Liabilities: Before initiating the closure process, all outstanding liabilities must be cleared. A No Objection Certificate (NOC) must be obtained from creditors to confirm that no dues are pending.
Preparation of Application: The application for closure must be prepared in Form STK-2. This form, along with the necessary supporting documents, must be submitted to the ROC.
Submission of Required Documents: The application must include documents such as the Memorandum of Association (MOA), Articles of Association (AOA), Certificate of Incorporation, PAN card, bank account closure certificate, financial statements, indemnity bond, and affidavit from the sole director.
ROC Processing and Approval: After submission, the ROC reviews the application. If all conditions are met, the ROC strikes off the OPC from the register, effectively closing the company.
Consequences of Not Closing an Inactive OPC in India
Failing to close an inactive One Person Company (OPC) in India can lead to several legal and financial consequences. Even if an OPC is not conducting any business operations, it remains a registered entity under the Companies Act, 2013, and is required to comply with statutory obligations such as filing annual returns, financial statements, and maintaining proper records. Non-compliance with these requirements results in penalties, late fees, and additional liabilities, which continue to accumulate over time, making it costly for the company and its director.
One of the major consequences of not closing an OPC is the risk of being declared a defaulting company by the Ministry of Corporate Affairs (MCA). The Registrar of Companies (ROC) has the authority to mark non-compliant companies as defunct and initiate strike-off proceedings. However, if the OPC has outstanding liabilities or unresolved compliance matters, the ROC may take legal action against the director, which can include fines and disqualification from holding directorships in other companies. Directors of non-compliant companies may also be blacklisted for a certain period, restricting their ability to incorporate or manage any other business entity in the future.
Another significant impact of not closing an OPC is the financial burden of recurring costs such as professional fees for compliance, statutory filing charges, and government fees. An inactive OPC still needs to engage a Chartered Accountant or Company Secretary for mandatory filings, and failure to do so can result in compounding penalties. Additionally, the company's bank accounts remain active, which may lead to unnecessary maintenance charges, and failure to pay taxes or statutory dues can attract legal notices and enforcement actions from tax authorities.
Furthermore, an OPC that is not properly closed may face challenges in the future if the director wishes to start a new venture. Regulatory authorities may scrutinize past non-compliance issues, which can affect business credibility and the ability to obtain loans, licenses, or registrations for a new company. Leaving an OPC dormant without closing it also creates unnecessary legal risks, as any pending disputes, tax liabilities, or regulatory actions can arise unexpectedly, leading to prolonged legal complications.
Therefore, it is important for OPC owners to either maintain compliance or opt for proper closure through the Fast Track Exit (FTE) process. Closing an inactive OPC ensures a clean legal exit, prevents financial liabilities, and safeguards the director from future regulatory issues.
Difference Between Closure, Winding up, and Dissolution of OPC
The terms closure, winding up, and dissolution of a One Person Company (OPC) in India may appear similar but have distinct legal meanings and processes under the Companies Act, 2013. Closure of an OPC refers to the voluntary strike-off process under Section 248, where a company that has been inactive for at least two consecutive financial years can apply for removal from the register of companies. This is done through the Fast Track Exit (FTE) mode by filing Form STK-2 with the Registrar of Companies (ROC). Closure is a simplified and voluntary method for shutting down an OPC when it has no outstanding liabilities, pending litigations, or active business operations.
Winding up, on the other hand, is a more complex process that can be initiated voluntarily by the member and creditors or compulsorily by a tribunal in cases of insolvency, fraud, or serious violations of the law. Under winding up, the OPC appoints a liquidator, who is responsible for settling liabilities, disposing of assets, and distributing the remaining funds to creditors or stakeholders. The winding-up process is governed by the Insolvency and Bankruptcy Code (IBC), 2016, in cases of financial distress or debt-related issues. Unlike closure, winding up is often court-monitored and involves multiple compliance steps before the final dissolution.
Dissolution is the final stage of either the closure or winding-up process. Once the name of the OPC is struck off from the MCA records, it is considered dissolved, meaning it ceases to exist as a legal entity. In the case of voluntary closure, dissolution happens once the ROC publishes the company's name in the Official Gazette after verifying that all compliance requirements have been met. In the case of winding up, dissolution occurs only after all assets have been liquidated, liabilities settled, and the tribunal issues a final order confirming the company’s dissolution.
So, closure is a voluntary, simplified process for inactive OPCs, winding up is a more complex liquidation process initiated in cases of financial distress or legal action, and dissolution is the final outcome in both cases, marking the end of the company's legal existence. Entrepreneurs must choose the appropriate route based on their OPC’s financial and legal standing to ensure compliance with the latest corporate laws.
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