In this article, Shilpa Nagral, pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on who takes charge on the death of a promoter in the case of an OPC

Introduction

Famous educator B.T. Washington rightly remarked – “It’s better to be alone, than in wrong company”. Companies Act, 2013 reinforced the saying by introducing the concept of One Person Company (OPC). Earlier in India, minimum two people were required to start a company, but now one single person can start a company and he can be the sole shareholder as well as director of the Company. The concept of one person company though new to India, has been in existence in various countries like United Kingdom, China, United States of America, Singapore, etc.. The United Kingdom was the country which paved way for One Person Company through the precedent laid down in the famous case of Saloman v. Saloman and Company.

What is One Person Company?

Section 2(62) of Companies Act, 2013 defines OPC as “a company which has only one person as a member.” As per Companies Act, 2013 OPC can be incorporated only as a private company with the requirement that the person forming the OPC should be a natural person who is resident (i.e have stayed in India for at least 182 days during the immediately preceding financial year) as well as a citizen of India. Introduction of OPC helps a single person, sole proprietor, entrepreneurs to enjoy full control over the company with benefits of limited liability. As OPC has separate legal identity than that of its promoter it has perpetual succession. A single person in India can incorporate a company in India from April 1, 2014.

Features of One Person Company

Features of One Person Company are as follows:

1. It is type of Company formed on the basis of number of members;
2. One Person Company can be incorporated as private company only;
3. Minimum paid up share capital of One Person Company should be one lakh rupees but should not exceed 50 lakh rupees;
4. It can be a Company “limited by shares” or “limited by guarantee”;
5. One Person Company has separate legal identity than that of the promoter incorporating it;
6. The promoter incorporating One Person Company has limited liability;
7. The words “One Person Company” should be mentioned in brackets below the name of the One Person Company;
8. Member/ Shareholder act as the first director, until the company appoints director(s);
9. Rates of taxation as applicable to private companies shall be applied to One Person Company;
10. One Person company cannot be incorporated as or converted into Section 8 company under the Companies Act, 2013;
11. OPC cannot be voluntarily converted into any other type of company till 2 years from date of its incorporation;
12. If the paid-up capital of the OPC exceeds 50 lakh rupees or the average annual turnover in three immediate preceding financial years exceeds 2 crore rupees, the company loses its status as OPC;
13. No minor can become member of OPC or hold beneficial interest in OPC;
14. OPC cannot carry out Non Banking Financial Investor activities including investments in security of body corporate;
15. Any company other than a company registered under section 8 company under the Companies act 2013 which has paid up capital of 50 lakh rupees or less or average turnover during immediate last three financial years is 2 crore or less can convert into One Person Company by passing special resolution in its general meeting;
16. One Person Company need not hold any annual general meeting each year;
17. Cash flow statement may not be included in the financial statements of One Person Company;
18. Only one director of OPC is sufficient to sign the financial report/ directors report;
19. The company should maintain in its minutes of board meeting and also inform the Registrar of Companies of every contract into by the company within 15 days of board meeting.

Incorporation of One Person Company

One Person Company – Perpetual Succession

As per the Companies Act, 2013, companies have “perpetual succession”. Perpetual succession of a company means longevity of a company is not determined by death, transfer of shares, bankruptcy, resignation or lunacy of its members, shareholders, directors, etc.. In other words, members may come and go, but the company goes on forever. The company comes into existence through operation of law and can be wound up (can be brought to an end) only through the operation of law. Since One Person Company is also a type of company under the Companies Act, 2013, the concept of perpetual succession also applies to it.  

In Saloman v Saloman and Company, the honorable judge clearly laid down that a company has a distinct legal identity and it survives beyond the lives of its members.

Also, in case of Abdul Aziz Bin Atan v Ladang Rengo Malay Estate SDN BHD, the learned court held that the company from the date of its incorporation has a distinct legal entity from that of its members. Even though the entire shareholding of the company changed, this would not change the nature or life of the company.

Who takes over when the promoter of One Person Company dies?

The promoter while forming the Company has to mention one person as his nominee during the incorporation of the Company. The nominee, in event of the death of the promoter or due to his incapacity to contract for any other reason, will:

1. become a member of OPC;
2. be entitled to all shares, same dividends and other rights of the OPC;
3. bear all liabilities of the OPC.

On becoming the member, the nominee has to appoint another person as his nominee who will take over the Company in event of his death or due to his incapacity to contract. The nominee has to be appointed within 15 days of becoming a member of the Company with the prior written consent of the person in Form INC-3.

Who can be a nominee?

The nominee should be a natural person who is resident as well as a citizen of India. Prior written consent of the nominee has to be obtained and the same along with name and details of the nominee has to be filed with the Registrar in Form INC-3, at the time of incorporation of the company along with Memorandum of Association and Articles of Association.

A person can become promoter or nominee in only one OPC at given point in time. If the person becomes promoter/nominee in more than one OPC, within 6 months he has to decide the OPC that he wants to be part of and withdraw his membership/ nomination from the other Company.

Change of Nominee

Change of nominee can take place in the following instances:

A.  Change of nominee by promoter

The promoter can change the nominee any time for any reason or in event of his death or his incapacity to contract. The promoter has to intimate the Company of such change and nominate another person after obtaining his prior written consent in Form INC-3. The Company within 30 days of receipt of such intimation, shall file with the Registrar:

1. notice of change of nominee in Form INC-4 along with fees as per Companies (Registration offices and fees) Rules, 2014;
2. written consent of the nominee in Form INC-3’

B. Withdrawal by nominee

Change of nominee can also happen when the nominee withdraws his consent. Nominee, by giving written notice of his withdrawal to the promoter and the Company, can withdraw his consent to act as nominee. The promoter, within 15 days of receipt of such notice of withdrawal, has to appoint a new nominee. Further, the Company within 30 days has to file with the Registrar:

1. notice of withdrawal of consent;
2. name and details of the new person nominated in Form INC-4 along with fees as per Companies (Registration offices and fees) Rules, 2014;
3. written consent of the new person in Form INC-3.

Conclusion

The concept of One Person Company will not only help in corporatization but also pave way for various small-scale traders and mid-level entrepreneurs to start their own Company without unnecessary hassles of various lengthy and unwanted compliances. This will also help in providing legal protection to unorganized Indian businesses. It gives small businessmen the security of limited liability and benefit of secure loans from venture capitalists, foreign investors, banks, etc. Though a noble thought and idea, the government should take care that there are no regulatory mess ups. The government should also take steps to educate and create awareness about One Person Company as even after 4 years of its introduction it is fairly an unfamiliar concept for Indian entrepreneurs.