In this blogpost, Sristy Ghosh, Student of the University of Calcutta and  the Diploma in Entrepreneurship Administration and Business Laws by NUJS, writes about duties of directors and shareholders in a one person company. 

IMG-20160327-WA0007

Introduction

Directors are authorized and responsible for the carrying out of business. They are also to manage the various affairs of a Company.

A new revolutionary concept of a One Person Company was introduced in the revised Companies Act of2013. It gives an individual entrepreneur all the benefits of a Company. According to the Companies Act of 2013 and various other corporate laws in force, the duties and liabilities of a Director depend entirely on the nature of its business.

A One Person Company shall have a minimum of one Director, and it is a type of a Private Company. So, we can say that the duties of a Director in a One Person Company are similar to that of a Private Company. The sole shareholder can be the Director of the Company.

Duties of the Director in a One Person Company

In discharging the duties of his eminent position, a director must act fairly and take care of the various business activities as his own, and in the case of a One Person Company, it his indeed his own. Directors are regarded agents of the Company, and he or she exercises the power that is conferred on them in Memorandum of Association. He usually discharges the following duties as per the Companies Act, 2013:

  • The duties and liabilities which encourage and promote the sincerest investment of the best efforts of directors in the efficient and prudent corporate management, in providing elegant and swift resolutions to various business related issues including those which are raised “ red flags”, and in taking fully mature and wise decisions to avert unnecessary risks to the company.
  • Fiduciary duties which ensure and secure that the directors of companies always keep the interests of the company and its stakeholders, ahead and above their own personal interests.

As per section 166 of the Companies act, a director must be acting in accordance with the Article of Association (AOA) of the Company. There lays down the following rules:

  • A Director of a Company shall act in good faith, in order to promote the objects of the company, for the benefits of the company as a whole, and in the best interests of the stakeholders of the company.
  • A director must exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgement.
  • A director of a company shall not be involved in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
  • A director of the company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such a director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
  • A director of a company shall not assign his office and any assignment to anyone else, if it is made by him, then it will be made void.
  • If a director of the company contravenes the provisions of this section, such a director would be punished with fine which shall not be less than one Lakh rupees and may not exceed five lakh rupees.

Duties of a shareholder in a One Person Company

A One Person Company has only one shareholder, however, joint holder of shares would not constitute double membership. Where more than one person is holding shares jointly as joint holders of those shares, then they will be treated as a single member, and they can form a one person company.

Since it has only an individual as a shareholder, the provisions related to shareholder meetings and methods of voting, the appointment of proxies, the appointment of chairman are not applicable to the One Person Company.

In the case of joint holding of shares, the duties of the shareholders are quite like partners in a Limited Liability Partnership. The duties of a shareholder when there is a joint holding of shares are:

  • Since an OPC is a separate legal entity, an obligation whether arising out of a contract or otherwise is completely depending on the shareholders of the Company.
  • Every shareholder, when there is the joint holding of shares will act as an agent for the other as in a Limited Liability Partnership or Partnership.
  • Liability of shareholders shall be limited except in the case of unauthorized acts, fraud, and negligence.

As a One person Company is centering around one single person (at most two in the case of a joint holder of shares), the owner, director and shareholder is usually the same person. Therefore all the duties that need to be discharged, whether by a Director or a Shareholder needs to be done by one single person. That individual is the all in all of the Company and in him lays all the responsibilities of the Company. Some of the duties are listed down in the following points:

  • Whether the Company is complying with the provisions of the Company Act, 2013,
  • Whether the Company is following the charter of the Company (i.e. Memorandum of Association),
  • Whether it has proper audit reports,
  • Whether it is paying the taxes properly,
  • Whether its employees are working properly, and sundry other duties lay on him.

Conclusion

A director of a company must avoid any situation in which he has, or can have, a direct or indirect interest that conflicts or may conflict with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity. It does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company or if the matter has been authorised by the directors[1].

[1] http://www.icaew.com/en/members/regulations-standards-and-guidance/members-in-business/financial-and-accounting-duties-of-directors

Did you find this blog post helpful? Subscribe so that you never miss another post! Just complete this form…

LEAVE A REPLY