In this article, Gitanjali Balakrishnan pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses All you need to know about One Person Company.
WHAT IS AN OPC?
‘One Person Company’ was not provided for under the Companies Act, 1956. It was introduced by the Companies Act, 2013. A One person Company, as the name suggests, is a company that has only one member (as per s. 2(62)). It is not a ‘proprietorship concern’[1] and is a business vehicle that seeks to remedy some of the problems faced by businesses run as sole proprietorships, such as unlimited liability, and to balance the extensive procedural requirements of incorporating and conducting business as a Company, to make the arena more conducive to entrepreneurial ventures. Therefore, it can be incorporated by a person who wants to start a business venture with the structural and organizational advantages that a company has to offer for e.g., s/he can access credit facilities, etc. with only the bare minimum procedural requirements.
The Ministry of Corporate Affairs vide its G.S.R. Notification No. 250(E) dated 31st March, 2014 notified the Companies (Incorporation) Rules, 2014 under the Companies Act, 2013 which provide for formation of One Person Company.[2]
HISTORY
This concept of the One Person Company was first recommended by the expert committee of Dr. JJ Irani in 2005.[3] The Committee had suggested classifying companies on the basis of size, membership, control, etc. In reference to the One Person Company, it said that “it is time that entrepreneurial capabilities of the people are given an outlet for participation in economic activity”. It also recommended that a simpler regime through exemptions be made applicable to OPCs in order that an entrepreneur is not required to expend excessive time and resources on procedure that could otherwise be applied to its business activities.
The counterparts of Indian OPCs in Europe, United States and Australia have resulted in further strengthening of the economies in the respective countries.[4]
FEATURES
One Director
Every such company compulsorily requires one director.
One shareholder
Every OPC should have one shareholder (although it may have up to 15).
Nominee for the shareholder
The shareholder shall nominate another person (specified in the memorandum) who shall become a member of the OPC in the event of the death or incapacity of the shareholder.
WHO CAN FORM A ONE PERSON COMPANY?
Only a ‘natural person’ who is an Indian citizen and resident in India, i.e., a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year can incorporate a One Person Company and a nominee for the sole member of a One Person Company.
As per One Person Company (Rule 3 of Companies (Incorporation) Rules, 2014)
- A person cannot incorporate more than one OPC or be the nominee of more than One Person Company
- A minor shall not become member or nominee of the One Person Company or can hold share with beneficial interest.
- Such Company cannot be incorporated or converted into a company under section 8 of the Act.
- Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate.
- No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except when threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.
HOW TO FORM A ONE PERSON COMPANY?
Section 3(1)(c) provides for the incorporation of a one-person company. It states that a company may be formed for any lawful purpose, by one person, where the company to be formed is a one person company, that is to say, a private company. [5]
The member(s) of a One Person Company have to subscribe his/her/their name(s) to the memorandum of the Company. The memorandum of a One Person Company has to indicate the name of one other person, with prior written consent in the prescribed form. Such person shall become a member of the One Person Company in the event of the subscriber’s incapacity to contract or death. Such person’s consent, in writing, must be filed with the Registrar at the time of incorporation of the OPC along with the Memorandum and articles of association. Such a person may withdraw his consent in the manner prescribed. The name of such a person may also be changed by the subscriber, in such a case, the same must be intimated to his nominee by specifying it in the memorandum or otherwise. Such a change will not be taken as an alteration in the memorandum but the Registrar must be notified of the same.
A One Person Company may either be a company limited by shares or a company limited by shares or a company limited by guarantee or an unlimited company.
CONVERSION OF A ONE PERSON COMPANY INTO A PRIVATE LIMITED COMPANY AND VICE VERSA
Where the paid up share capital of a One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company. Such One Person Company shall be required to convert itself within the prescribed period of time.
Conversely, A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less or average annual turnover during the relevant period is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.
ADVANTAGES
Legal Identity
One Person Company has a separate legal identity from its shareholders i.e., the company and the shareholders are two different entities for all purposes.
Limited Liability
One of the main reasons that the Sole Proprietorship model is risky is unlimited liability of the Proprietor. Therefore, on the failure of the venture, the Proprietor risked losing his personal assets along with the capital invested in his business. In a One Person Company the liability of the member is limited to the extent of the value of shares held by such person in the company. Therefore, the only risk is that of losing capital invested in the business.
Sole decision maker
No shareholder meetings consensus or majority opinion etc., if there is more than one member shareholder meeting need only be held once in 6 months with a gap of at least 90 days between two meetings. Personal commitment to the business which is a sole idea of the person and close to his heart.[6]
Capital requirements
A One Person Company has minimal capital requirements as compared to other business vehicles.
Compliance
The financial statements of a one person company can be signed by one director alone. Cash Flow Statement is not a mandatory part of financial statements for a One Person Company. Since it has only one member, provisions relating to voting, proxies, meeting, etc., do not apply.
DISADVANTAGES
Investment
An investor may be wary of investing in a One Person Company as the territory is new and fairly untested. He can become a member (as a One Person Company can have 1-15 members) by amending the Articles of Association accordingly.
Taxation
Taxed as a company both on income and distribution of profits. It does not enjoy the tax benefits that an LLP, for instance, enjoys.
EXEMPTIONS AVAILABLE TO OPCs UNDER THE COMPANIES ACT, 2013
- Section 96. Option to dispense with the requirement of holding an AGM.
- Section 98. Power of Tribunal to call meetings of members.
- Section 100. Calling of extraordinary general meeting.
- Section 101. Notice of meeting.
- Section 102. Statement to be annexed to notice.
- Section 103. Quorum for meetings.
- Section 104. Chairman of meetings.
- Section 105. Proxies.
- Section 106. Restriction on voting rights.
- Section 107. Voting by show of hands.
- Section 108. Voting through electronic means.
- Section 109. Demand for poll.
- Section 110. Postal ballot.
- Section 111. Circulation of members’ resolution.
PROCESS OF INCORPORATION OF ONE PERSON COMPANY
- Obtain Digital Signature Certificate for the proposed Director(s)
- Obtain Director Identification Number [DIN] for the proposed director(s)
- Company Name, application (Form INC-1) to the Ministry of Corporate Affairs for availability
- Draft Memorandum of Association and Articles of Association (MOA & AOA)
- Sign and file various documents including MOA & AOA with the Registrar of Companies
- Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty Scrutiny of documents at Registrar of Companies (ROC)
- Receipt of Certificate of Registration/Incorporation from Registrar of Companies (ROC)
CONCLUSION
Therefore, a One Person Company is an efficient vehicle for entrepreneurs as it combines the benefits of a sole proprietorship with that of a company. The procedural requirements are fewer as many exemptions are provided under the Act. Although the territory remains fairly uncharted, theoretically, it provides a balanced approach to new businesses in the present economic environment.
References
[1] https://www.icsi.edu/Docs/Webmodules/ONE%20PERSON%20COMPANY.pdf
[2] Ibid
[3]http://www.mondaq.com/india/x/278154/Corporate+Commercial+Law/One+Person+Company+A+Concept+For+New+Age+Business+Ownership
[4] Supra Note 1
[5] Company Law, Sixteenth Edition, Avtar Singh
[6] Supra Note 1
