The Companies Act, 2013 has brought about a remarkable development in the corporate arena by bringing in the concept of One Person Company (“OPC”). Under the ‘old’ Companies Act, 1956 minimum two members were required for formation of a Private Limited Company. This was a hindrance to the entrepreneurs who wanted to go ‘solo’.
OPC is a legitimate way to form a company with only one member. OPC can work like proprietorship but it holds the status of company and of course enjoys the benefits that come with it (limited liability, trust factor etc.)
Sec 2(62) of the Companies Act, 2013 brought in the concept of a "One Person Company". It is essentially a legal entity which functions on the same principle as a Company, but with only one member. It was an alternative for Indians, who typically operate using the risky concept of a proprietorship.
Section 3 further clarifies that an OPC shall be treated as a private company for all legal purposes with only one member.
A New Concept:
The reason why the old Companies Act of 1956 had made it compulsory for a Company to have a minimum of two members was so that it could be clearly separated from a sole proprietorship, a corporate structure which is categorically excluded from the Act. However, the duplicity of this provision was blatant and rampant. People started forming companies by adding a nominal member/ director, allotting them one single share, which is the minimum requirement for a director as per the Act, and retaining the rest of the shares themselves. Thus, a person could enjoy the status and benefits of a Company while operating and functioning like a proprietary concern for all practical purposes. Hence, to make things clearer and more logical, an option has been created wherein a person can form a company as a one person entity.
Naming of the OPC:
The Companies Act, 1956 required a private limited company to have “private limited company” (Pvt. Ltd) suffixed in the end wherever its name appeared. Likewise the Companies Act 2013 requires that the name of the OPC shall include ‘One Person Company’ within brackets below the name of the company wherever the name is printed, affixed or engraved.
Formation of One-Person-Company & Nominee of the sole member:
The person has to give a separate name and legal identity to the Company, under which all the activities of the business are to be carried on. This ensures that a separate legal entity is formed.
The person has to nominate another person, with that person's written consent as a nominee to the OPC and the written consent of such person shall also be filed with the Registrar at the time of incorporation along with its Memorandum and Articles. This person will be the default and ad hoc member in case of the existing sole member's death or disability. This provision will ensure perpetuity and continuity to the life of the Company. The golden rule of "members may come and go, but the Company must live on" holds good.
There can be a possibility where the original member loses trust in the nominated person or the nominated person is incapacitated or takes back his consent.
In such a case the nominated member may be changed by the original member. Any such change has to be intimidated to the Registrar by the OPC within prescribed time.
On the death of the sole member, the nominee has all shares and the rights and liabilities of the deceased person. The board of the company shall inform the nominee regarding entitlement of such shares and rights and liabilities.
Appointment of directors:
An OPC can appoint maximum 15 directors and minimum of one director. The appointment is to be made in accordance with the articles of the OPC. If there is no provision regarding appointment of directors then the original member shall be deemed to be the director of the company until someone else is appointed.
Provisions relating to annual general meetings, general meetings, and extraordinary general meetings are not applicable for an OPC.
Sec 173 (5) - In case of a Board Meeting, at least one meeting of the Board of Directors shall be conducted in each half of a calendar year and the gap between the two meetings shall not be less than ninety days. Such provision shall not apply to an OPC in which there is only one director on its Board of Directors.
In an OPC, the resolution is communicated by the sole member to the company and entered into the minutes-book and signed and dated by the member.
Advantages of One Person Company:
OPC will bring the unorganised sector of proprietorship into the organised version of a private limited company. Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The organised version of OPC will open the avenues for more favourable banking facilities. Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited.
OPC in Other Countries:
Various countries permit this kind of a corporate entity. China introduced it in October 2005 in which the promoting individual is both the director and the shareholder. The amended company law of Pakistan permits one person to form a single-member company by filing with registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director. In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC). In China, one person is allowed to apply for opening a limited company with a minimum capital of 1, 00,000 Yuan. The amended law of China prescribes that the owner should pay the investment capital at one time and bars him from opening a second company of the same kind. In most countries, the law governing companies enables a single-member company to have more than one director and grants exemptions to such companies from holding AGMs, though records and documents are to be maintained. The concept is also very popular in Singapore.
OPC will give greater flexibility to an individual or a professional to manage his business efficiently and at the same time enjoy the benefits of a company. The concept of OPC will also help many foreign companies, which need to appoint a minimum of two nominees now when they form a wholly-owned subsidiary. OPC will open the avenues for more favourable banking facilities, particularly loans, to such proprietors. Besides, the concept will boost flow of foreign funds in India as the requirement of nominee shareholder would be done away with.
Disclaimer: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.