Under the existing Company Law framework, a private limited company is required to have a minimum of two shareholders and two Directors. But The Companies Act, 2013 passed by the Lok Sabha provides for the concept of a One Person Company (OPC) in India. This concept, though already prevalent in the Europe, USA, China, Singapore and even several countries in the Gulf region, was first recommended in India by an expert committee (Dr. J.J.Irani) in 2005 and was subsequently inserted in the Companies Bill so as to provide an option to persons operating under the sole proprietorship model to operate as a company.
One Person Company (OPC) is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013, which reads as follows:
'One Person Company means a company which has only one member'
The one basic pre-requisite to incorporate an OPC is that the only natural-born citizens of India, including small businessmen, entrepreneurs, artisans, weavers or traders among others can take advantage of the 'One Person Company’ (OPC) concept outlined in the new Companies Act. Non-resident Indians or individuals who do not reside in India for over 182 days cannot incorporate a OPC, the draft rules to the Companies Act, 2013 has clarified. Resting the doubts regarding incorporation of OPC by a corporate entity or non-resident Indians, the draft rules said only a “natural person” who is an Indian citizen and is resident in India shall be eligible to incorporate an OPC.
The important features of the One Person Company (OPC) -
- One Person Company has only one person as a member/shareholder.
- One Person company can be registered only as a Private Company.
- One Person Company may be either a Company limited by share or a Company limited by guarantee or an unlimited Company.
- An OPC limited by shares shall comply with following requirements:
i. Shall have minimum paid up capital of INR 1 Lac
ii. Restricts the right to transfer its shares
iii. Prohibits any invitations to public to subscribe for the securities of the company
- An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on. The words 'One Person Company' should be mentioned below the name of the company, wherever the name is affixed, used or engraved.
- MoA (Memorandum and Articles) to name another person who shall become the member in case of death or incapacity of the subscriber.
- The written consent above shall be filed with the Registrar at the time of incorporation of the One Person Company along with its MoA.
- The nominee/ other person can withdraw his consent at any time.
- The member/Shareholder of One Person Company may change the nominee/other person at any time, by giving notice to the other person and intimate the same to Company. Then the Company should intimate the same to the Registrar.
- In Case of death of Subscriber, the person so names, shall become member of OPC.
- Member/Shareholder of the One Person Company acts as first Director, until the Company appoints Director(s).
- One Person Company can appoint maximum 15 Directors, but minimum should be one Director.
“Board Meetings and Directors – Section149, 152 & 173 of the Act
One Person Company needs to have one Director. It can have maximum of 15 Directors which can also be increased by passing a special resolution as in case of any other company. For the purposes of holding board meetings, in case of a OPC which has only One Director, it shall be sufficient compliance if all resolutions required to be passed by such a company at a board meeting are entered in a minute book – signed and dated by the member and such date shall be deemed to have the date of the board meeting for all the purposes under Companies Act, 2013.”
- One Person Company need not to hold any AGM (Annual General Meeting) in each year.
“Holding Annual General Meetings – Section 122 of the Companies Act, 2013:
Section 122(1) of The Companies Act, 2013, provides that the provisions of Section 98, Section 100 to Section111 (both inclusive) are not applicable to One Person Company. Therefore, provisions relating to General Meetings, Extra Ordinary General Meeting and Notice Convening to General Meeting are not applicable to One Person Company. However, for fulfilling the purposes of Section 114 of the Companies Act, 2013, where any business is required to be transacted at an Annual General Meeting, or other General Meeting of the company by means of an ordinary or special resolution, it shall be sufficient if the resolution is communicated by the member of the company and entered in the minutes book which is required to be maintained U/s 118 and signed and dated by the member and such date shall be deemed to be the date of meeting under the purposes of Companies Act, 2013.”
- Cash Flow Statement may not include in the financial statements of One Person Company.
- Within 180 days from the closure of the Financial Year, One Person Company should file the copy of the Financial Statements with Registrar.
“Signatures on Financial Statements - Section 134 and 137 of the Act:
The OPC shall file with the RoC a copy of financial statements duly adopted by its members along with all the documents which are required to be attached to such financial statement, within 180 days from the closure of the financial year along with cash flow statements. The financial statement shall be signed by only one Director and the annual return shall be signed by the company secretary and the Director, and in case if there is no company secretary then only by the Director.”
- One Person Company should inform to the Registrar about every contract entered and also should record in the minutes of the meeting within 15 days from the date of approval by the Board of Directors.
“Contracts by One Person Company – Section 193 of the Act:
The new Companies Act, 2013 gives special attention to the contracts which will be entered by One Person Company.
- Signatures on Annual Returns – Section 92 of the Companies Act, 2013:
“It is provided in Section 92 of The Companies Act, 2013, that the annual returns in the case of One Person Company shall be signed by the company secretary or where there is no company secretary, then by the Director of the company.”
- OPC – mandatory conversion to Private or Public if paid up capital exceeds 50 lakh or Average turnover in 3 preceding years exceeds 2 Crore –To convert within 6 months.
It is noteworthy that it is mandatory for an OPC to clearly specify that it is a one person company for all purposes. Such a step will ensure that all persons dealing with the OPC are aware of its corporate status and in turn foster better transparency.
However, one must note that the tax implications of OPC are much higher than of sole proprietorship. The OPC is charged at a base tax rate of 30% along with other applicable taxes like minimum alternative tax (base tax rate 18.5%), dividend distribution tax (base tax rate 15%) and others.
The concept of OPC indeed looks promising looking to the features but the success would be correctly judged only after its implementation.
By Aalok Chhaperwal
CAclubindia
