Introduction:
There existed no such notion of One Person Company as per Companies Act 1956. J.J.Irani in 2005 first recommended this theory and finally, the concept of One Person Company was introduced in the Companies Act, 2013. In case a person wants to start a new venture and go with the idea of setting up a company then at least 2 persons are required for private ltd. While 7 minimum persons to be established as a public company. OPC is a private limited company with some unique features. OPC has opened doors to for new businesses now a person willing to start a company can incorporate it single handily. The notion of OPC provides a more flexible structure and less compliance specifications of a company.
However, the theory of OPC existed in many countries from a time ago, but in India, this concept has been mooted by the Ministry of Corporate Affairs. It was in the year 1925 when Britain gave statutory status to this concept in their country. The idea of OPC was adopted by many countries in order to develop their corporate world. However, the basic structure of formulating OPC was different from country to country but the basic idea was to develop new ventures.
Concept of One Person Company
Sec 2(62) defines One Person Company as “One Person Company means a company which has only one member.”[1] The unique feature that makes OPC distinct is that it has only one person who is the member as well as the shareholder. When any entity being a company is registered as an OPC then it can’t invite the public to subscribe to the shares of the company.
Few of the mandatory conditions that need to be fulfilled in order to form an OPC are:
- Only a person who is a natural person and has the citizenship of India shall be entitled to form an OPC.
- Appointment of a nominee is must and the nominee so appointed shouldn’t be an artificial person or the person recognised by law i.e. it must be a natural person.
- OPC can be formed by any company which is either limited by shares or guarantee. In case OPC is incorporated as limited by shares then in such a situation paid-up share capital shall be minimum of 1 lakh, restricts the rights to transfer its shares and can’t invite public to subscribe the shares.[2]
- In case a company has been incorporated as OPC then the word “One Person Company” or “OPC” shall be mentioned below the name of the company whenever its name is printed, affixed or engraved.
- A minor, foreign citizen, non-resident, a person in capitated to contract or a person not being a natural person are not competent to incorporate OPC.
- More than one OPC can’t be formed by a single person moreover he can’t hold the position of the nominee in more than one OPC.
- OPC can only carry out banking financial activities.
Advantages of Incorporating an OPC
- Just like any other forms of company OPC shall also have separate legal entity i.e. both the OPC and member will have separate legal existence.
- The essentials for forming an OPC is very less. An OPC can be formed with only one member who shall himself be the shareholder of the company, 1 director and 1 nominee.
- The feature of OPC which make it distinct from other companies is that only one member forms OPC which in turn results in easy decision making, controlling and managing the OPC.
- Many Income Tax benefits are also provided to OPC. Not like other companies in case any remuneration is provided to the director of OPC then it shall be available as a deduction.
- Any benefits enjoyed by small scale company is enjoyed by OPC too.[3]
Exemptions Available to OPC
- In case of other forms of company other than OPC at least 2 directors are required to set up. But OPC can be incorporated by only by 1 director.
- Annual General Meeting is not mandatory in the case of OPC.
- When compared to any private company the information to be provided in the director’s report is less.
- Preparing a cash flow statement is not required for an OPC.[4]
- In the case of OPC annual return shall be signed by CS and in case of his absence, it shall be signed by the director of the company.
- In case OPC having one director the minimum requirements of Board Meetings shall not comply. However, in case OPC having more than one director the OPC shall hold at least one meeting of the Board of Directors in each half of calendar year and the gap between two meetings is not less than 90 days.[5]
Concept of Nominee
A nominee needs to be appointed by the subscriber of the OPC and the prior consent must be obtained by the person so nominated as a nominee. The person so nominated will automatically become the subscriber of OPC. The name of the person so nominated shall be mentioned in the MOA of the OPC and such nomination inform in Form INC.32 along with assent of such nominee obtained in Form INC.3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014 shall be filed with the Registrar at the time of incorporation of the company along with its MOA & AOA.[6]
Circumstances for Change of Nominee
1. Abolition of Name by the Nominee
A notice in writing must be given to the subscriber and the OPC in case the nominee wishes to withdraw his name. In such a case the subscriber shall nominate another person who shall be the nominee within 15 days from the date of receipt of the notice of discontinuation and shall send a copy of such nomination in writing to the OPC, along with the written approval of such other person who is nominated in Form No. INC.3.[7] OPC shall, within 30 days of obtaining such notice of discontinuation, file with the ROC, a notice of such withdraw of assent and the announcement of the name of another nominee so nominated by the subscriber in Form NO. INC.4 along with fee as provided in the Co. (Registration offices and fees) Rules, 2014 and the written consent of such another person so nominated in Form No. INC.3.[8]
2. Change of Nominee by Sole Member
The subscriber/member of a company may, by communicating in writing to the OPC, alter the name of the person nominated by him at any instance for any reason and appoint another person as the nominee after obtaining the prior assent of such other person Form no. INC.3. OPC shall, on the receiving such intimation, file with ROC and a notice of such change in Form No. INC.4[9] along with fee so provided in the company’s rules and with the written consent of the new nominee in Form No. INC.3 within 30 days of receipt of intimation of the change.
3 .Death of Sole Member
When the subscriber of OPC can’t continue to be the member in the case of death or incapability to enter into a contract then in such a case his nominee becomes the member of such OPC. The appointment of such nominee shall be made within 15 days. The company must also file with the ROC informing it of such halting and new designation in Form No. INC.4 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014. Within 30 days from the change of membership and with the prior written consent of the person so nominated in Form No.3.
Conversion of One Person Company into Public Company or a Private Company
1. Compulsory Conversion
In case when the paid-up share capital of One Person Company exceeds fifty lakh rupees and its average annual turnover during the relevant period exceeds two crore rupees, then in such a scenario, it shall not be entitled to continue as One Person Company. Then in such a scenario within 6 months such OPC is required to convert itself into a private or a public company.[10]
According to sub-section(3) of section 122, the memorandum and the article of such OPC need to be altered, and such alteration can be done by passing a Special Resolution. Within 60 days from the date of applicability of sub-rule (1), the OPC need to give notice to ROC in Form No. INC.5 informing that it has ceased to be OPC and the conversion is required as it has exceeded the threshold limit.[11]
If One Person Company either itself or any of the officer of the OPC goes beyond the prescribed rules then in such a case the One Person Company or any other officer of One Person Company shall be punished either with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after first during which such contravention continues.
2. Voluntary Conversion
Only in case 2 years have expired then only OPC can voluntarily convert itself to private or a public company. The process of conversion of OPC to other forms of company is the same only form INC.5 is not required to be filled.
Conversion of Private Company into OPC
- Any private company except section 8 company which fulfils the requirement of threshold limit can register itself as OPC after passing of Special Resolution in the General Meeting.
- NOC certificate needs to be obtained by the company from all its members and creditors after passing up of Special Resolution.
- File copy of the special resolution with the ROC within 30 days from the date of passing such resolution in Form No. MGT 14.
- Form Inc. 6 need to be filled by the company to ROC for its conversion along with the given fees and provided documents:
- The copy signed by the creditors be given by the director stating that all the members and shareholders have consented for the same.
- The latest audited balance sheet and the profit and loss account and
- The copy of No objection letter of secured creditors.
- The ROC when satisfied can give a new certificate of incorporation.
If an OPC or any officer of such company contravenes any of the provisions of these rules, the OPC and such officer in default shall be punishable with fine up to Rs.5000 and with a further fine up to Rs. 500 for each day in default.[12]
Prohibitions Faced by an OPC
- OPC can be formed only by those who want to start a small venture as the paid-up capital must be less than 50 lakh rupees and the annual turnover of less than 2 crore rupees.
- OPC can’t carry on non-banking financial activities as well as at the time of its conversion it can’t be converted to Sec 8 Company.
- A minor can’t incorporate OPC neither it can be appointed as a nominee in OPC.
- Appointment of a nominee is must and that appointed nominee has the full right of withdrawing his consent.
- A single person is the member as well as the shareholder there is no cross-checking done.
- NRIs can’t form OPC.[13]
Impact of OPC in Indian Entrepreneurship
It’s true that the idea of OPC is new to Indian entrepreneurship. It will take a certain time in order to incorporate efficiently. But with the span of time OPC is intended to have a bright future and shall come out as a most successful business concept, the main reason behind is the less paperwork, one person can be the member and shareholder in an OPC. OPC boost small entrepreneurs to start up new ventures and entitle them to grow and be recognised globally.
Nowadays its seen that foreign investors are more attracted towards OPC as they intend to have only one member and there are relatively more chances of an entity to grow. Any foreign company that is willing to establish in India through investment through a merger or joint venture is deemed to be started earliest as they are required to trade-in with a single person.
It can be expected that in coming days OPC is intended to have a great future and will be extraordinary and it’s an auspicious future for Indian Entrepreneurship. At the time when the idea of OPC was introduced by J.J.Irani Committee, the main reason was to form a structured organization which would be different from the other existing entities which would have the features of a private company and that in turn will lead to the development of Indian Economy.
Criticisms
- The current situation is that a person thinking to incorporate sole proprietorship raise funds from friends, relatives or any other person but OPC being private company can’t acquire funds from the public.
- Certain legal formalities need to be complied with for establishing an OPC. In the country like India, it’s seen that existing proprietors are not willing to form OPC as they are not willing to comply with legal formalities.
Suggestions
In reference to the criticism, the suggestions are:
- Separate tax schemes must be formulated for OPC in accordance with the Income Tax Act, 1961.
- Not only natural persons but persons recognised by law must also be made liable to incorporate OPC.
- The legal compliance should be made less complex so that it becomes easy for a common man.
- People must be made about the theory of OPC.
Conclusion
It was the J.J.Irani Committee report which led to the concept of OPC come into existence. It’s true that the success of OPC completely depends on how it’s implemented. A single entrepreneur is the need of the era. OPC provides kick start to such entrepreneurs who wants to start up a venture single handle.
OPC has provided some great solutions to small entrepreneurs. To an extent, it has provided flexibility and all benefits of a company. OPC has not only made ways for various favourable banking facilities but will also increase the investment of foreign funds in India which in return will boost up the requirement of small entrepreneurs.
References:
[1] Section 2(62), Companies Act, 2013.
[2] Dheeraj Verma, One Person Company, March 2020, legalservicesIndia.com
[3] Divesh Goyal, Advantages and disadvantages of One Person Company, April 2020, tax guru
[4] Dheeraj Verma, One Person Company, March 2020, legalservicesIndia.com
[5] Namrata Kandankovi, One Person Company- A Complete Analysis, July 2019, ipleaders.com
[6] Dheeraj Verma, One Person Company, March 2020, legalservicesIndia.com
[7] Divesh Goyal, Advantages and disadvantages of One Person Company, April 2020, tax guru
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwjHx6GrqM_sAhUCjuYKHdrDD1AQFjAQegQIDRAC&url=https%3A%2F%2Ftaxguru.in%2Fcompany-law%2Fadvantages-disadvantages-person-company.html&usg=AOvVaw2sJacplvhuNifAH3LGQCIx .
[8] Dheeraj Verma, One Person Company, March 2020, legalservicesIndia.com
[9] Namrata Kandankovi, One Person Company- A Complete Analysis, July 2019, ipleaders.com
[10] Dheeraj Verma, One Person Company, March 2020, legalservicesIndia.com
[11] One Person Company, Jan 2020, toppr.com
[12] One Person Company, Jan 2020, toppr.com
[13] Divesh Goyal, Advantages and disadvantages of One Person Company, April 2020, tax guru
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