Introduction:
The concept of One-Person Company was first recommended by the specialized Committee of Dr. Jamshed J. Irani. It consisted of 13 members and 6 invitees from various fields having specialized knowledge. It classified companies based on the number of members into One-Person Company, Private Company, and Public Company. Considering the rapid growth in the use of computers, the Information Technology and services sector boom, it was felt to be especially important to utilize the entrepreneurial abilities of people. This would lead to the economic growth of the country. The JJ.Irani committee recommended that law should provide legal status to a single person entity in the form of a One-Person Committee[1].
This concept has its roots in the United Kingdom as it was the first country to introduce a One-Person Company, several years ago. This was introduced by the case of Salomon v. Salomon & Co.[2] in 1897. This concept can also be seen in countries like China, Qatar, the USA, Australia, Singapore and many European Countries, etc.
In India, the One-Person Company was introduced by the Companies Act, 2013. Section 193 of the Companies Act came into force on 1st April, 2014[3]. The Ministry of Corporate Affairs notified the Companies (Incorporation) Rules, 2014 which are about for the setting up of a One-Person Company[4].
Differences Between One-Person Company and Sole Proprietorship
From a distance, a sole proprietorship and a One-Person Company may seem identical, as both involve only one person in the business. However, there are differences between the two. One-Person Company is a separate legal entity from its shareholders. Whereas sole proprietorship is not a separate legal entity, the sole proprietorship and its proprietors are not separate persons. Where the liability in the case of One-Person Company is limited, it stands unlimited for a sole proprietorship. The death of a member does not affect the existence of a One-Person Company, it has a perpetual succession. However, this is not the case with a sole proprietorship[5].
Salient Features of One-Person Company
The salient features of One-Person Company are:
Private Company
Section 3 declares a One-Person Company to be a private company for all legal matters. All those provisions which are applicable to private companies can be applied to a one-person company also.
One Member
The one-person company can have only one member who can be both, the shareholder and director.
Appointment of Nominee Director
The single member of the company has to appoint a nominee director. This provision provides a safeguard, in case of demise or disability of the only person who was running the business.
At Least One Director
There should be at least one director of the One-Person Company. A minimum of 15 directors is allowed.
Minimum Paid-up Share Capital is Not Specified
The minimum paid-up share capital required for incorporation of a One-person company has not been specified in the Companies Act, 2013. It can be started with a minimum capital of One Lakh Rupees.
Limited Liability
The liability is limited to the extent of the number of shares held.
Exemption from Legal Compliances
The One-person company is exempted from complying with legal obligations such as board and general meetings, compulsory rotation of auditors, the appointment of the company secretary, quorums, and inclusion of cash flows in its financial records[6].
Mandatory Registration
The registration of OPC is compulsory for all business owners.
Minors Not Allowed
No minor can become a member or nominee or share beneficiary interests out of the OPC.
Formation of OPC
One person can form an OPC by subscribing to the Memorandum and fulfilling other requirements as stated by the Companies Act, 2013. The Memorandum of Association must specify details as to the nominee of the OPC. The nominee must consent to such an appointment. The appointment of a nominee director is important to mitigate the losses in case of death or incapability of the sole person.
Legal Provisions Related to One Person Company
- According to Section 2(62) of the Companies Act, 2013, a One-Person Company refers to a company with only 1 member. This means it has only one shareholder, who is also a director as its member.
- Companies (Incorporation) Rules, 2014 by Section 3 specify who can be a member of a One-Person Company. According to it, only a natural person who is an Indian Citizen, and is resident in India can be a member of the One-Person Company[7].
- An eligible person is allowed to incorporate only one such company.
- The threshold limits of OPC are:
- Capital- up to Fifty Lakh Rupees, or
- Average Annual Turnover- up to 2 Crore Rupees.
- If the threshold limits are crossed, in two years, the company shall cease to be an OPC. In this case, according to Rule 6 of the Incorporation Rules, 2014 the company must convert itself to a public or a private company.
Contracts by OPC: Section 193
Section 193 of the Companies Act, 2013 specifically governs the provisions related to a One-Person Company.
It states that when a One-Person Company which is limited by a guarantee or by shares, enters a contract with the only member of the company who is also the director of the company, the company should ensure that terms and conditions related to the contract are stated in the memorandum or minutes of the board meeting[8].
It is also important that the registrar of companies is informed about each, and every contract entered by the company, and the same be recorded in the minutes[9].
Membership: Only for Natural Persons
Only a natural person can be a member of the OPC. This means that companies cannot subscribe to their shares and become members of the OPC.
Some Exemptions of OPC
- One-Person Company is exempted from holding annual general meetings[10].
- A lot of provisions regarding quorum of meetings are also not applicable to the OPC.
- It is not mandatory for a company secretary to sign the records, even the director of the OPC is allowed to do so.
- Cash flows are not required to be compulsorily included in the financial records of the OPC.
- OPC cannot be converted into companies stated under Section 8 of the Companies Act, 2013.
- OPC cannot indulge in Non-Banking Financial Investment activities and investments in shares of a body corporate.
Analysis: Impact of OPC in India
The concept of a One-Person Company is extremely popular in foreign countries like the UK, USA, Singapore, etc. However, it is a comparatively new concept in India. The benefits of OPC are, therefore, yet to be reaped by India. OPC can be seen as a fusion of Sole proprietorship and a company. It reduces the problems associated with finding the right co-partners and then incorporating the business.
India is a country with an abundance of talented youth. Young minds and entrepreneurs with great business ideas can make the most out of OPC. This is since, in OPC the legal compliances are not as stringent as other forms of companies and there is no minimum paid-up share capital specified by the Companies Act, 2013 to incorporate a One-person company. Because of the least amount of paperwork and compliances required, OPC seems to be an efficient alternative.
A person with an entrepreneurial drive and desire to commence his own business can guard himself against the danger of unlimited liabilities if he opts for OPC. Therefore, entrepreneurs in the initial stages of their businesses, who cannot afford to take large risks such as artisans and service providers can benefit the most by opting for a one-person company. This idea will only encourage the entrepreneurs to take a risk and build on their business idea.
One Person Company has a very bright future for small businesses. They contribute a lot to the economic growth of the country by generating employment opportunities. It seems like OPC would only strengthen the economy as it will lead to more structured and organized businesses in the country, having a separate legal entity.
In India, as discussed earlier this concept is still in budding stages. It will take more time to flourish and be welcomed by the business world.
Conclusion
It can be concluded that OPC is immensely popular in countries outside India. In India, since it is a new concept, it is still gaining momentum. The laws governing OPC are not very stringent and quite easy to comply with. A One-person Company can be a means to bring out the entrepreneurial spirit of the youth by encouraging them to take risks. Because an OPC involves only one person, it can be amazingly easy for a person to start with his own business without any hassle. He can have full control over his business without any interference from any other member. It will lead to tremendous economic growth in the country and generate many employment opportunities.
References:
[1]Dr. JJ. Irani, Report on Company Law. 11 (2005), http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf (last visited Jul 20, 2021).
[2]1896 UKHL 1.
[3]Notification No. S.O. 902(E) issue dated 27.03.2014.
[4]G.S.R. Notification No. 250(E), 31.03.2014
[5]“One Person Company”, The Institute of Company Secretaries of India 9 (2014) https://www.icsi.edu/media/webmodules/companiesact2013/ONE%20PERSON%20COMPANY.pdf (last visited Jul 20, 2021).
[6]“The one man show: Understanding the concept of One Person Company”,THE ECONOMIC TIMES, 2019 https://economictimes.indiatimes.com/small-biz/legal/the-one-man-show-understanding-the-concept-of-one-person-company/articleshow/72195134.cms?from=mdr (last visited: Jul 20, 2021).
[7]Section 3 Companies (Incorporation) Rules, 2014.
[8]Section 193(1) Companies Act, 2013.
[9]Section 193(2) Companies Act, 2013.
[10]Section 96(1) Companies Act, 2013.
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