Introduction:
There are different forms of companies to conduct business in Indian society. One of them is a “one-person company” which is the newest form of company in India. This company consists of only one member for its incorporation[1]. This is a new opportunity to conduct business. In India, there are 1.3 million total active companies and, from these companies, OPC is 34,235 as of 2020 and on March 31st, 2015 currently there are 2,238 OPC in India. This scale shows the increasing graph of OPC among the Indians, especially among the youths of our country. All the companies whether small or large add up to the economy of India but the burden of small companies is less than large-scale companies. There are certain advantages of OPC that influence people towards itself like, easy management, fewer disputes, easy excess to loans, easy formation, etc.
History of One Person Company
This concept of the company is not very new to the world but in Indian society, this form of company was introduced on the recommendation of J. J. Irani committee which was formed in the year 2005. This concept was implemented in the year 2013 in the new Companies Act. To form a public company, one needs 7 members and 3 directors and for a private company the requirements are of 2 members and 2 directors but in OPC only one person is required to start a company.
Definition
One Person Company is defined under SEC 2 (62)[2], “the company has only one person as a member.” The company also has a nominee other than a member and director. Nominee and member should be two different persons, but a member can also be the director, or any other person can be the director. A minimum number of a director is one and maximum 15 directors can be appointed in OPC.
Features of a One-Person Company
Before choosing OPC one can always say to choose sole proprietorship over OPC but there is a certain restriction in sole proprietorship like no separate entity. OPC act as a sole proprietorship with the advantages of a company. Here are some advantages that tell why one must choose OPC –
Legal Status
Member and company have separate legal entities. Being separate this company has limited liability. The shareholder and company are two separate identities throughout the existence of a company. This concept of a separate entity was brought in the case of Salomon V. Salomon Ltd[3]. Where the court held that shareholders and companies have two different identities. This same concept of legal entity was brought in India through the judgment of Re Kondoli Tea Co. Ltd.[4] Case.
Easy to Obtain Funds
Fundraising through venture capital, security, are easy to obtain. A company is granted more loans as compared to a sole proprietorship.
Less Compliance
In the Companies Act, there is certain relaxation for one person company to operate, such as no cash flow statement is required to be prepared. This is because the whole company is controlled by one person all the payments, transactions, receiving, etc., are made by one person only.
Easy to Manage
Being a single-member company there is no conflicts, no delay, and easy to make decisions.
Perpetual Succession
If the member dies, the company continues to operate. The nominee appointed becomes the member and the company lives long.
Easy Incorporation
The company can easily be formed within the time of 7-10 days. The process of incorporating OPC is easy and can be formed by following few simple steps.
Incorporation
To form an OPC, the following are the steps and documents required for incorporation-
1. Digital Signature (DSC)- for digital signature the documents that are required are address proof, Aadhar card, Pan card, Photo, email address, and mobile number.
2. Director Identification Number(DIN)- this is the self-identification number that one can get from the Registrar of Company(ROC). It may take time of one or two days to obtain these two documents.
3. Name approval- Now, the name of OPC is to be obtained from ROC. The name should not match the name of any other company.
4. Preparing Memorandum of Association (MOA)[5] and Article of Association (AOA).[6]
5. KYC Document.
6. There must be a registered office along with the ownership proof. This office can be a residential area also and if the property belongs to someone else then a rent agreement is required, along with the electricity bill and NOC of the owner.
These documents need to be uploaded on the Ministry of Corporate Affair official (MCA) website, then the certificate of incorporation will be issued, this process might take time off more than a week.
Member
According to SEC 3 (c) of the act[7], for the formation of the OPC only one member is required to establish the company. The condition for a valid member is-
1. Member should be a natural person. Artificial person and member or nominee of other company cannot be the member.
2. Member must not be minor.
On 1st April, amendment[8] in criteria for a member was brought, before citizenship or being resident of India was mandatory to become a member but now an NRI, non-Indian citizen can also incorporate OPC in India. Before for non-resident to get the residence ship, had to stay for 182 days to be resident but now only 120 days of stay is required.
This amendment also brought a change in minimum paid-up capital, there is no minimum paid-up capital restriction now. One can start his/her business with as low as the capital they can invest. Before the amendment, the minimum paid-up capital was 1 lakh rupees.
Role of Nominee
The name of the nominee along with the memorandum (MOA) and article (AOA)is to be submitted to ROC with written consent in INC 3[9] form that can be downloaded from the MCA website. According to SEC 3(c)[10], there is no role of a nominee until the death of the member or till the member becomes incapable to form a contract. Once this happens, the appointed nominee becomes the member. It is necessary to appoint a nominee because the company has only one member and if the member dies or becomes incapable, it must not affect the identity of the company, and to run a company another member is needed. Another reason for the appointment of the nominee is that without the member the company can be transferred to a legal heir but it is not necessary to have only one legal heir, there can be many legal heirs, thus to specify who will be the next member it is necessary to appoint a nominee.
Nominee Withdrawal
A nominee cannot be the nominee in any other OPC or he/she cannot be a member of any other OPC and if during incorporation of OPC, the nominee wishes to incorporate his own OPC or for any other reason, he can withdraw his/her approval by providing a written form. The member must inform the company/directors and propose another person as nominee within 15 days. On receiving the written consent from the new nominee on INC 3, the company/director has to send this written consent along with INC 4[11] to ROC within 30 days. The penalty or fee that is required to be paid is mentioned under “Companies (registration office and fee) Rule, 2014.”
Change in Nominee
Appointing a wrong nominee can also become a threat to the life of the member or the death of the nominee, these can be the reasons for the change in the nominee. So, a member is free to change the nominee whenever he/she requires to. Firstly, the member needs to find a new nominee and ask for written consent in INC 3, after they receive the consent the company needs to be informed, and then the company has to inform ROC along with documents and fees required.
Conversion of One Person Company
An OPC can be converted into any class of company whether Private Ltd. Co. Or Public Sector Co[12]. Before the amendment of 2021[13], there were two methods to convert OPC in any other class of company but after amendment one method is completely eradicated. The two methods that were-
Voluntary Conversion
The member of the company can voluntarily decide to convert their company to any other form of company. Before the amendment, it was necessary to operate OPC for two years from the commencement of the company and then convert into any other form but now the company can immediately convert.
Mandatory Conversion
When the paid-up capital of the company crosses the limit of 50 lakh or annual turnover crosses the limit of 2 crores for 3 consecutive years the company will automatically convert within 6 months. But this conversion was removed through the amendment, now there is no restriction in minimum or maximum paid-up capital. The company can exceed this limit and continue to operate as OPC.
Process of Conversion
SEC 18[14] of the act of 2013 and RULE 7(4)[15] of rules of 2014 provides the conversion process. According to SEC 18 (2), the application submitted to ROC conversion will be first be examined by ROC, and then the registration of the already registered company will be closed and according to the application submitted of the new company, if satisfies, a new company gets registered and the certificate of incorporation will be issued. SEC 18 (3) also clarifies about the debts, obligations, liabilities, or contract that was entered before the conversion was filed will be treated as it would be treated before conversion only. Now following are the steps to convert an OPC into a private Ltd. Co. Or Public Sector Co.
Intimating ROC
The respective registrar of companies needs to be informed first about the conversion of the company through the prescribed method by submitting INC 6[16] for converting OPC into a Private company or Public company.
Passing Board Resolution
After informing ROC, a general board meeting must take place to pass the resolution and bring certain changes like, increase in paid-up capital if needed, increase in member for private company minimum 2 members and a minimum of 7 for a public company are required, to increase directors, if needed, a minimum number of directors must be 2 for Private and 3 for Public, alteration in MOA[17] and AOA [18].
Application
After the general meeting, the application must be filed with ROC along with a new resolution within 15 days of the general meeting then the registrar will examine the application and resolution and if satisfied, will issue a certificate of Incorporation.
Conclusion
The OPC is the new concept for Indians which is spreading and gaining recognition among the youth and providing new opportunities to entrepreneurs to conduct easy business on a small scale with less burden. Eventually, these small-scale businesses in large numbers help to boost the economy of India. OPC is one the best option with features of a company and acting as a sole proprietor in the business world. There is no doubt that OPC has been successful in western countries and India is gaining popularity as it is easy to incorporate and with amendments of 2021 some more new advantages are added like no mandatory conversion, no minimum limit to paid-up capital.
References:
[1] Section 2(62) Companies Act, 2013.
[2] Companies Act, 2013.
[3] 1897 AC 22 (HL).
[4] ILR (1886) 13 Cal 231.
[5] Section 4, Memorandum, Companies Act, 2013.
[6] Section 5, Article, Companies Act, 2013.
[7] Companies Act, 2013.
[8] Union Budget list 2021.
[9] Incorporation form 3, “one-person company, Nominee consent form.”
[10] Proviso, Companies Act, 2013.
[11] Incorporation form 4, “change in member/nominee of one-person company.”
[12] Section 18, Companies Act, 2013.
[13] 1st April, Union Budget List, Amendment, 2021.
[14] Companies Act, 2013.
[15] Companies (Incorporation) Rule, 2014.
[16] Incorporation Form 6, “application for conversion.”
[17] Section 13, Alteration of Memorandum, Companies Act, 2013.
[18] Section 14, Alteration of Article, Companies Act, 2013.
0 Comments