Before we start the discussion, let us see what the Companies Act, 2013 has to say about this concept called ‘One person company’.
Section 2(62) ‘one person company’ means a company which has only one person as a member.
Section2 (40) ‘Financial statement ‘in relation to a company, includes:
- A balance sheet as at the end of the financial year.
- A statement of profit and loss , or in the case of a company carrying on any activity not for profit , an income and expenditure account for the financial year:
- Cash flow statement for the financial year:
- A statement of changes in equity , if applicable; and
- any explanatory notes annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause(iv):
Provided that the financial statement, with respect to One person company (opc) , small company and dormant company may not include the cash flow statement.
Section (3): Creation of One Person Company:
A company may be formed for any lawful purpose by
(a) seven or more persons , where the company to be formed is to be a public company:
(b) two or more persons ,where the company to be formed is to be a private company:
(c) one person, where the company to be formed is to be One person company that is to say; a private company.
by subscribing their names or his name to a memorandum and complying with the requirements of this Act in regard to registration.
A company formed under One person company may be either
(a) a company limited by shares or
(b) a company limited by guarantee or
(c) an unlimited company.
ANALYSIS
1. Acceptance of One person company: In the Indian business environment the joint stock forms of organization or registered organization rules the market and are given high credibility that attracts easier capital availability and high growth, in the other hand One person company will be compared on the same ground as that of Sole proprietor because of its characteristics.
2. Limited Liability: The most beautiful characteristic of the company form of organization is limited liability. In the concept of OPC, if the limited liability concept is taken seriously, it will be dangerous for investors to invest the fund because it may lead to fraudulent business practices on the other hand if the court comes in between and asks for lifting of corporate veil then it would be useless to form the one person company.
3. Compliance cost: The main advantage of OPC is limited liability; one main disadvantage would be compliance cost which is of recurring nature. The compliance cost of a company is higher than that of a proprietorship form. A proprietorship form is easy to form and easy to wind up without much compliance cost or procedure.
4. Taxation of One Person Company: A one person company would be taxed at same rates as that of all other companies. This is also a disadvantage as compared to sole proprietorship business as they enjoy the tax rates applicable to individuals. An OPC will have to sacrifice all the advantages which a sole proprietorship business enjoys over the company.
In simple, it is just a characteristic attached to sole proprietorship business by registering it in order to search for better market, economic and management opportunities in spite of many disadvantages.
( Anand Mohan,CA final Student – anandca1993@gmail.com)
