Article Analyses following Section applicable to One Person Company (OPC) under Companies Act, 2013–
-Definition of One Person Company (Sec.2(62))
-Definition of Financial Statement (Sec.2(40))
-Formation of One Person Company (Sec.3)
-Memorandum (Sec. 4(1)(f))
-Registered Office of One Person Company (Sec.12(3) Proviso)
-Annual Return (Sec.92(1) Proviso)
-Annual General Meeting (Sec.96(1))
-Applicability of Chapter VII (Management & Administration) (Sec.122)
-Financial Statement, Board’s Report, etc. (Sec.134)
-Copy of Financial Statement to be filed with Registrar (Sec.137(1))
-Company to have Board of Directors (Sec.149)
-Appointment of Directors (Sec.152)
-Meetings of Board (Sec. 173)
-Contract by One Person Company (Sec.193)
♦ ONE SHARE HOLDER:
This is the fundamental concept of a One Person Company. In fact, One Person Company is defined in the Companies Act as a Company which has only one member. A single shareholder holds 100 percent shareholding.
The thing to be kept in mind is that the Company Incorporation Rules provide that only a natural person who is a resident of India and also a citizen of India can form a one person company. It means that other legal entities like companies or societies or other corporate entities cannot form a one person company.
Further it also means that Non resident Indians or Foreign citizens can’t form a One person company. Further the rules also specify that a person can be a shareholder in only one person company at any given time. It simply means an individual cannot have two different one person companies in his name.
A One Person Company has only one shareholder and the shareholder can act as a director as well. However, it is not necessary that the shareholder and director must be same. Further, a One Person Company can have a maximum of 15 directors
2 (62) ―One Person Company means a company which has only one person as a member;
First Foremost Benefit of OPC is, It can be created with Single person. who is an Indian Citizen and resident in India shall be eligible to Incorporation/form a OPC.
B. FINANCIAL STATEMENTS:
The Financial Statements of a One Person Company includes-
(i) A balance sheet as at the end of the financial year;
(ii) A profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
(iii) A statement of changes in equity, if applicable; and
(iv) Any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv).
A One Person Company shall file a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within 180 (one hundred eighty days) from the closure of the financial year.
One person company doesn’t require preparing “Cash Flow Statement”.
This is major benefit for OPC.
C. SHARE CERTIFICATE:
Provided also that, in case of a One Person Company, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.
The report of the Board of Directors containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report shall be attached to the financial statement. It should prepare under rule 8A as abridge report.
Que: Is OPC required to file Annual Return?
Sol: As per the proviso to section 92(1) of the Companies Act 2013, the answer is ‘Yes’. The annual return in case of OPC shall be signed by the company secretary or where there is no company secretary, by the director of the OPC
E. ANNUAL RETURN:
Under proviso to Section 92(1) of the Act, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
F. NON-APPLICABILITY OF SECTIONS (As per Section-122):
Que: Which Section of Chapter VII (Management and Administration) of the Companies Act, 2013 are not applicable to OPC?
Sol: As per the provisions of Section 122 of the Companies Act 2013, following sections do not apply to OPC
The following Sections shall not apply to One Person Company:
(i) Power of Tribunal to call meetings of members, etc. (Sec.98)
(ii) Calling of extraordinary general meeting (Sec.100)
(iii) Notice of Meeting (Sec.101)
(iv) Statement to be annexed to notice (Sec.102)
(v) Quorum for meetings (Sec.103)
(vi) Chairman of Meetings (Sec.104)
(vii) Proxies (Sec.105)
(viii) Restrictions on voting rights (Sec.106)
(ix) Voting by show of hands (Sec.107)
(x) Voting through Electronic Means (Sec.108)
(xi) Demand for Poll (Sec.109)
(xii) Postal Ballot (Sec.110)
(xiii) Circulation of Member’s Resolution (Sec.111)
(xiv) The section on quorum of Board Meeting in case if there is only one Director on OPC Board is also not applicable to OPC (Section 174 of the Companies Act, 2013)
Que: Is OPC required to hold Board Meeting? How many Board Meetings are required to be held by a OPC?
Solu: As per section 173(5) of the Companies Act 2013, the answer is ‘Yes’, if there is more than one Director on the OPC Board. A OPC is required to hold at least one meeting of the Board in each half of a calendar year and the gap between the 2 meetings should not be less than 90 days
Que: How will the Board Meeting be conducted and its business transacted if there is only one Director on the OPC board?
Solu: As per section 122(4) of the Companies Act 2013, where there is only one Director on OPC Board, any business which is required to be transacted at the Board Meeting of OPC, it shall be sufficient if, in case of OPC, the resolution by such one Director is entered in the minutes book and signed and dated by such director and such date shall be deemed to be the date of the meeting of the OPC Board for all the purposes of the Companies Act, 2013
(i) A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
(If a company hold only 2 (Two) Board Meetings in a Financial year then minimum gap between meetings should be 90 (Ninety) days. But if a company hold more then 2 (two) Board Meetings then gap may be less than 90 (Ninety) days.
(ii) The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.
(iii) Where the company is having only one director, all the businesses to be transacted at the meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
(iv) Such minute’s book shall be signed and dated by the director.
(v) The resolution shall become effective from the date of signing such minutes by the director.
Que: Is OPC required to hold AGM?
Sol: As per section 96(1) of the Companies Act 2013, the provision relating to holding of AGM is not mandatory for a OPC
(i) The resolution required to be passed at the general meetings of the company shall be valid if the resolution is agreed upon by the sole member, communicated to the Company and entered in the Minutes book maintained under section 118.
(ii) Such Minutes book shall be signed and dated by the member.
(iii) The resolution shall become effective from the date of signing such minutes by the sole member.
No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
If One Person Company or any officer of such company contravenes the provisions of Companies (Registration offices and fees) Rules, 2014, One Person Company or any officer of the One Person Company shall be punishable 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 the first during which such contravention continues.
K. Issue of Share Certificate (Other than Demat form):
As per Companies (Share Capital & Debentures) Rules, 2014, every share certificate shall be issued under the seal of the company, which shall be affixed in the presence of and signed by one director or a person authorized by the Board of Directors of the company for the purpose and the Company Secretary, or any other person authorized by the Board for the purpose.
Que: Does the OPC need to inform the ROC about the contracts entered u/s 193 of the Companies Act, 2013?
Solu: As per section 193(2) of the Companies Act 2013, the OPC will have to inform the Registrar about every such contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under section 193(1). The said information will have to be given within a period of 15 days of the date of approval by the Board of Directors
L. Contracts/ Related Party Transactions :
(i) Where One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.
(ii) This shall not apply to contracts entered into by the company in the ordinary course of its business.
(iii) The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors within a period of 15 (fifteen days) of the date of approval by the Board of Directors.
Note: This clause shall be very much in vogue since the business of the One Person Company may use many assets of the owner and may pay compensation for that. Examples may be rent paid for using property or machinery or Furniture owned by the Owner. It may pay interest on loans taken from the owner. It may pay salaries to the Owner. All these contracts are covered under the section.
Que: Can OPC enter into a contract with its member/ director?
Solu: As per section 193(1) of the Companies Act 2013, where OPC limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the OPC shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.
The proviso to this section mentions that the above shall not apply to contracts entered into by the company in the ordinary course of its business.
It is pertinent to notice here that the contracts entered into with the sole member of the company who is also the director of the company is attracted by the section.
In case of any contract/related party transactions of OPC with its other directors (who is not the sole member), if any, the provisions of Sec 188 of the Companies Act, 2013 shall get attracted. In terms of the said provisions, the approval of the Board in the prescribed manner shall be required
CONVERSION OF OPC INTO PRIVATE LIMITED COMPANY:
There are two ways to convert OPC into Private Limited Company.
I. Mandatory Conversion
II. Voluntary Conversion
M. Mandatory Conversion:
(i) Criteria for Conversion: Where the paid up share capital of an One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period (the period of immediately preceding three consecutive financial years) exceeds two crore rupees, it shall not be entitled to continue as a One Person Company.
(ii) Time Limit for Conversion: Such One Person Company requires to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees as the case may be, into either a private company with minimum of two members and two directors or a public company with at least of seven members and three directors in accordance with the provisions of section 18 of the Act.
(iii) Alteration of Memorandum: The One Person Company shall alter its memorandum and articles by passing a resolution in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.
(iv) Intimation to the Registrar: The One Person Company shall within period of sixty days from the date of applicability, give a notice to the Registrar in Form No.INC.5 informing that it has ceased to be a One Person Company and that it is now required to convert itself into a private company or a public company by virtue of its paid up share capital or average annual turnover, having exceeded the threshold limit.
(v) Penalty for Non-Compliance: If One Person Company or any officer of the One Person Company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable 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 the first during which such contravention continues.
N. Voluntary conversion of OPC
A One Person Company can get itself converted into a Private or Public company after increasing the minimum number of members and directors to two or minimum of seven members and two or three directors as the case may be, and by maintaining the minimum paid up capital as per requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.
O. Cessation of Sole Member:
(i) On the death of the sole member, the person nominated by such member shall be the person recognized by the company as having title to all the shares of the member;
(ii) The nominee on becoming entitled to such shares in case of the member’s death shall be informed of such event by the Board of the company;
(iii) Such nominee shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable;
(iv) on becoming member, such nominee shall nominate any other person with the prior written consent of such person who, shall in the event of the death of the member, become the member of the company and the company shall file with the Registrar an intimation of such cessation and nomination in Form No INC.4 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014 within thirty days of the change in membership and with the prior written consent of the person so nominated in Form No.INC.3.
This is a concept that is expected to give big impetus to Corporatization in the country. The only care to be taken is that there should be no regulatory mess ups like the ones which hampered the growth of Limited Liability Partnerships in this country. Otherwise the rules framed so far with respect to One Person Company have been very sensible.