The Companies Act, 2013 passed by the Lok Sabha provides for the concept of a One Person Company (OPC) in India as against the existing structure of a private company requiring a minimum of two shareholders and two directors. This concept was first recommended in India by Dr. J.J. Irani committee in 2005 and was subsequently inserted in the Companies Bill so as to provide an option to persons who can independently carry out business under the company structure.
As defined in Section 2 (62) of the Companies Bill, 2013, “One Person Company” means a company which has only one person as a member.
3 . Applicable Sections:
(i) Definition of One Person Company (Sec.2(62))
(ii) Definition of Financial Statement (Sec.2(40))
(iii) Definition of Private Company (Sec.2(68))
(iv) Formation of One Person Company (Sec.3)
(v) Memorandum (Sec. 4(1)(f))
(vi) Registered Office of One Person Company (Sec.12(3) Proviso)
(vii) Annual Return (Sec.92(1) Proviso)
(viii) Annual General Meeting (Sec.96(1))
(ix) Applicability of Chpt VII (Management & Administration) (Sec.122)
(x) Financial Statement, Board’s Report, etc. (Sec.134)
(xi) Copy of Financial Statement to be filed with Registrar (Sec.137(1))
(xii) Company to have Board of Directors (Sec.149)
(xiii) Appointment of Directors (Sec.152)
(xiv) Meetings of Board (Sec. 173)
(xv) Contract by One Person Company (Sec.193)
(i) Only one person is required as a member/ shareholder.
(ii) One Person company can be registered only as a Private Company.
(iii) One Person Company may be either a Company limited by share or a Company limited by guarantee or an unlimited Company.
(iv) An OPC limited by shares shall comply with following requirements:
a. Shall have minimum paid up capital of Rs.1,00,000/-.
b. Restricts the right to transfer its shares.
c. Prohibits any invitations to public to subscribe for the securities of the company.
(v) An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on.
(vi) As specified in the Companies (Incorporation) Rules, 2014, only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company. Non-resident Indians or individuals who do not reside in India for over 182 days cannot incorporate a OPC.
Points to Remember:
5. Reservation of Name:
An application for the reservation of a name shall be made in Form No. INC.1 along with the fee as provided in the Companies (Registration offices and fees) Rules, 2014.
Points to Remember:
(i) The memorandum of One Person Company shall indicate the name of the other person, with his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his incapacity to contract become the member of the company.
(ii) The written consent of such person shall also be filed with the Registrar in Form No INC.2 along with consent of such nominee obtained in Form No INC.3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014 at the time of incorporation of the One Person Company along with its memorandum and articles.
(iii) Such other person may withdraw his consent in such manner as may be prescribed. The sole member shall nominate another person as nominee within fifteen days of the receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Company, along with the written consent of such other person so nominated in Form No INC.3.
(iv) The member of One Person Company may at any time change the name of such other person nominated by him at any time for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such another person in Form No INC.3. On receipt of such intimation, the Company shall file with the Registrar, a notice of such change in Form No INC.4 along with fee as provided in the Companies (Registration offices and fees) Rules, 2014 and with the written consent of the new nominee in Form No.INC.3 within thirty days of receipt of intimation of the change.
(v) It shall be the duty of the member of One Person Company to intimate the company the change, if any, in the name of the other person nominated by him by indicating in the memorandum or otherwise within such time and in such manner as may be prescribed, and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed.
(vi) Any such change in the name of the person shall not be deemed to be an alteration of the memorandum.
(i) Where no provision is made in the articles of a company for the appointment of the first director, an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member.
(ii) Every One Person Company shall have a minimum of one director and maximum of fifteen directors. A company may appoint more than fifteen directors after passing a special resolution. Such class or classes of companies as may be prescribed shall have at least one woman director.
8. The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.
9. 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) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv)
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.
11. 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.
12. Non-Applicability of Sections:
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) Quorum for meetings of Board (Sec.174)
(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.
(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.
Note: As per Companies (Management and Administration) Rules, 2014, One Person Company and other companies having members upto two hundred are not required to transact any business through postal ballot.
(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;
(iv) such minutes 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.
(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.
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.
16. Issue of Share Certificate (where shares are not in 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.
(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 fifteen days of the date of approval by the Board of Directors.
18. 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.
19. Conversion of Private Company into One Person Company:
(i) A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less or average annual turnover during the relevant period (the period of immediately preceding three consecutive financial years) is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.
(ii) Before passing such resolution, the company shall obtain No objection in writing from members and creditors.
(iii) The one person company shall file copy of the special resolution with the Registrar of Companies within thirty days from the date of passing such resolution in Form No MGT.14.
(iv) The company shall file an application in Form No INC.6 for its conversion into One Person Company along with fees as provided in the Companies (Registration offices and fees) Rules, 2014, by attaching the following documents, namely:-
(a) The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid up share capital company is fifty lakhs rupees or less or average annual turnover is less than two crores rupees, as the case may be;
(b) The list of members and list of creditors;
(c) The latest Audited Balance Sheet and the Profit and Loss Account; and
(d) The copy of No Objection letter of secured creditors.
(v) On being satisfied and complied with requirements stated herein the Registrar shall issue the Certificate.
20. Cessation of Sole Member:
(i) On the death of the sole member, the person nominated by such member shall be the person recognised 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.
The OPC is charged at a base tax rate of 30%. Other taxes like minimum alternative tax (base tax rate 18.5%) and dividend distribution tax (base tax rate 15%) are also applicable.
22. Comparison of Provisions Applicable to OPC, Sole Proprietorship and Private Companies :-
|One Person Company||Sole Proprietorship||Private Company|
1. Governing Law
|Companies Act, 2013.Income Tax Act, 1961.||Income Tax Act, 1961.||Companies Act, 1956. Income Tax Act, 1961.|
|Limited to the extent of unpaid amount of shares held by the sole member.||Unlimited. Risk is higher as compared to OPC or Private Company.||Limited to the extent of unpaid amount of shares held by the member.|
4. Number of Members Required
|Only one member is required to incorporate a OPC.||Only one person required to form a Sole Proprietorship.||At least two persons are required to incorporate a private company.|
5. Number of Directors Required
|At least one director required. The sole member can be the director.||Not applicable.||At least two directors are required.|
6. Separate Legal Entity
|Separate Legal Status. Has an identity distinct from the members of the OPC.||No distinct entity. Owner and the Proprietorship are not distinguishable.||Separate Legal Status. Has an identity distinct from the members of the Private Company.|
7. Perpetual Succession
|Death of the sole member does not affect the OPC. The nominee becomes the member of the OPC in such an event.||Death of the owner amounts to death of the Sole Proprietorship.||Death of the members does not affect the Company. Members may come and go, a Company stays on.|
|Credibility of a OPC can be evaluated on the basis of the past commitments of the OPC.||Credibility of Sole Proprietorship can be evaluated on the basis of the credibility of the Owner.||Credibility of a Company can be evaluated on the basis of the past commitments of the Company.|
9. Annual Meetings
|Holding of Annual Meeting is not mandatory.||Not applicable.||Holding of Annual Meetings is mandatory.|
10. Name Clause
|The words “One Person Company” in brackets has to be mentioned below the name of the Company wherever it is printed or engraved.||Not applicable.||The name of the Company must end with “Private Limited”.|
|Base tax rate of 30% applicable.||Slab Rates as applicable to an individual. Benefit of Tax Deduction under Section 80C can be claimed.||Base tax rate of 30% applicable.|
12. Mandatory Conversion
|When the paid up Capital of the OPC exceeds the prescribed limit, it becomes mandatory for OPC to convert to Private or Public Company.||Not Applicable.||Not Applicable as long as all the conditions of Private Company are complied with.|
23. Conclusion: – One Person Company will be really helpful for Small entrepreneurs who wants to give their business a distinct identity with lesser legal compliance and benefits in comparison to Private Companies while at the same time limiting the liabilities to the extent of Capital Contribution.
(Author is a CA Final Student and Registered with ICAI)
Do you think #GST Council should provide option to Revise Form GSTR-3B?— Tax Guru (@taxguru_in) November 13, 2017
Please Comment, Like, Vote and Retweet the Poll.