One Person Company-Entrepreneur’s Support

Kushagra Nigam

Background

One Person Company has opened up new vistas for the young Business entrepreneur’s and Micro businesses. It has been mooted in India by the Companies Act, 2013 after being introduced in many countries years before. It has much less complexities as compared to the Private Ltd. Company or a Public Ltd company. It has been introduced to promote the young entrepreneurs who don’t want to get into the complexities of the Legal Compliances.

The concept of One Person Company was being mooted in the report of Dr. J.J. Irani Company Committee. The committee expressed the view that the law should recognize the potential for diversity in the forms of the companies.

Regarding One Person Company (OPC), the suggestions of the committee were thus-

“The Concept of the OPC may be introduced in the Act with following characteristics:

a)   OPC may be registered as a private Company with one member and may have at least one director.

b)   Adequate safeguards in case of death/ disability of the sole person should be provided through appointment of another Individual as Nominee Director. On the death of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.

c)   Letter ‘OPC’ to be suffixed with the name of the One Person Company so as to distinguish it from other Companies.”

What is One Person Company?

As per Section 2 (62) of the Companies Act, 2013 One Person Company is a company which has only person as a member. Chapter II of the Companies Act, 2013 section 3 allows one person to form a company for any lawful purpose. It also mentions that the memorandum shall indicate the name of the other person, with his prior consent, who will in the event of the subscriber’s death or incapacity to contract become the member of the company and the same consent in written shall be filed with the registrar of companies at the time of Incorporation of the company along with the memorandum and articles.

The minimum capital required to start up with One Person Company is Rs. 1,00,000/-.

Who can incorporate One Person Company?

A natural person who is Citizen of India and resident in India is eligible to incorporate a One Person Company.

• A person born in India on or after 26^th January 1950 but before 1, July 1987 is citizen of India by birth irrespective of the nationality of his parents. Furthermore, Citizen of India by birth if either of his parents is a citizen of India at the time of his birth.
• A person who has stayed in India for a period of not less than 182 days during the immediate preceding 1 Calendar year is a resident if India.
• A minor neither can become the member of the One Person company nor he can hold share with beneficial interest.

It shall be noted that no person is eligible to incorporate more than one OPC or nominee in more than one such company.

How to Incorporate One Person Company?

The process of incorporating One Person Company is far easier as compared to Private limited and public limited company. There are many relaxations in terms of legal complexities as involved in incorporation of other companies under the Companies Act, 2013.

1. First the sole shareholder or the person who is looking to open shall get a Director Identification Number (DIN)as well as a digital signature certificate.

Application for allotment of DIN has to be given in DIR-3 along with proof of identity of applicant and proof of residence of applicant.

Director Identification number (DIN) is a unique identification number given to the existing or a potential director of any company which is incorporated.

2. Then he should apply for the name of the company in the form INC-1 along with the requisite fees.

The name of the company shall contain the OPC in the end of the name.

3. The person shall apply for the incorporation certificate in the form INC-2. The documents that have to be submitted to the Registrar of the companies (ROC) along with the following documents:

• Memorandum of Association (MoA)
• Articles of Association (AoA)
• Identity Proof, Residential Proof and PAN of the member and the nominee as well.
• Consent of the nominee that he is willing to become the nominee of the company in the form INC-3.
• Affadavit in the form INC-9 of the subscriber to MOA and first director.
• Specimen signature in the form INC-10.
• Appointment of the Directors in the form DIR-12.

4.  After approval of Incorporation documents by the concerned Registrar of Companies (ROC), certificate of Incorporation is issued by the Registrar of Companies (ROC) in the form of INC-11.

5. After that he shall receive the final incorporation certificate from the register of companies. Now he can commence business under the name.

Please note that that the words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

After the receipt of the Certificate of Incorporation in the form INC-11, the notice of situation of the registered office is to be filled in the form INC-22.Furthermore, along with the form INC-22 a copy of lease deed and a proof that the company is permitted to use the address as the registered office of the company, if the same address has been taken on rent by the company.

Kindly note that once a One Person Company has been incorporated, it can’t voluntarily convert itself into any other form of company within the two years from the date of Incorporation except when the Paid up share capital exceeds Rs. 50Lacs or turnover exceeds Rs. 2 Crores.

Pros of One Person Company (OPC)

• Limited Liability: The most significant reasons to incorporate One person Company is that it provides limited liability to the entrepreneur.
• Mandatory rotation of auditor after expiry of maximum term is not applicable on One Person Company.
• There are many provisions of the Companies Act, 2013 that are not applicable for the One Person Company. The following provisions are not applicable of the Companies Act, 2013.

a)   Section 98: Power of Tribunal to call for meetings of the members.

b)   Section 100: Calling for Extraordinary General Meeting

c)   Section 101: Notice of meeting

d)   Section 102: Statement to be annexed with the notice

e)   Section 103: Quorum for meetings

f)    Section 104: Chairman of meetings

g)   Section 105: Proxies

h)   Section 106: Restrictions on voting rights

i)     Section 107: Voting by show of hands

j)     Section 108: Voting through electronic means

k)   Section 109: Demand Poll

l)     Section 110: Postal Ballot

m) Section 111: Circulation of members resolution

• The financial statement of One Person Company is not to include the Cash Flow Statements.
• Alternative to AGM, EGM and other general meetings– The Act provides that any business which is required to be transacted at an AGM or any other general meeting of the company by means of ordinary or special resolution, it shall be sufficient if, in case of one person company, the resolution is communicated by the sole member to the company and entered in the minutes book and signed and dated by the sole member.
• Section 173 (Frequency of board meetings) : A minimum of four board meetings of the board of the directors in each year is required to be held in such a manner that not more than 120 days shall intervene between two consecutive meetings of the board. In case of One Person Company, if there is only one director, there is no such compulsion to conduct such board meetings so as to comply with section 173. And if there are more than 1 director in an OPC then this section is deemed to have been complied with if at least one board meeting has been conducted in each half of a calendar year and gap in between two meetings is minimum 90 days.

Cons of One Person Company

• Sole Owner is not eligible to incorporate more than 1 one person company & become nominee in more than 1 one person company.
• OPC cannot carry non banking financial activities including investing in shares of another body corporate.
• OPC cannot convert into section 8 Companies. Section 8 companies are those companies that have been registered as Non Profit Company under section 8 of Companies Act, 2013.
• Section 193(2): OPC shall inform the registrar of company about every contract entered into by the company & recorded in the minutes of meeting of its board of directors within 15 days from the date of approval by the board.
• One person company must be converted to a private limited company if the turnover exceeds Rs. 2 crore or paid up share capital of the OPC is increased beyond 50 Lakhs.

Intimation regarding exceeding the threshold limit shall be given in e-form INC-5.

Comparison table of One Person Company with Sole Proprietorship

Basis	One Person Company	Sole Proprietorship
Legal Entity	Separate legal Entity	Not a separate legal entity
Liability	Limited Liability	Unlimited Liability
Perpertual Succession	Yes	No
Registeration	Yes	No

 Contract by One Person Company {Section 193(1)}

• 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 terms of the contract or offer are in writing or contained in a memorandum or recorded in the minutes of the board meeting held next after entering into the contract.
• Inform the registrar about every contract entered into by the company within a period of fifteen days from the date of approval by the coard of directors.
• Contracts in ordinary course of business not required to comply with the above.
  

Conversion of OPC into Public or Private Company

(E-form INC-6)(Rule 6 of Companies Incorporation rules, 2014)

One Person Company to convert itself into a public company or a private company in certain cases.-.

(1) Where the paid up share capital of an One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

(2) Such One Person Company shall be required 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 seven members and three directors in accordance with the provisions of section 18 of the Act.

(3) 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.

(4) The One Person Company shall within a period of sixty days from the date of enhancement of above ceiling limit, 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. It may be noted that “relevant period” means the period of immediately preceding three consecutive financial years;

(5) 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.

(6) 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.

Conversion of private company into One Person Company

(E-form INC-6)

(Rule 7 of the Companies Incorporation Rules, 2014)

(1) 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 is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.

(2) Before passing such resolution, the company shall obtain No objection in writing from members and creditors.

(3) 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

(4) The company shall file an application in Form No.INC.6 for its conversion into One Person Company along with fees as provided in in the Companies (Registration offices and fees) Rules, 2014, by attaching the following documents, namely:-

(i) 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;

(ii) the list of members and list of creditors;

(iii) the latest Audited Balance Sheet and the Profit and Loss Account; and

(iv) the copy of No Objection letter of secured creditors.

(5) On being satisfied and complied with requirements stated herein the registrar shall issue the certificate.

Taxability of One Person Company

Though the concept of One Person Company has been introduced for the very first time in 2013 but the concept of the same does not exist in the Income Tax Act, 1961 as a result an OPC can be put in the same bracket of Taxation as other private companies.

In case of Sole Proprietorship, business income is added to the individual income and the tax slabs of 10% to 30% apply.

But in the case of companies a flat 30% apply. Therefore, the one person company has to be included in the tax bracket of flat 30% as the Income Tax Act. (By the finance budget of 2015 it has been proposed to reduce the tax liability to 25% over the next four years).

(Compiled by Kushagra Nigam A CA Final Student  on the basis of  The Companies Act, 2013 and Various websites )