ONE PERSON COMPANY UNDER THE COMPANIES ACT 2013

ONE PERSON COMPANY

The Companies Act 2013

FEATURES:

·         One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013, which reads as follows:

“One Person company means a company which has only one member”

·         OPC will give the young businessman all benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc all in the name of a separate legal entity.

·         All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded.

ELIGIBILITY:

·         The only exception provided by the Act to an OPC is that according to the rules only "NATURALLY-BORN" Indian who is also a resident of India is eligible to incorporate an OPC. Meaning thereby, the advantages of an OPC can only be obtained by those INDIANs who are naturally born and also a resident of India.

·         Incase more than one person is holding some shares jointly as joint holders for those shares, then they will be treated as single member and they can form an OPC.

·         A person cannot form more than 5 OPC's

·         Individual member of an OPC is deemed to be the first director.

 FORMATION:

• An OPC can be formed under any of below categories :
• Company limited by guarantee.
•  Company limited by shares

·         an OPC limited by shares shall comply with following requirements :

§  Shall have minimum [paid up capital of INR 1 Lac

§  Restricts the right to transfer its shares

§  Prohibits any invitations to public to subscribe for the securities of the company.

• An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on. The words 'One Person Company' should be mentioned below the name of the company, wherever the name is affixed, used or engraved.
• The member of an OPC has to nominate a nominee with the nominees’ written consent, and file it with the Registrar of Companies (ROC). This nominee in the event of death or in event of any other incapacity, shall become a member of an OPC. The member of an OPC at any time can change the name of the nominee providing a notice to the ROC in such manner as prescribed. On account of Death of a member, the nominee is automatically entitled for all shares and liabilities of OPC.

EXEMPTIONS AVAILABLE & RULES GOVERNING AN OPC:

·         The annual returns in the case of One Person Company shall be signed by the company secretary or where there is no company secretary, then by the director of the company.

·         Provisions relating to General Meetings, Extra Ordinary General Meeting and Notice Convening to General Meeting are not applicable to One Person Company. However, if any business is required to be transacted at an Annual General Meeting, or other General Meeting of the company by means of an ordinary or special resolution, it shall be sufficient if the resolution is communicated by the member of the company and entered in the minutes book which is required to be maintained U/s 118 and signed and dated by the member and such date shall be deemed to be the date of meeting under the purposes of Companies Act, 2013.

·         One Person Company needs to have one director. It can have maximum of 15 directors which can also be increased by passing a special resolution as in case of any other company.

·         For the purposes of holding board meetings, in case of a OPC which has only One director, it shall be sufficient compliance if all resolutions required to be passed by such a company at a board meeting are entered in a minute book – signed and dated by the member and such date shall be deemed to have the date of the board meeting for all the purposes under Companies Act, 2013.

·         The OPC shall file with the ROC a copy of financial statements duly adopted by its members along with all the documents which are required to be attached to such financial statement, within 180 days from the closure of the financial year along with cash flow statements. The financial statement shall be signed by only one director and the annual return shall be signed by the company secretary and the director, and in case if there is no company secretary then only by the director.

·         If the company fails to comply with the provisions as to providing the information to the ROC then it shall be liable for punishment of fine which will be not less than twenty thousand rupees and extend to one lakh rupees and the imprisonment for a term which may extend up to 6 months

·         In case of OPC having more than one director, at least one meeting of the board of directors should be conducted in each half of the calendar year and the gap between the two meetings should not be less than 90 days. In such a case provisions relating to notice for convening of meeting, quorum and passing of resolution by the board shall also be made applicable to OPC

·         When OPC enters into contract with the sole members 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 are contained in a memorandum or are recorded in the minutes of the first meeting of the board of directors of thee company held next after entering into contract.

·         The company shall inform ROC about every contract entered into by the company or recorded in the minutes book within 15 days of approval by the board of directors.

 CONVERSION OF AN OPC TO A PRIVATE OR PUBLIC COMPANY

• OPC 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 three directors as the case may be, and by maintaining the minimum paid-up capital as per requirements of the 2013 Act for such class of company and by making due compliance of section 18 of the 2013 Act for conversion. [Rule 2.4(6)]
• The Rules prescribe certain circumstances when an OPC will be mandatorily required to convert into a private or public company. In terms of Rule 2.4, where 

The Paid up share capital > Rs. 50 lakhs or

Average Annual Turnover for the preceding 3 consecutive years > Rs. 2 crores 

it will not be entitled to continue as an OPC. Such OPC shall be required to convert itself into either a private company or a public company in accordance with the provisions of section 18 of the 2013 Act:

1.  within 6 months of the date on which its paid up share capital is increased beyond 50 lakh rupees; or
2.  the last day of the period immediately preceding three consecutive financial years during which its average annual turnover exceeded 2 crore rupees; or
3.  the close of the financial year during which its balance sheet total exceeded 1 crore rupees, as the case may be,. The OPC is required to alter its memorandum and articles by passing an ordinary or special resolution in accordance with sub-section 5 (3) of section 122 of the 2013 Act to give effect to the conversion and to make necessary changes incidental thereto.

BENEFITS OF AN OPC

1. An OPC gives the advantage of limited liability to entrepreneurs whereby the liability of the member will be limited to the unpaid subscription money. This benefit is not available in case of a sole proprietorship.
2. An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. Also, since it will have lesser compliance burden compared to private companies, it can be preferred mode of business for small industries.
3. An OPC is exempt from certain procedural formalities, such as conducting annual general meetings, general meetings and extraordinary general meetings. No provisions have been prescribed on holding board meetings. There is, however, no relief from the provisions on audits, financial statements and accounts, which are applicable to private companies.
4. The biggest advantage of a one person company is that its identity is distinct from that of its owner. Therefore, if the firm is embroiled in a legal controversy, the owner will not be sued, only the company will.
5. Another advantage is limited liability. Since the company is distinct from that of its owner, the personal assets of the shareholders and directors remain protected in case of a credit default. However, a proprietorship offers no such advantage.

DISADVANTAGE OF AN OPC

·         While the idea of an OPC looks promising, doing business in OPC structure may effectively result in higher tax implications on the businesses as the rate of taxation on companies is higher.

·         Also, since a company is a separate legal entity, the distribution of dividend by an OPC may attract dividend distribution tax.

·         Sole proprietors, on the other hand are taxed at the rates applicable to individuals, i.e., differential rates for different slabs of income.