One Person Company under the Companies Act, 2013
[Submitted by Kanakkupillai, Chennai]
September 25, 2024
In a country like India, which is known as the land of entrepreneurs, concepts like sole proprietorship, HUFs, partnerships firms and other unstructured forms of business are the first and the most commonly chosen step for any individual towards starting a business. In such times, it is the Companies Act, 2013, which has presented a safer and a more secured entryway to these entrepreneurial initiatives to enter into the structured corporate world by acknowledging the idea of One Person Company (OPC).
Let us have an in-depth look into the what and how of a one person company and the various provisions, rules and regulations of law governing such a company.
So, what is an OPC?
The theory of OPC, which was originally put forward in the J.J Irani Committee Report and is already practised in nations like the US, UK, Australia, Singapore, etc. since quite a few years now, has opened brand new prospects of opportunities and possibilities along with exploring new set of circumstances for the unstructured group of businesses to enjoy the benefits of limited liability and separate entity along with sole ownership of a regularised organisation in a systematic environment.
Section 2(62) of the Companies Act, 2013 defines a one person company as “a company which has only one person as a member”.
Even though OPC is still in the budding stage in India, it has encouraged the corporatisation of small firms and businesses with a better and simpler legal regime. The benefits of OPC include limited liability, separate legal entity, perpetual succession, relaxed or concessional legal compliances and sole ownership over management decision making and control of the operations amongst several others. These being some of the most significant features of OPC succeed in luring the entrepreneurs to contribute to the economic growth and employment generation in the country.
Important sections and provisions of the Companies Act 2013 governing OPCs
MEMORANDUM of ASSOCIATION (MoA) [Section 7]
The Memorandum of Association of a company is a legal document representing the charter of the company that helps to understand why the company was established and incorporated. The MoA of an OPC shall state the details regarding the name of the company, full and complete address of its registered office, liability of members, shareholding pattern, objects, name and details of member and nominee, amount of share capital and such other information as required under the Act.
DIRECTORS [Sections 1(b), 149(1)(a), 152(1)]
The Articles of Association (AoA) shall provide for the appointment of directors of OPC and in case where the Articles of the company are silent, the subscriber to the MoA shall be deemed as the first director of the company. An OPC may have 1 director and maximum 15 directors on its Board of Directors and it may increase this maximum limit by passing a special resolution to that effect. The director must be a natural person, not be less than eighteen years of age, citizen of India and a resident of India where, resident means a person who has stayed in India for a total period of not less than 182 days in the previous calendar year.
BOARD MEETINGS [Section 173(5)]
According to the Act, an OPC must conduct at least one board meeting in each half of the calendar year and the gap between two board meetings shall not be less than ninety days. However, this provision shall not be applicable if there is only one director appointed in the company.
CONTRACTS ENTERED INTO BY OPC [Section 193(1)]
Every contract entered into by the OPC with the sole member, who is also the director, the terms of the contract shall be in writing or be contained in the MoA or shall be recorded in the minutes of the Board Meeting held next after the contract and accordingly, the Registrar of Companies (RoC) shall be intimated within 15 days from the date of approval by the Board. Nothing in this provision shall apply to the contracts entered into by the company during the ordinary course of business.
ANNUAL RETURN [Section 92]
Annual Return shall be prepared in the prescribed form, containing particulars of OPC regarding the registered office, holding, subsidiaries, associates, shareholding pattern, indebtedness, remuneration of directors and key managerial personnel, etc as on the close of the financial year, and shall be signed by the Company Secretary (CS) and in case where there is no company secretary, then the annual return shall be signed by the director of company.
FINANCIAL STATEMENTS [Section 134]
Financial statements shall be signed by one director for submission to the auditor and it may not include the cash flow statement. The Board Report shall be attached to the financial statements. The Board Report of an OPC may contain only the explanations to the comments or adverse remarks made by auditors. After the financial statements have been duly adopted by the member the same shall be filed, along with other required documents, with RoC within 180 days of closure of the financial year.
EXEMPTIONS
OPC is exempted from Section 96, 98, 100-111 of the Act.
CONVERSION OF AN OPC INTO A PRIVATE / PUBLIC LIMITED COMPANY
Where the paid up share capital exceeds Rupees fifty lakhs or the average turnover exceeds Rupees two crores for immediately preceding three consecutive financial years, then the company shall lose its status as one person company and shall be required to convert into a private or public company with minimum 2 members and 2 directors or 7 members and 3 directors, as the case may be, by passing a resolution and shall maintain and comply with the requirements thereof.
CONVERSION OF A PRIVATE COMPANY INTO AN OPC
Any private company other than a company registered under Section 8 of the Act having paid up share capital less than Rupees fifty lakh or the average annual turnover is below Rupees two crores during the relevant period then the private company may convert itself into an OPC by passing a special resolution in the general meeting along with no objection certificate (NoC) from all members and creditors.
DEATH OR WITHDRAWAL OF CONSENT BY NOMINEE OR MEMBER
In case of death or withdrawal of consent by the nominee, the member shall nominate another person as nominee within 15 days of the receipt of written notice of withdrawal and intimate the company and RoC of such nomination along with the written consent of another person so nominated within the prescribed time and form. The member may change the name of the nominee for any reason and nominate another person as nominee after obtaining his written consent.
In case of death or incapacity of the member to contract, his nominee shall become the member and nominate another person as his nominee within fifteen days of becoming the new member and inform the company and RoC accordingly.
LEGAL CRITERIA TO BE KEPT IN MIND BEFORE FORMING A ONE PERSON COMPANY
- An OPC must have one member and may have only one director.
- The member shall nominate a person as his nominee, after obtaining his prior written consent, who shall become the member in case of his death or incapacity to contract.
- Both, the member and nominee, shall be natural persons, not be less than eighteen years of age, citizens and residents of India, where resident means a person who has stayed in India for a total period of not less than 182 days in the previous calendar year.
- No minor shall become a member or nominee or shall even hold a beneficial interest in the share capital of OPC.
- No OPC shall undertake non-banking financial investment activities including investing in another body corporate.
- An OPC cannot voluntarily convert itself into a company of any other kind unless two years have passed from the date of its incorporation, except where the threshold limits are reached.
- The shares in an OPC cannot be transferred.
- The minimum authorised share capital is Rupees one lakh.
- An OPC shall not be formed as a non-profit entity under Section 8 of the Companies Act, 2013.
- There may not be an annual general meeting for an OPC under Section 96 of the Act and that it shall be sufficient compliance if the minutes are duly communicated to the member and signed, dated and recorded in the statutory minutes book of the meeting.
CONCLUSION
The legal bodywork of an OPC under the Companies Act, 2013 empowers the individual entrepreneurs and provides them a chance to start and manage a small business while stimulating growth, investment and development of the economic market with the status of a corporate. This makes an OPC not only an attractive but also a viable option for the passion-driven and entrepreneurial spirited community of the country to explore and exploit new ventures and build a promising future.
BIBLIOGRAPHY
- www.mca.gov.in
- www.icsi.edu
- Companies Act, 2013
- Companies (Incorporation) Rules, 2014
- MCA Notification GSR 250(E) dated 31.3.2014
