One person company

Dr. Rajeev Babel,
ACS, MBA, Ph.D, LLB, AIIB, M.Com
Dip in Corporate Governance
DBM, DFS, D T&D,
Company Secretary in Practice,
Email: babelrajeev@gmail.com
5/4/2015 1
CS Rajeev Babel. Mail id:
babelrajeev@gmail.com

 The OPC form of business organization has
been given legal status in the Companies Act,
2013, on the recommendations of an expert
committee set up by the Ministry of
Corporate Affairs, in Dec 2004 under the
Chairmanship of Dr. J.J.Irani. The Committee
submitted its report in May 2005 and
recommended the introduction of the
concept of OPC in the Act.
5/4/2015 2CS Rajeev Babel. Mail id: babelrajeev@gmail.com

 As per section 2(62) of the Companies Act,
2013, One Person Company means a company
which has only one person as a member.
 Section 3(1)(c) provides that where the
company to be formed is to be OPC it shall
be considered as a private company.

 Rule 3(1) of the Companies (Incorporation)
Rules, 2014 provides that a only a natural
person who is an Indian Citizen and resident
in India:-
(a) shall be eligible to incorporate a OPC
(b) shall be a nominee for the sole member
of OPC

 Rule 3(1) of the Companies ( Incorporation)
rules, 2014 provides that resident in Indian
means a person who has stayed in India for a
period of not less than 182 days during the
immediately preceding one calendar year.

 No person shall be eligible to incorporate
more than one OPC or become member in
more than one OPC.
 Where a naturals person, being member in
OPC in accordance with this becomes a
member in another OPC by virtue of his
being a nominee in that OPC, he shall meet
the eligibility criteria of maximum one OPC
within a period of 182 days. He may opt to
convert the OPC into Private or Public Ltd
Company.

 Section 3(2) of the Companies Act, 2013
provides that the OPC formed under section
3(1) may be either:
 A company limited by share; or
 A company limited by guarantee; or
 An unlimited company.

 Section 4(1) of the Companies Act, 2013
provides that the Memorandum of the OPC
shall state the name of the company with the
last words “ Private Limited” in case of
private limited company, except a company
registered under section 8 of the Act.
(Corresponding section 25 of the Act 1956)

 The liability of the member of the OPC may
be limited or unlimited, and MOA of the OPC
shall state:
 (i) in the case of a company limited by
shares, that liability of its member is limited
to the amount unpaid, if any, on the shares
held by them; and
 (ii) in he case of company limited by
guarantee, the amount up to which member
undertakes to contribute-

 (ii) (a) to the assets of the company in the
even of its being wound up while he is a
member or within one year after he ceases
to be a member, for payment of the debts
and liabilities of the company or of such
debts and liabilities as may have been
contracted before he ceases to be a member,
as the case may be; and
 (b) to the costs, charges and expenses of
winding-up and for adjustment of the rights
of the contributions among themselves.

 OPC shall be required to convert itself,
within 6 months of the date on which its paid
up share capital is increased beyond Rs 50
lacs or the last day of the relevant period
duirng which its average annual turnover
exceeds Rs 2 crores as the case may be, into
either a Private company with minimum of 2
members and two directors of a public
company with minimum of 7 members and 3
directors in accordance with the provisions
of section 18 of the Act.

 In case of OPC having a share capital, the
MOA shall state that the amount of share
capital with which the company is to be
registered and the division thereof into
shares of fixed amount and the number of
shares which the subscriber to the MOA agree
to subscribe which shall not be less than one
share and number of shares subscriber to the
memorandum intends to take, indicate
opposite his name.

 The name of the nominated person shall be
given in the MOA who, in the event of death
of the subscriber, shall become the member
of the company.

 It has been provided that the subscriber/
member of OPC may at any time change the
name of the nominated person by giving
notice to the Registrar.
 It shall be duty of the subscriber or member
of a OPC to intimate the company the
change, if any, in the name of the person
nominated by him by indicating in the MOA
or otherwise.

 For the purposes of third proviso of section
3(1), the subscriber or member of a OPC
may, by intimating in writing to the company,
change the name of the 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 other
person in Form No. INC-3.

 Provided that the company shall, on receipt
of such intimation, file with the Registrar, a
notice of such change in Form INC-4 along
with the fee as provided in the Companies
(Registration Office and Fee) Rules, 2014,
and attach the written consent of the new
nominee in Form INC-3 within 30 days of
receipt of intimation of change.

 When a nominee becomes the member of OPC ,
such new member shall nominate within 15 days
of becoming the member a person who shall in
the event of his death or his incapacity to
contract become the member of such company,
and the company shall file with the Registrar an
intimation of such cessation and nomination in
Form INC-4 along with the fee as provided in the
Companies (Registration Offices and Fees) Rules,
2014 within 30 days of the change in
membership and with the prior written consent
of the person so nominated in Form INC-3.l

 Any such change in the name of the nominee
person in the MOA of the OPC shall not be
deemed to be an alteration of the MOA.

 The nominee may withdraw his consent by
giving a notice in writing to such sole
member and to the OPC.
 The sole member shall nominate another
person within 15 days of receipt of the
notice of withdrawal and shall send an
intimation of such nomination in writing to
the Registrar along with the written consent
of such other person so nominated in Form
INC-3.

 The company shall within 30 days of receipt of the
notice of withdrawal of consent file with the
Registrar, a notice of such withdrawal of consent
and the intimation of the name of another person
nominated by the sole member in Form INC-4 along
with the fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 and the
written consent of such another person so
nominated in Form INC-3 shall be attached with the
Form INC-4.

 The Companies ( Incorporation) Rules, 2014,
has put certain restrictions on the OPC:
 No minor shall become member or nominee
of the OPC or can hold share with beneficial
interest.
 OPC can not be incorporated of converted
into a company under section 8 of the Act.
 OPC cannot carry out Non-Banking Financial
Investment activities including investment in
securities of any body corporates.

 OPC can convert voluntarily into any kind of
company unless 2 years have expired from
the date of incorporation of OPC except
threshold limit ( paid up share capital) is
increased beyond Rs. 50 lacs or its average
turnover during the relevant period exceeds
Rs 2 crores.

 Section 4(2) of the Act provides that the
name of the OPC shall not-
 (a) be identical with or resemble too nearly
to the name or an existing company
registered under this Act or any previous law;
or
 (b) be such that its use by the company-
 (i) will constitute an offence under any law
for the time being in force; or
 (ii) is undesirable in the opinion of the
Central
Government.

 A company shall not be registered with a name
which contains:
 (a) any word or expression which is likely to give
the impression that the company is in any way
connected with, or having the patronage of, the
Central Govt, any State Govt, or any local
authority, Corporation of body constituted by the
Central Govt or any State Govt under any law for
the time being in force; or
 (b) such word or expressions, as may be
prescribed approval of the Central Govt has been
obtained for the use of any such word or
expression.

 A person may make an application, in the
Form INC-1 accompanied by fee of Rs 1000/-
as per the Companies ( Registration Offices
and Fee) Rules, 2014, to the Registrar of a
name set out in the application for the name
of the proposed company or the name to
which the company proposes to change its
name.

 Upon receipt of an application under section
4(4) of the Act, in the Form INC-1, the
Registrar may, on the basis of information
and documents furnished along with the
application, reserve the name for a period of
60 days from the date of the reservation
made by the Registrar.

Form No. Purpose for e-form
INC-1 Application for reservation of name
INC- 2 Application for Incorporation
INC-3 Nominee- Consent Form
INC-4 Change in Member / Nominee
INC-5 Intimation of exceeding threshold – i.e. ceased to be
OPC
INC-6 OPC- Application for conversion

 The MOA of a company shall be in respective
forms specified in Tables A, B, C, D and E in
Schedule I as may be applicable to such
company.

 If OPC or any office of the OPC contravenes
the provisions of these rules, OPC or any
officer of the OPC shall be punishable with
fine which may extend to Rs. 10000/- and
with a further fine which may extend to Rs.
1000/- for every day after the first during
which such contravention continues.

 Rule 6 of the Companies
(Incorporation)Rules, 2014 provides that
where the paid up share capital of an OPC
exceeds Rs 50 lacs or average turnover
during the relevant period exceeds Rs 2
crores, it shall cease to be entitled to
continue as OPC.

 OPC shall alter its MOA and AOA by passing an
ordinary or special resolution in accordance
with section 122(3) of the Act to give effect
to the conversion and to take make
necessary changes incidental thereto.

 The OPC shall within a period of 60 days
from the date of applicability of sub-rul (1),
give a notice to the Registrar in Form INC-5
informing that it has ceased to be an OPC
and that it is now required to convert itself
into a private company of a public company
by virtue of its paid share capital or average
annual turnover, having exceeded the
threshold limit laid down in sub-rul (1). The
relevant period means the period of
immediately preceding 3 consecutive
financial years.

 As in OPC, only an individual, natural person,
could be the single member, the question of
any ‘body corporate’ or other form or
ornanizations being the single member does
not arise.

 Where there is only one director of an OPC,
in the case of anything requiring Board
Resolution, it shall be sufficient if the
resolution is prepared, entered in the
minutes book dated and signed and such date
shall be deemed to be the dame of the
meeting of the Board.

 It is important to note that OPC, small
company and dormant company shall be
deemed to have complied with section 173
relating to meeting of Board of Directors, if
at least one meeting of the Board of
Directors, if aat least one meeting of the BoD
has been conducted in each half of a
calendar year and the gap between the two
meetings is not less than 90 days.

 The provisions relating to appointment of
woman director, independent director and
small share holder director do not apply.
 Section 161 relating to appointment of
additional director, alternate director do not
apply.
 Section 164 applies to OPC as it pertains to
disqualification of directors and numbers of
directorship specified under section 165 will
include directorships of OPC also. (
Directorship in 20 companies)

 As per section 149(l)(a), a minimum one
director required in OPC. However, there is
no bar on appointment of more than one
director.
 Section 152(1)- Until director(s) are
appointed, individual, being a member shall
be deemed director of the Company.

 Chapter XII on Appointment of Managerial
Personnel can apply.
 Provisions relating to mandatory need for
appointment KMP including the need for
appointment of a CS or the need for a
mandatory Secretarial Audit will not apply.
 The need to constitute the Audit Committee
or any other committees and whistle blower
mechanism will not apply.

 If the single member wants to transfer his
entire shares in the company to another
individual, all the provisions with respect to
transfer of shares will also apply. In case the
transfer is not approved by the Board, the
transferee has the statutory right to apply
for a rectification of register of members of
the OPC.

 OPC need not hold the AGM.
 Sections 100 to 111 shall not apply to OPCs.
As a result provisions such as approaching the
NCTL for calling a General Meeting, a
shareholder submitting a requisition to call
an extra-ordinary general meeing, notice of
General Meetings statement annexed to the
notice of the General Meetings etc do not
apply.

 Section 117 of the Act, requires every
resolution in respect of which explanatory
statement should be given and every special
resolution and every resolutions agreed to all
the members of the company are all required
to be filed with the RoC.

 Like any other company, even an OPC must
file its annual return with the RoC. As an OPC
need not call and hold an AGM, there seems
to be lacuna with respect to the time within
which the annual returns must be filed with
the RoC. The Annual Return of an OPC could
be signed by its CS and if the OPC do not
have CS then it should be signed by its
director.

 Separate legal entity.
 It enables the small time businessman to
enter the ‘corporate sector’ by incorporating
OPC.
 Liability of the sole member would be
restricted to the amount unpaid on the
shares held by him.
 Mandatory rotation of the auditor after
expiry of maximum term is not applicable.
 There have been a lot of exemptions
provided to the OPC.

 OPC will aid individuals who are in the less
organized and unorganized sectors ( small
and medium sized traders, weavers, artisans,
mechanics, carpenters, designers and other
skill dependent professions and vocations.
 OPC need not prepare Cash Flow Statement
as part of its Financial Statements under
proviso to section 2(40).

 The act prohibits any foreign participation.
 From taxation perspective, the concept of PC
may not appeal to smaller proprietors ( to
convert themselves in OPCs) since the base
rate of tax of a company is quite high ( 30%
approx) and may result in a higher incidence
of taxation for them.
 OPC may also be used by unscrupulous
individual entrepreneurs to siphon off funds
and evade tax liability.

 From the lender’s perspective, financial
institutions and banks- would they treat
them as normal company.
 The Act has not granted any relief to OPC
from the provisions of accounts and audit.
 OPC have to file Financial Statements,
Balance Sheet and P&L account duly adopted
by the its member within 180 days from the
close of the FY as per proviso 137(1).

 Dividend distribution tax: If an OPC declared
divided it will have to pay dividen
distribution tax @16.995% ( 15% +10%
surchage+3% cess) apart from income tax
@30.9%.
 Where the sole proprietor makes any
drawings, the same is not treated as deemed
dividend, but in OPC when a director takes a
loan and the OPC have distributable income,
the loan availed by the director is treated as
deemed dividend to the extent of
accumulated profits by a closely held
company u/s 2(22)(e) of I.T.Act, 1961.

 Section 26 of the Company Secretaries Act,
1980 stipulates that ‘companies not to
engage in Company Secretaryship and no
company, whether incorporated in India or
elsewhere, shall practice a Company
Secretaries’.
 The explanation to this section also makes it
clear that ‘for the removal of doubts’ it is
hereby declared that ‘company’ shall include
any limited liability partnership which has
company as its partner for the purposes of
this section.

Thanks

One person company

More Related Content

What's hot

Viewers also liked

Similar to One person company

More from CS (Dr)Rajeev Babel

Recently uploaded

One person company