ONE PERSON COMPANY TO BE REALITY SOON

Co-Author: Nikita Agarwal  ACA, ACS

No longer will one search for business partners or shareholders to form a company. Forming a company will not require company of anyone else and one can fulfill his or her dream of having a company on his own by there being just one member of that company. The concept of One Person Company (OPC) has been introduced in the new Companies Act, 2013 which has now got the assent of the President on 29.08.2013.

 Under the existing law, a private limited company can be formed by a minimum of two persons and for a public limited company, at least seven persons or shareholders are required. As against this, the new Company Bill allows the countrymen to form a company by just one person being the sole shareholder so that effectively it will be a one person company (OPC).

As per section 3 of the Companies Act, 2013, the OPC can be formed for any lawful purpose by just one person who is an Indian citizen. A one person company will be private limited company formed by subscribing the name of such one person to the memorandum of association of the company and complying with the registration requirements. To identify that a company is a one person company, the words 'OPC' shall be mentioned after its name, wherever its name is printed, affixed or used.

There will be a provision for appointment of nominee so that in the event of the shareholder's death or incapacity to contract otherwise, such nominee may become member of that company. However, there will be written consent required from the nominee to this effect.  The law also provides flexibility to the member to change the name of such other person appointed as nominee after giving notice. Nominee should be a citizen of India who is also resident in India i.e., a person who has stayed in India for a period of not less than 182 days during the preceding financial year. 

In case of OPC, while the shareholder can be just one, it can have more than one director and can have board meetings as it happens in case of other companies. However, OPC will not be required to hold annual general meetings. OPC will not be required to hold quarterly board meetings as in case of any other company but holding just two board meetings on a half yearly basis shall serve the purpose. In cases where OPC's share capital exceeds Rs. 50 lakh or its average annual turnover exceeds Rs. 2 crores or its balance sheet total is of more than Rs. 1 crore, OPC will have to convert into a private or public limited company. Such conversion should take place within six months of the date on which capital is increased or last day of the financial year, as the case may be.

A One Person Company is also required to file a copy of the financial statements duly adopted by its member, alone with all the documents which are required to be attached to such financial statements within one hundred eighty days from the closure of the financial year. A One Person Company has to conduct at least one meeting of the Board of Directors, in each half of a calendar year and the gap between the two such meetings is not less than ninety days. Further the requirement with respect to quorum of meetings of Board as provided in section 174 shall not apply to One Person Company in which there is only One director on its Board Directors.

Such OPC's could be formed only by natural persons and not by artificial persons so as to discourage misuse of corporate status by entities which are already companies. Thus, a company or a firm cannot promote a OPC. There is also a cap of any person forming multiple OPC's as one is allowed to incorporate upto five OPC's only.

The concept of OPC shall boost corporate culture in India and more so in smaller towns where a large number of business entities are sole proprietorship firms or partnership firms. While it will promote entrepreneurship, it will also redefine how small businesses could be professionalized and more efficiently managed. With OPCs, compliance levels will also go up and it will bring in greater transparency in the business dealings. It is hoped that there will be positive change in the business spectrum all over.