Introduction
As per section 3 (1) of the Companies Act, 2013, a company may be formed for any lawful purposes in the form of a
- Private Limited Company with minimum of 2 persons
- Public Limited Company person with a minimum of 7 persons
- One Person Company
In a country like India where sole proprietorship form of business is very popular. But, it comes with a lot of disadvantages such as Unlimited liability, no perpetual succession, no separate existence and is not covered by any law. One person company is a reform in the sector of sole proprietorship. It allows a businessman to take advantage of both the forms of business organizations viz., Company and Sole Proprietorship.
Granting legal status to One person Company shall promote micro businesses and promote entrepreneurship.
Legal framework
As per section 2 (62) of the Companies Act,2013, “One Person Company ” which has only one person as a member. As the name suggests a one person company can only have one member who is the only Shareholder of the company. This feature helps to centralize the management power of the business.
Registration
A One Person Company will be registered as a private company under the Companies Act, 2013 with only one Member and one Director.
As OPC is registered as a private Company the process of registration is similar to the process of registration of a Private Limited Company.
Member of the OPC
As per Rule 3 of Companies (Incorporation) Rules, 2014 – One Person Company
Only a natural person who is an Indian Citizen and resident in India
- shall be eligible to incorporate a One Person Company
- shall be a nominee for the sole member of a One Person Company
“Resident in India” is an individual who stays in India for more than 182 days during a preceding calendar year.
One natural person cannot be member of more than one OPC at any point of time.
Nominee Clause
Any company registered under the Companies Act, 2013 has 5 clauses in its memorandum viz.,
Name Clause
Object Clause
Liability Clause
Capital Clause
State Clause
Along with the above mentioned 5 clauses an OPC has one more clause and that is the Nominee Clause.
The nominee clause indicates the name of the person , with his prior written consent, who shall be the nominee. In case of the death or incapacity to contract of the registered sole member of the OPC, such nominee shall become the member.
The written consent of the nominee shall be filed with the Registrar Of Companies at the time of incorporation. The single member of the OPC can change the nominee at any time by giving notice to the ROC. Also a member can withdraw his consent.
Other Features of OPC
- OPC cannot be incorporated or converted as a charitable purpose company (section 8)
- One person Company can be a company limited by shares, limited by guarantee or unlimited company.
- An OPC cannot carry out non banking Financial Investment activities including investment in securities of any body corporate.
- Such companies have to use suffix “OPC” with their name. E.g., ABC OPC
Conversion Of OPC
Conversion is an option given to a company to change the basic form of the company. A company can convert itself into any other type of company voluntarily or by crossing certain limits e.g. if the number of members in private limited company exceeds 200 the company has to covert itself into a Public Limited Company to carry on the business with more than 200 members.
A One Person Company can covert itself voluntarily into any other form of company except a Section 8 company (company for charitable purpose) after expiry of 2 years after its incorporation.
An OPC is required to compulsorily convert itself into a Public Limited Company or a Private Limited Company on crossing the following threshold limits –
- If Paid up Share Capital increases more than 50 Lakh and
- Average turnover crosses rupees 2 Crores
it must convert itself into a private or public company, within 6 months.
Example – 1
Mr. A is the sole member of the OPC ABC OPC. The company is incorporated on 1st July 2017. On 31st December 2018The paid up capital of the company is Rs. 45 Lakh and average turnover is Rs. 1.5 Crores Mr. A wishes to convert the OPC into a Private Limited Company. Can he do so? The answer is no as two years have not passed from the date of incorporation and the capital and average turnover is within the threshold limits as per the act.
Example – 2
XYZ OPC was incorporated on 1st April 2019. On 1st August 2019 Mr. Y the sole member of the OPC increased the capital of the company to Rs. 65 Lakh. As per 1st August the Average sales of XYZ OPC are Rs. 2.8 Crores. In such a case the XYZ OPC has to convert compulsorily into a private or public limited company within 6 months. In the above case on or before 1st January 2020.
Special Privileges to an OPC
The Act seeks to provide simpler legal and governance regime for operation and maintenance of OPC. Hence, there are exemptions and relaxations given to OPC from various compliance requirements. Following are some of the privileges of a One person Company
– The Financial statement, with respect to One Person Company, may not include the cash flow statement.
– Financial Assistance can be taken by the member from the OPC for purchase of or subscribing to its own shares.
-Need not hold annual general meeting
– Need not report on Annual General Meeting
-Independent Directors not required
-No restriction on Managerial remuneration.
In conclusion it can be observed that One Person Company is a mixture of two business forms that is, Sole Proprietorship and a Joint Stock Company. It removes the disadvantages of sole proprietorship such as unlimited liability, no separate legal existence etc as it is converted into a company form and at the same time basic features of a sole proprietor are intact such as sole owner, centralized management power, etc. Along with these features as mentioned above an OPC also enjoys the special privileges granted under the act.
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