In this blog post, Anjali Karmarkar, a fourth-year law student at Calcutta University and pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, provides an overview of a one person company.
“The concept of One Person Company [OPC] is a new form of occupation/business, enacted under The Companies Act, 2013. The act enabled the Entrepreneurs out to enter into a Corporate Program”.
The notion of OPC was actually mooted, in the report of Dr J.J. Irani Committee. The Irani Committee briefly mentioned to OPC in the report. In Chapter III titled “Classification and Registration of Companies” the committee, hence, suggested multiple and various classification of companies. The report mentioned various classification of the one person companies, which are as follows:
This classification of the OPCs mentioned in the report was:
On the basis of size:Small companies
Other Companies
On the basis of number of members:
One person company
Private companies
Public companies
On the basis of control
Holding companies
Subsidiary companies
Associate companies
On the basis of liability:
Limited
by shares; and
by guarantee (with or without share capital)
Unlimited
On the basis of manner of access to capital:
Listed companies
Unlisted companies
What is One Person Company?
It means a Company/business which has only one person as an associate(member) and where legal and monetary liability is limited to the business only and not to that individual. (i.e. liability is limited).
The old Companies Act of 1956 had made it mandatory for a Company to have a minimum of two members was so that it could be clearly divided from a sole proprietorship, a company structure which is downright omitted from the Act. People formed their companies by the accumulation of a nominal member/ director, assigning them one single share, which is the minimum condition for a director as per the Act, and retaining the rest of the shares themselves. Consequently, a person could enjoy the position and benefits of a Company while operating and functioning of it.
How can one set up a One Person Company in India?
Firstly, the person is to be given a distinct name and legal identity to the Company/Business Corporation, under which all the events/activities of the company is to be carried on. This guarantees that a separate legal entity is formed.
Secondly, the person has to submit a name with that individual’s on paper/written consent as a candidate to the OPC. This individual will be the default and ad hoc member in occasion of the present sole member’s demise or incapacity or disability. This provision will guarantee permanence and perpetuity to the life of the Corporation. The statute of “members may come and go, but the Company must live on” holds upright.
Lastly, every One Person Company should allow the letters “OPC” in brackets after it’s registered designation, wherever it may be published, attached or engraved.
A One Person Company is an idea in its beginning and is best for minor enterprises looking at testing the waters, as a substitute to a proprietorship.
However, a Company has the following benefits:
Development of a Company is easy and possible. The only requirement is to increase the authorised capital and assign shares;
Investment and investors always favour a Private Limited Company, since it is the structure where it is possible to issue shares to third parties, and have a board from which management is possible.
The relevant internal authorizations which are required since a company is a legal entity.
Hiring is easier since incentives like ‘Employee Stock Option Plans’ can be arranged for the employees, which is not probable in the case of a One Person Company. The concept of OPC is in its primary stage, and it needs time to mature enough to be fully accepted in our diverse cultured nation. Even though it has not been fully recognised, there are lots of advantages which can be seen as pros of the introduction of OPC. The benefits which are originating from this concept are as follows:
Paperwork which is being conducted by the board members, various decision-making durations are minimal. This OPC has made a major impact on the small time businessmen and artisans who do not have enough capital. Regulatory compliances which take place inside the company are minimal. A separate entity is created with just One member, which can be treated as the most hassle free environment to work in. Without any disputes or conflictions, the entity will strive unto success. There is a provision for conversion to other kinds of legal entities by induction of more members and amendment in the Memorandum of Association. The concept of limited liability is advantageous to the entrepreneur. The idea of sole proprietorship enables the lucid elements of success.
“With the increasing use of technology and computers, the emergence of the service sector, it is the time that the entrepreneurial capabilities of the people are given an outlet for participation in economic activity. Such economic activity may take place through the creation of an economic person in the form of a company. Yet it would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the marketplace should do it through an association of persons. We feel that it is possible for individuals to operate in the economic domain and contribute effectively. To facilitate this, the Committee recommends that the law should recognise the formation of a single person economic entity in the form of ‘One Person Company’. Such an entity may be provided with a simpler regime through exemptions so that the single entrepreneur is not compelled to fritter away his time, energy and resources on procedural matters.”
The value of this form of company is dependent upon the limited number of shareholders who run this company. This enables the entrepreneurs to run risks without any liabilities or limitations. The entrepreneurs need not bother about compliances which are a necessity in case of private businesses. For board meetings, one director to represent the company would be enough as he is holding the shares of his company. He need not comply with other members as this is ‘One Person Company’.
“A One Person Company needs to have a minimum of one director. It can have directors up to a maximum of 15 which can also be increased by passing a special resolution as in case of any other company.”
The above statement shows the positive features of a ‘single owner’ maintained company. However, this has many disadvantages as well. The enactment of this act has strengthened the economic ties with United States of America, Australia, New Zealand, Hungary, Chile, Britain, Japan, and Russia. The developed countries aim at organised and structured business for the economic welfare of their trade counterparts. In the field of global arena. One person company can live up to its fullest potential by showcasing their proficiencies in the global market. With the passage of time, one person companies have become the most favoured and preferred form of business. For small entrepreneurs and craftsmen, one person company act has been a boon for showcasing their talents. This way the world can get connected to the small time entrepreneurs, and with the help of globalisation, the small markets get huge and tremendous exposure to markets. One of the salient features of One person company is that it loses its status if the turnover is more than two crores in three consecutive years. No minor, under this act, can hold shares under his beneficial interest. Another feature is that such a company cannot be converted into a one person company under the section 8 of Companies Act, 2013. However, the business which is running under the name of proprietorship model can get converted to one person company. One person company provides an impulse for new ideas and motivation among the entrepreneurs. There are three types of one person companies mentioned in the Companies Act, 2013, which are as follows:
a company limited by shares
a company limited by guarantee
an unlimited company
The financial statement of the company is handled by one director, even if it has more than one director, the statement can be signed by a single director. Since the one-person company has limited liability, a sole proprietorship can satisfy the obligations of the organised business. One of the disadvantages of the one-person company is that taxation is levied on the income as well as on the profits. It does not have any advantage of tax of an LLP. An investor may be unwilling to invest in the one-person company because he has no opportunity to become a part of the board of directors. A person can be the member of one- person Company.
Conclusion
The enactment of the act has taken the entrepreneurship of India to the next level which has evolved due to globalisation and enhanced the market. Small traders and craftsmen have gained maximum potential via this act of 2013.
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