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: [email protected]

5/4/2015 1 CS Rajeev Babel. Mail id:

[email protected]

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 2 CS Rajeev Babel. Mail id: [email protected]

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.


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One person company

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