The Companies Act, 2013 revolutionized India’s corporate laws by creating several new concepts that did not exist before. There was one game-changer that was introduced with the introduction of the One Person Company concept. In this way, a new way of starting businesses was created that provided all the flexibility that a company can offer, while also providing the limited liability protection that sole proprietorships and partnerships did not provide.
In several other countries, the ability to form a company had already been recognized before the newly enacted Companies Act of 2013. Some of these included China, Singapore, the UK, Australia, and the United States.
Definition of One Person Company
One-person companies are defined as companies with only one member under section 2(62) of the Companies Act. A company’s members are merely its shareholders and subscribers to its memorandum of association. In essence, an OPC is a company comprised only of one shareholder.
A company of this type usually has only one founder or promoter. Due to the numerous advantages that OPCs offer, entrepreneurs at the beginning of their businesses prefer to create them instead of sole proprietorships.
Difference between OPCs and Sole Proprietorships
One-person companies and sole proprietorships might appear to be very similar because both involve a single owner, but they have some differences as well.
Basically, the only difference between the two is the nature of their liabilities. An OPC has its own assets and liabilities because it is a separate legal entity from its promoter. The promoter is not personally liable to repay the debts of the company.
The proprietor of a sole proprietorship, however, is the same person as the proprietor of the business. In the event that the promoter does not fulfill his or her obligations to the business, the law allows for attachment and sale of the promoter’s assets.
Features of a One Person Company
Here are some general features of a one-person company:
Private company: According to section 3(1)(c) of the Companies Act, any person can form a company. Moreover, OPCs are private companies, according to the document.
Single-member: OPCs can have only one member or shareholder, unlike other private companies.
Nominee: When registering the company, the sole member of the company has to mention a nominee, which separates OPCs from other kinds of companies.
No perpetual succession: Due to the fact that an OPC only has one member, his death will result in his nominee choosing or rejecting to become the sole member. In other companies, succession is perpetual and does not take place in this way.
Minimum one director: A minimum of one person (the member) must serve as a director of OPCs. It is possible for them to have a maximum of 15 directors.
No minimum paid-up share capital: As far as OPCs are concerned, no minimum amount of paid-up capital has been prescribed by Companies Act, 2013.
Special privileges: The Companies Act gives OPCs several privileges and exemptions that other types of companies do not.
Formation of One Person Companies
OPCs can be formed by one person by signing a memorandum of association and meeting other requirements outlined in the Companies Act, 2013. In the event that the original member dies or becomes unable to enter into contractual relations, a nominee must be named as the sole member.
The nomination memorandum, as well as the nominee’s consent to his nomination, should be filed with the Registrar of Companies. The Registrar will accept applications at any time from a nominee who wishes to withdraw his name. Additionally, the member can revoke his nomination at any time.
Membership in One Person Companies
A one-person company in India can only be formed by a natural person who is an Indian citizen and a resident of the country. A similar condition applies to nominees of OPCs. Such a natural person may not be a member or nominee of more than one OPC at any given time.
The membership of OPCs is restricted to natural persons. The same is not true when it comes to companies where the company itself can own shares and be a member. In addition, minors are prohibited from participating in OPCs or acting as nominees.
Conversion of OPCs into other Companies
In the regulations governing the formation of one-person companies, it is expressly forbidden for them to be converted into companies with charitable purposes, i.e. Section 8 companies. Two years after incorporation, OPCs cannot voluntarily convert into other kinds of companies.
Privileges of One Person Companies
Among the privileges and exemptions granted by the Companies Act to OPC are:
- There is no requirement for them to hold annual general meetings.
- It is not necessary for them to include cash flow statements in their financial statements.
- Annual returns do not have to be signed by a company secretary; directors can sign them too.
- They are not covered by independent director provisions.
- Additional grounds for vacation of a director’s office are provided in their articles.
- They do not fall under several provisions relating to meetings and quorums.
- Other companies can’t pay as much remuneration to their directors as they can.
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