Definition of One Person Company
Section
2(62) of Companies Act defines a one-person company as a company that has only
one person as to its member. Furthermore, members of a company are nothing but
subscribers to its memorandum of association, or its shareholders. So, an OPC
is effectively a company that has only one shareholder as its
member.
Such
companies are generally created when there is only one founder/promoter for the
business. Entrepreneurs whose businesses lie in early stages prefer to create
OPCs instead of sole proprietorship business because of the several advantages
that OPCs offer.
Difference between OPCs and Sole Proprietorships
A sole proprietorship form of business might seem very
similar to one-person companies because they both involve a single person
owning the business, but they’re actually exist some differences between them.
The main
difference between the two is the nature of the liabilities they
carry. Since an OPC is a separate legal entity distinguished from its promoter,
it has its own assets and liabilities. The promoter is not personally liable to
repay the debts of the company.
On the other
hand, sole proprietorships and their proprietors are the same persons. So, the
law allows attachment and sale of promoter’s own assets in case of
non-fulfilment of the business’ liabilities.
Features of a One Person Company
Here are
some general features of a one-person company:
a. Private company: Section
3(1)(c) of the Companies Act says that a single person can form a company for
any lawful purpose. It further describes OPCs as private companies.
b. Single-member: OPCs can have only one member or
shareholder, unlike other private companies.
c. Nominee: A unique feature of OPCs that
separates it from other kinds of companies is that the sole member of the
company has to mention a nominee while registering the company.
d. No perpetual succession: Since
there is only one member in an OPC, his death will result in the
nominee choosing or rejecting to become its sole member. This does not happen
in other companies as they follow the concept of perpetual succession.
e. Minimum one director: OPCs need to have minimum one
person (the member) as director. They can have a maximum of 15 directors.
f.
No minimum
paid-up share capital: Companies Act, 2013 has not
prescribed any amount as minimum paid-up capital for OPCs.
g. Special privileges: OPCs enjoy several privileges
and exemptions under the Companies Act that other kinds of companies do not
possess.
Formation of One Person Companies
A single
person can form an OPC by subscribing his name to the memorandum of association
and fulfilling other requirements prescribed by the Companies Act, 2013. Such
memorandum must state details of a nominee who shall become the company’s sole
member in case the original member dies or becomes incapable of entering into
contractual relations.
This
memorandum and the nominee’s consent to his nomination should be filed to the
Registrar of Companies along with an application of registration. Such nominee
can withdraw his name at any point in time by submission of requisite
applications to the Registrar. His nomination can also later be canceled by the
member.
Membership in One Person Companies
Only natural
persons who are Indian citizens and residents are eligible to form a one-person
company in India. The same condition applies to nominees of OPCs. Further, such
a natural person cannot be a member or nominee of more than one OPC at any
point in time.
It is
important to note that only natural persons can become members of OPCs. This
does not happen in the case of companies wherein companies themselves can own
shares and be members. Further, the law prohibits minors from being members or
nominees of OPCs.
Conversion of OPCs into other Companies
Rules
regulating the formation of one-person companies expressly restrict the
conversion of OPCs into Section 8 companies, i.e. companies that have
charitable objectives. OPCs also cannot voluntarily convert into other kinds of
companies until the expiry of two years from the date of their incorporation.
Privileges of One Person Companies
OPC enjoy
the following privileges and exemptions under the Companies Act:
·
They do not have to hold annual general
meetings.
·
Their financial statements need not
include cash flow statements.
·
A company secretary is not required to
sign annual returns; directors can also do so.
·
Provisions relating to independent directors do not apply to them.
·
Their articles can provide for additional
grounds for vacation of a director’s office.
·
Several provisions relating to meetings
and quorum do not apply to them.
·
They can pay more remuneration to
directors than compared to other companies.