Getting a co-founder or a business partner is as tough as getting a right life partner. Isn’t it? This become so important when you dream to form a private limited company to start your new business venture. Don’t worry! Now you can be the “One Man Army”. Till recently, if you wanted to set up a private company, you needed at least one other person because the law mandated a minimum of two shareholders or two directors.
A revolutionary new concept of ‘One Person Company’ (OPC) has been introduced by the Companies Act, 2013. It is a happy moment for those upcoming entrepreneurs who wish to do something all alone or it’s difficult for them to find a right business partner who has same objective/goal as they have. One Person Company (OPC) is the concept introduced by the Government of India in Companies Law, 2009. The Companies Law, 2012 has been passed by Lok Sabha on 18th December 2012. Rajya Sabha also passed this bill on 8th August 2013.
The concept One Person Company (OPC)
One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act, 2013. As the name suggests, it means a company which has only one person as a member and where legal and financial liability is limited to the company only and not to that person i.e. liability is limited. It shall also be important to note that Section 3 classifies OPC as a Private Company for all the legal purposes with only one member. All the provisions related to the private company are applicable to an OPC, unless otherwise expressly excluded.
How to form a One Person Company (OPC)?
Although the exact rules are yet to come, the following rules have been proposed so far that the person forming the Company has to give the following information:
- First the sole shareholder shall get a Director Identification Number (DIN) as well as a digital signature.
- The name of the One Person Company.
- The nature of activities of the One Person Company.
- A nominee to take the place of the single member (in case of death, disability, bankruptcy etc.) This provision is to ensure perpetuity and continuity to the life of the Company.
- Memorandum of Association of such a company will mandatorily prescribe the name of the person, who in the event of death or disability of the subscriber shall assume his position.
- Minimum share capital will be same as in the case of private limited company i.e. Rs. 1,00,000
- Like every private limited company has the suffix Pvt. Ltd., every One Person Company should have the suffix OPC in brackets.
It should be noted that, An OPC can be formed only by an Indian Resident and citizen. It is also important to remember that, a person cannot form more than 5 OPC’s.
An OPC can be formed under any of below categories:
- Company Limited by Guarantee.
- Company Limited by Shares.
- An Unlimited Company.
Additionally an OPC limited by shares shall comply with following requirements:
1. Restricts the right to transfer its shares
2. Prohibits any invitations to public to subscribe for the securities of the company.
The member of an OPC has to nominate a nominee with the nominees written consent, and file it with the Registrar of Companies (RoC). This nominee in the event of death or in event of any other incapacity, shall become a member of the OPC. The member of the OPC at any time can change the name of the nominee providing a notice to the RoC in such manner as prescribed. On account of Death of a member, the nominee is automatically entitled for all shares and liabilities of OPC.
Some relaxations to One Person Company (OPC)
- One person Company must have minimum one director and a maximum of 15 directors.
- Provisions of Annual General Meeting (AGM) and Extra-Ordinary General Meetings do not apply to an OPC.
- There is no separate provision for appointment of first director, an individual being member shall be deemed to be first director.
- In case the Board consists of only one director, then the OPC is exempted from the requirement of conducting a Board Meeting as well.
- In case of more than one director, it shall conduct at least one board meeting in each half year and time gap between two meetings should be minimum 90 days.
- Financial Statements needs to be signed by the director and Annual returns by the Company Secretary, else by the director.
- One person Company have been relaxed from preparing Cash Flow Statements.
- One Person Company are required to file Financial Statements and Annual Returns to ROC within 180 days from closure of financial year.
Why One Person Company has been introduced?
The reason why the old Companies Act of 1956 had made it compulsory for a Company to have a minimum of two members was so that it could be clearly separated from a sole proprietorship, a corporate structure which is categorically excluded from the Act. However, the duplicity of this provision was blatant and rampant. People started forming companies by adding a nominal member/ director, allotting them one single share, which is the minimum requirement for a director as per the Act, and retaining the rest of the shares themselves. Thus a person could enjoy the status and benefits of a Company while operating and functioning like a proprietary concern for all practical purposes. Hence, to make things clearer and more logical, an option has been created wherein a person can form a company as a one person entity.