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CRITICAL ANALYSIS OF THE CONCEPT OF ONE PERSON COMPANY AND

ITS EFFECT ON INDIAN ENTREPRENEURSHIP

SYNOPSIS

- MOHAMED FARVACE

The One Person Company is a very new concept introduced by the Companies Act 2013.
Section 2(62) of the Companies Act 2013 1defines One Person Company. Though the
meaning of the term can be determine by the name itself that it consists of one member only.
OPC provides a whole new bracket of opportunities for those who look forward to start their
own ventures with a structure of organized business. Earlier the company meant association
of persons, where the liability was limited. This research focuses on the liability of the
members of the member of the One Person Company, as unlike other companies here the
member is one and also deals with the situation when there will be lifting of corporate veil.

Though the concept of OPC is new in India but it is very successful in U.K and several
European Countries since a very long time now. Limited liability is considered as the most
significant feature of Corporate Enterprise. The shareholders of a company have limited
liability to the amount of shares held by them. In case the company incurs large losses then
the shareholders can be required to pay only the unpaid amount on their shares. In case
unlimited companies, the whole liabilities are required to be meet by only one person. This
was mostly in the case of Sole proprietorship. The One Person Company is newly
introduced. So, it is pertinent to know the liabilities in case of these types of companies where
the member is only one. Company or a body corporate is a legal entity with perpetual
succession. It is a voluntary association of persons formed to carry out the same purpose. Its
existence is independent of the life of its members. But the One Person Company as
described by the Section 2(62) of the Companies Act 2013 means a company which has only
one person as a member. Thus, One Person Company is basically a legal entity which
functions on the same principles as that of a private company but has only one person
(natural) as its shareholder.

In view of the changing national and international economic environment and in furtherance
of the objective of creating necessary environment for contemporary global corporate
structure in India, revolutionary changes have been introduced in the Indian company law

1
Section 2(62) of the Companies Act 2013
regime by the enactment of Companies Act, 2013. The Act marks a remarkable shift in
Indias corporate regime and aims to repair and fine tune the existing lacunas by ensuring
more transparency in governance of the corporate bodies and introducing various novel
concepts. One such novel concept introduced by the Act is the concept of One Person
Company. The enshrined goal behind the incorporation of this concept is to promote
entrepreneurship. Prior to the introduction of the concept of One Person Company,
Companies Act, 1956 required minimum two shareholders for establishing a private company
and hence, the only option available to persons seeking to start a venture alone was sole
proprietorship. Since, proprietorship is not legally recognized as a separate legal entity, it
discouraged persons from undertaking business ventures.

STATEMENT OF THE PROBLEM - This research deals with the newly introduced
concept One Person Company and the legal and financial liability of the member of the
One Person Company. In this new concept One Person Company, the member is only one,
so it is pertinent to know the liability of the member in the OPC. The meaning of OPC, its
salient features, meaning of limited liability and the legal and financial liability, the formation
and conversion of OPC to public and private company are mainly focused.

SCOPE AND SIGNIFICANCE - The researcher is focusing on the concept of OPC which
is newly introduced in India by the Companies Act 2013. The liability in case of Contractual
obligations, tort etc. are also focused. After that formation of OPC, exemptions of OPC and
its impact in India is mentioned. It is pertinent to know how the new concept OPC may work
in India. Its a very new concept in India but it has worked successfully in other countries.
The researcher is working in this paper because some may confuse it with sole proprietorship,
but this is not so. As according to earlier definition of Company we all know it meant
association of persons with common purpose, but in this case that is OPC it is not
association of persons but the liability is limited unlike sole proprietorship. This paper
explains the reason of it being a company, its liability, corporate personality etc.

OBJECTIVE OF THE STUDY- The main objectives of the study are-


1) To study the concept of One person company under Companies Act, 2013.
2) To study the difference between one person company and Sole proprietorship.
3) To study the salient features and the liability of OPC.
4) To study the formation and conversion of OPC to public and private company and
vice versa.
5) To study the impact of OPC in India.

RESEARCH QUESTIONS-

1) Whether OPC is different from sole proprietorship?


2) Whether the concept of OPC in India is different from that of other countries?
3) Whether there are any exemptions available to OPC?

METHODOLOGY:- The research methodology which is involved is doctrinal approach.


The study has been conducted through books, journals, statutes, rules and regulations of
different statutes. The documents on the subject have been reviewed and the cases decided in
India and the foreign jurisdictions have been studied.