COMPANY LAW I

INTERNAL ASSESSMENT 1

“ONE PERSON COMPANY”

SUBMITTED BY-:

NAMAN KHANNA
DIVISION A
17010125053
 ABSTRACT

Marc Benioff has defined the concept One Person Company as One person at a time, one
company at a time. Dr. J.J Irani Committee which was set up in the year 2005 with the
purpose of incorporating this concept. OPC provides a whole new bracket of opportunities for
those who look forward to starting their own ventures with a structure of organized business.
The Companies Act, 2013 has given various features as well as the steps for incorporation for
The One Person Company. A deep insight provides its comparison with other forms of the
Organization as well as its privileges and its criticism. Various recommendations to improve
not only the concept but also its implementation have been given before concluding the
article.

INTRODUCTION: DEFINITION AND A BRIEF

HISTORY.
 The Companies Act, 2013 evolved a new concept of ‘One Person Company’
(hereinafter referred to as OPC) in India. Etymologically, its origin does not owe to
Indian legal system rather it was already in existence in United States, United
Kingdom and several European countries since long back1. This recent refreshing
development in the Indian legal system is indeed a revolution in its kind which is a
step forward to facilitate more business friendly corporate regulations in the country.

 The incorporation of OPC in the Act of 2013 was not a one day event. It was in
furtherance of the recommendations of the Dr. J.J Irani Committee which was set up
in the year 2005 with the purpose of incorporating necessary changes in the
Companies Act, 1956. The Act of 2013 was passed in the Lok Sabha on 18th
December 2012. It was passed in Rajya Sabha on 8th August 2013 and received the
assent of the President on 29th August 2013. The Companies Act, 2013 is has been
divided into twenty-nine Chapters and has 470 clauses and 7 schedules.1 With the
implementation of the Companies Act, 2013, a single national person can constitute
a Company, under the One Person Company (OPC) concept. The OPC was
incorporated under the Act of 2013 in furtherance of the recommendations of the Dr.
J.J Irani Committee Report.2 Indeed, the evolution of OPC is not less than a
revolution in the Indian legal system.

 The Companies Act, 2013 defines the ‘One Person Company’ under Section 2(62)3.
The statutory definition of OPC is in their literal term which means a company which
has only one person as its member. The United Kingdom was the first country that
established the concept of the one man company through a precedent set in its
landmark case Saloman v. Saloman & Co.4An OPC will come under the meaning of
1
Chatterjee, Sabarnee, One Person Company and Limited Liability on its Members, Company Law Journal,
Volume (2014) 3.
2
Ibid
3
Dr. KB Ojha, One Person Company (OPC) under the Companies Act, 2013: A New Business Concept in India,
Bhatner Socio-Legal Journal, Vol. 2, 2015,
4
Salomon v Salomon, [1897] AC 22
 private company as per the provisions of Section 2(68). So, the provisions applicable
to the private company will be applicable to the OPC.

SALIENT FEATURES

1) The person forming such One Person Company (OPC) should be a natural person
being an Indian resident, living in the country for a minimum time of 182 days in the
past calendar year.5
2) There is only one shareholder who at the same time can be the director.
3) There is no specific description for transferring of share in the act or in the rules
legislated but being analogous to private companies therefore shares cannot be
transferred except for the arrangement made in the Memorandum of Association
(MOA)90.
4) The company can be registered only as a private limited company91.
5) It has to comply with the stated requirements92:
a. It should have a minimum amount of INR. 1, 00,000/- (Rupees One Lakh
Only) paid up share capital.
b. Prohibits any member of public to subscribe or invite deposits from them
through public invitation called prospectus.
c. Restricts the right to transfer ownership of shares from one to another except
as provided in MOA.
6) According to Sec. 149 (1) (a) of The Companies Act, 2013, OPC shall have one
director only.
7) A company is required to get its name registered with the Registrar of Companies
(ROC) under which it shall carry out all the activities for which business is set up.

8) Section 3(1)6 describes the essentials of a nominee-:

i. He must be Indian resident, living in the country for a minimum period of
182 days .
ii. He must have crossed the age of 18 years.
iii. A person can be a nominee of not more than one company

STEPS FOR INCORPORATION OF A ONE PERSON COMPANY.

 Step 1. The sole director shall apply for Director Identification Number (DIN) and
Digital Signature Certificate (DSC). The following documents for the application will
be needed to be attached-:
a. Proof of the permanent residential address.

5
R Saluja, One Person Company. Lunawat & Co, (2014).
6
Section 3(1). (2014). The Companies Act 2013 (18 of 2013).
 b. Educational qualification.
c. Identity proof.
d. 2 passport size photos
 Step 2. In the next step the company shall choose a name for the company under
which the company shall operate its activities. Form no. INC 1 is made to the registrar
to check the availability and reservation of the name.
 Step 3. Form no. INC 2 has to be submitted to the Registrar of Companies for
applying to incorporate One Person Company (OPC) also stating the name of the
nominee.
 Step 4. The name in form no. INC 2 of the nominee shall be entered only after
obtaining his written consent in form no. INC 3.
 Step 5. Memorandum of Association (MOA) and Article of Association (AOA) shall
be submitted to the ROC. The MOA should contain the name of the nominee as stated
in form no INC. 2
 Step 6. Form no. DIR 12 shall be made to the registrar comprising his details, interest
in other body corporates and entities and written consent to act as a director.
 Step 7. The director must give a declaration saying that all the above provisions and
steps are complied.
 Step 8. Last and final step is to get an office within 15 days of incorporation and after
30 days of incorporation shall file a form no. INC 22 for verifying it.

IN DEPTH ANALYSIS
ANALYSIS OF ONE PERSON COMPANY WITH RELATION TO SOLE PROPRIETORSHIP
AND JOINT STOCK COMPANY.

One Person Company (OPC) is an outcome of unique and best features of Sole proprietorship
and Joint Stock Company (JSC). They share various similarities in different spheres, be it
legal compliances or management. The JSC and OPC are legally bound to get themselves
registered with the Registrar of Companies (ROC) along with Memorandum of Association
and Article of Association.7 Both have same guidelines for taxation policy no matter how
much the profit is. Another common feature that both enjoy is having separate legal status in
the eyes of law and not getting affected with the incapacity or death of the directors or
members.8 The concept of separate legal identity in Single Member Company was firstly
defined in a leading case of Salomon v. A. Salomon & Co. in UK.9 There were majorly two
points raised in this case:
1. Can the family members in a company be the main 7 members of private limited
company?
2. Can the debenture holder be the shareholder at the same time?
The conclusion drawn from this case by the House of Lord was that company is a separate
7
S. Naiyyar, OPC under The New Companies Act. (2014), Volume 1.
8
Ibid
9
Salomon v Salomon, [1897] AC 22
legal entity from its members directing its way. They shall be considered different from the
company.10 Thus, the One Person Company (OPC) having only one director has a
separate legal identity from the Company is verified.

The only feature and USP of sole proprietorship which is shared with OPC is that the whole
control is vested in a single person being the director. Apart from this on following ground
they differentiate:
 Sole proprietorship is not bound to get itself registered and can freely conduct its
activities without registration, on the contrary it is mandatory for OPC to get
registered without which it cannot function or perform its activities.11
 In the event of winding up, the sole proprietor is liable to the extent of his personal
assets to fulfil the debts as it does not have a separate identity in respect to the
company, but in One Person Company (OPC) the director is liable to contribute only
to the extent of his share contributed in the company.
 On the event of death of the sole director cum member of OPC, the ownership gets
transferred in the person named as nominee by the director, but this provision is not
applicable for sole proprietorship.
 Other ground on which OPC and sole proprietorship can be differentiated is that both
the structures have different provisions for taxation and legal requirements to comply
with for incorporation.
After several years of observing the shortcomings of Joint Stock Company (JSC) and sole
proprietorship ,the new concept of OPC was introduced having the best features of both the
entities for giving entrepreneurs liberty to try their hands in business.

NEED OF ONE PERSON COMPANY.

OPC is a result of years of study and observations of its performance in other countries. One
Person Company (OPC) was created with an objective to convert unsystematic business
sectors to systematized business sector.12 Precisely speaking the aim was to put in order the
private sector out of any supervision. It was projected that this structure would be of great
benefit to small entrepreneurs like potters and artisans. This concept gave Indian corporate
law international footing.

WHICH TYPE OF BUSINESS SHOULD PREFER ONE PERSON COMPANY?

 A small scale industry or a manufacturing unit which strives for legal recognition
can expand as the liability incurred by the proprietors will not fear them of
bankruptcy on the event of inability to repay the financial debts.
 The small entrepreneurs who don’t hold a good creditworthiness in the eyes of the
creditors in the market upfront can take financial help from the same in an One Person
Company (OPC), as it has a separate legal identity from the subscribers ,directors,
members of the company and their personal credit status does not marks for an OPC.
10
Salomon v Salomon, [1897] AC 22
11
Intelligent Legal Risk Management Solution (iPleaders). (2014). National University of Judicial
Science.)
12
B.Katinka, Concept of Single Member Companies in The Light of the Corporate World, 2010.
  If a person desirous of carrying certain business activity is not able to convince
another person to either subscribe to the memorandum and invest in the capital of the
company, or to devote his time in the decision making process, or in the functioning
of the company then he can go for forming one person company by being a sole
director or member.
 The entrepreneurs who feel that their venture is viable and profit earning but only for
a limited time period for example, manufacturing of certain type of electronic good
which has high chances of getting outdated with time, should opt for One Person
Company because of less legal compliances, limited liability, higher chances of
getting credit.13
Thus, small entrepreneurs being artisans, weavers, potters etc. can enjoys status, trust and
privileges offered to JSC by opting for an OPC.

PRIVILIGES AND ATTRACTION OF OPC.

Explaining some of the advantages of OPC, the then Corporate Affairs Minister Sachin Pilot
stated that the small entrepreneurs who are forced to divide their profits with the middlemen
can now directly access the target market by setting up a One Person Company.14

 The most significant reason for shareholders to incorporate the ‘single-person

company’ is certainly the desire for the limited liability.
 Businesses currently run under the proprietorship model could get converted into
OPCs without any difficulty.
 The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to
holding of general meetings, shall not apply to a One Person Company.
 The most significant reason for shareholders to incorporate the ‘single-person
company’ is certainly the desire for the limited liability.
 Businesses currently run under the proprietorship model could get converted into
OPCs without any difficulty.15
 The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to
holding of general meetings, shall not apply to a One Person Company.
 Mandatory rotation of auditor after expiry of maximum term is not applicable.
 Financial statements of a one person company need to be filed with the Registrar,
after they are duly adopted by the member, within 180 days of closure of financial
year along with all necessary documents.
 Board's report to be annexed to financial statements may only contain explanations or
comments by the Board on every qualification, reservation or adverse remark or
disclaimer made by the auditor in his report.
13
Jain, Aashna., An Expository Analysis of One Person Company Concept: Is it an Arrow Shot in the Dark or is
it Serving its Purpose? (2015)
14
Economic Times, One person companies to eliminate middlemen: Sachin Pilot(Sep 08, 2013, 01.42 PM ),
https://economictimes.indiatimes.com/news/economy/policy/one-person-companies-to-eliminate-middlemen-
sachin-pilot/articleshow/22413110.cms?from=mdr
15
Dr. Madhu Sudan, One Person Company: A Critical Analysis, Indian Journal of Applied Research, Volume 5,
Issue 6, June 2015..
  Personality driven passion and implementation of a business plan.
 The desire of the entrepreneurial person to take extra risk and willingness to take
additional responsibility.16
 Personal commitment to the business which is a sole idea of the person and close to
his heart.
 It is run by individuals yet OPCs are a separate legal entity similar to that of any
registered corporate.
 A One Person Company is incorporated as a private limited company.
 It must have only one member at any point of time and may have only one director.
 The member and nominee should be natural persons, Indian Citizens and resident in
India.

CRITICISM

The question that does it really benefit small entrepreneurs is a mark on the very existence of
an OPC as it is the core purpose of compiling and incorporating in the Act. This question has
the power of leaving the benefit offered aimless if it doesn’t stand strong in all circumstances.
Unfortunately, there are certain state of affairs where its purpose is defeated. Some of them
encountered are as follows:

 Limited Benefit to A Particular Class- the benefit is limited to only a section of people
that is big and establish entrepreneurs and not well scattered to all classes and
especially to young and small entrepreneurs.

 Taxation Policy Bliss or Curse- A one person Company does not aim at relaxing
taxation policy which is a stumbling point for opting this as an organizational
structure.

 One of the basic characteristics of a company is the democratic decision making. In

other words, in such decision makings, there is more than one member. However, this
is not so in case of an OPC. It suffers from the departure of this very basic
characteristic by virtue of Sections 96(1) and 122. In a democratic decision making,
voting powers are also involved but this is not so in the case of an OPC. One Person
Company could be seen as an autocratic form of organisation without an iota of
accountability.

 Cost- If one of the main advantages of a One Person Company would be the limited
liability concept, one main disadvantage would be the high incorporation cost and
cost of statutory compliance, which is of a recurring nature.

 An OPC significantly lacks a working environment.

16
Supra note 3.
  Possible Misuse- According to Rule 3(2) of the The Companies (Incorporation) Rule
2014 “ one person can only form one OPC”.

RECOMMENDATIONS TO IMPROVE
 Separate taxation guidelines should be notified by the legislators which should be less
or equal to the sole proprietorship so that small entrepreneurs can get the benefit what
legislators aimed to provide them.
 Cost of incorporation and filing special resolution is high due to the fees charged by
the professionals like CA (Chartered Accountant), CS (Company Secretary), etc.
There should be some rules to stop these professionals to charge unreasonable fees or
a service by the government can be made available to the incorporators in form of
legal aid for a nominal charge.
 Conversion to the other form of company i.e. private or public company on surpassing
turnover of rupee two crore or capital exceeds rupees fifty lakhs mandatorily, is
limiting the freedom offered to the director cum member. The limit should be revised
frequently according to the inflation in the country.
 As practised by UK, public companies should also be allowed to be established by a
single director.
 Two year is specified after which a company can voluntarily convert its structure to
any other form of companies. The limit should be removed and the decision when to
convert the structure should be in the hands of the director.
 The Benami Transaction Prohibition Bill should be passed as soon as possible, to take
precaution for a possible misuse of establishing an anonymous one person company.

CONCLUSION
The notion of One Person Company is just like a One Man Army. One of the greatest
advantages in an OPC is that the compliance burden is very less, and the liability of the
members is very limited is an added advantage. Those who want to establish their company
may proceed on this principle as OPC is expected to benefit people who are into self-
employment and many small scale sectors. It is a remarkable feature of the Companies Act,
2013 but still lots of limitations are showing in one person companies under companies Act
2013 these are; first A person shall not be eligible to incorporate more than a One Person
Company or become nominee in more than one such company; second, an OPC cannot carry
out Non-Banking Financial Investment activities including investment in securities of
anybody corporate. Also, there has been criticism in certain quarters against the formation of
such a company as it may give room for evasion of public funds and tax liability by an
individual. One of the major reasons for the introduction for this concept is the demand from
the industry for such form of company.
On a concluding note after critically analyzing the concept of OPC, it would not be unjust to
comment that the laws legislated are merely laid down but not guarded by punitive measures.
It is commendable that the legislators have at least thought of incorporating this concept of
new organisational structure to Indian laws but, it is essential to detail the rules regarding the
structure and add punishments for breach which presently are not sufficient.