By Aashna Jain, National Law University, Jodhpur.
The 1956 Act had been in need of a substantial revamp for quite some time to make it more contemporary and relevant to corporates, regulators and other stakeholders in India. The Companies Act, 2013 brought the much needed changes in the corporate arena. Amongst those major changes, the introduction of One Person Company (hereinafter referred to as O.P.C.) concept is a landslide shift in the conventional form of a company. It actually came into effect in the year 2014 after the publication.
Conventionally a company means an association of people, who have come together to achieve a common purpose. The concept of OPC defies all the conventions because it allows to set-up a company only with a single person. It is the new kid on the corporate block. Several countries do have the concept of a single member company, such as the UK, EU countries, even countries in the Gulf region and neighboring Pakistan. India is set to join these ranks.
An OPC means a company with only one person as its member. It is basically a combination/ hybrid of Sole-Proprietorship and Company form of business. It can also be said that a single shareholder holds 100 percent shareholding.
The Need for the Introduction of the Concept in India
The J.J.Irani Committee expressed the view that the law should recognize the potential for diversity in the forms of companies and rather than seeking to regulate specific aspects of each form, seek to provide for principles that enable economic inter-action for wealth creation on the basis of clear and widely accepted principles.
“It would not be reasonable to expect that every entrepreneur who is capable of developing his ideas and participating in the market place should do it through an association of persons. We feel that it is possible for individuals to operate in the economic domain and contribute effectively. To facilitate this, the Committee recommends that the law should recognize the formation of a single person economic entity in the form of ‘One Person Company.”
Desire for personal freedom, allows the professionals to adopt the business of their choice therefore making OPC the best alternative. It would bring into picture new vistas of business opportunities for small scale entrepreneurs who want to enjoy the advantage of limited liability while entering into the high profiles and widely accepted and relied upon field of corporate world. Also minimal legal complicacies also provides an incentive for the people who do not enter entrepreneurship with a fear of wasting time, money and effort with the risk of unlimited liability hanging like a sword over the neck.
Also it not only generates income but also generates employment opportunities. Government is not able to cope up with the employment needs of the people and hence if people go into the self avenues, it would indirectly cut down the targets of the govt. to achieve the employment levels. Also the contemporary value of having the concept of One Person Company brings us into the pool of countries which have recognized it and hence points out to the dynamic nature of the Companies Act 2013.
Noteworthy features of One Person Company
- Separate Legal Entity as a private limited liability company.
- Only One Shareholder
- Nominee for the Shareholder
The Shareholder shall nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder. Such nominee shall give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India shall be a nominee for the sole member of a One Person Company.
Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.
- A person can be member in only one OPC.
- OPC to lose its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years.
- A minor cannot become a member or the nominee of the Company or cannot hold a beneficial interest in the share of the company.
- Such Company cannot carry out Non Banking Financial Investment activities including investment in securities of anybody corporate.
Why would anyone go for One Person Company?
- Limited Liability and personal freedom:-
The entrepreneurs go by the golden rule of higher the risk, higher is the profit. But this has been challenged in this case of OPC by bringing in the guard for the businessmen by providing the benefits of the company in the comforts and freedom of sole-proprietorship (leading to faster decision making). It gives the space to appoint as many as 15 directors without giving a share to any one of them. The personal savings or the personal assets of the entrepreneur will now not be at stake in case of any losses to the concern.
- Social Credibility, Recognition and Legal Status of the Concern:-
Today large organizations prefer collaborating with or dealing with companies. It gives them a sense of security. Also the distinct and merit based workforce can be attracted to the concern. Financial institutions prefer giving loans to the companies than to sole-prop.
- Tax Benefits:-
It is very much under the ambit of the act to make a contract with the director and hence as a director one can receive director’s rent, remuneration, etc reduces the taxable income of the company.
Playing the devil’s advocate:-
- Stringent Corporate laws in OPC as against no such legal complicacies in the LLPs/Sole Proprietorship will be a big deterrent in the adoption of the OPC. The LLPs also have limited liability of the partners like the OPC and it poses a big question as to why, would anyone go for an OPC.
- The main obstacle is the tax rate which is 30% (Basic Rate) as against the tax slabs of 10% – 30% which would have been applicable if the form of business would not have been corporate (Sole Proprietorship). Also, the Minimum Alternate Tax (basic tax rate of 18.5%) and Dividend Distribution Tax (basic tax rate of 15%) will be applicable to the one person company.
Hence it is concluded by the researcher that the Bill introducing the OPC is a contemporary legislation which has brought a paradigm shift in the Indian Corporate Regime and has brought it at par with the Global Standards. According to the Confederation of Indian Industry, 75-80 percent of the businesses are family owned enterprises. Under the new bill, these small enterprises will be afforded more control in an environment for smooth working and growth. This will also be instrumental in bringing in foreign capital in the Indian markets. This legislation is indeed a milestone in the history of company law and will radically change the way and style of running and organizing a business.
 Ministry of Corporate Affairs vide its G.S.R. Notification No. 250(E) dated 31st March, 2014 notified the companies (Incorporation) Rules, 2014 under the Companies Act, 2013 which provide for formation of One Person Company.
 Lubana Kably, One Person Companies, flying solo (Companies Bill 2012), Economic Times, Aug. 11, 2013, http://blogs.economictimes.indiatimes.com/lawstreet/one-person-companies-flying-solo-companies-bill-2012/
 The Companies Act 2013, Section 2(62)
 CS R Sridhan ET AL., One Person Company, The Institutes of Company Secretaries of India (June 2014), p.3
 The term “Resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.
 Ministry of Corporate Affairs, Faq on One Person Company, http://www.mca.gov.in/MinistryV2/OPCfaq.html
 supra note 4 at page 7
 Business Intelligence from Dezan Shira & Associates , India Establishes New One Person Company Category, India briefing, August 30, 2013, http:// www.india-briefing.com/news/india-establishes-person-company-6889.html
 KCJM and Associates, One Person Company – A new Business Ownership Concept, Feb. 7,2013, http://www.caclubindia.com/articles/one-person-company-a-new-business-ownership-concept-16595.asp#VIFSIZGUclo,
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