New Company Law - Starting a “One Person Company”

The new Companies Bill makes way for a One Person Company (OPC). Now, the term is a misnomer: a company by definition means a collection of at least 2 people. However, the OPC is not an Indian invention and has been in practice in some developed nations like China, USA, and Singapore etc.

Under the ‘old’ Companies Act, 1956 minimum two members were required for formation of a private limited company. This was a hindrance to entrepreneurs who wanted to go ‘solo’. (We’d found a ‘jugaad’ though: allot the minimum shares to someone in the family or a friend. This dependence on a ‘jugaad’ can now be stopped)!OPC is a legitimate way to form a company with only one member. OPC can work like proprietorship but it holds the status of company and of course enjoys the benefits that come with it (limited liability, trust factor etc.)

Let us now have a look at some of the key aspects of a One Person Company:

Membership and status of an OPC

According to the definition of section 2(62) of the bill an OPC is a company which has only one person as its member. It can be said it is a company which has only one shareholder. Section 3 further clarifies that an OPC shall be treated as a private company for all legal purposes with only one member.

Naming of the OPC

The Companies Act, 1956 required a private limited company to have “private limited company” (Pvt. Ltd) suffixed in the end wherever its name appeared. Likewise the Companies bill 2012 requires that the name of the OPC shall include ‘One Person Company’ within brackets below the name of the company wherever the name is printed, affixed or engraved.

Nominee of the sole member

An OPC is owned and controlled by one person. So what happens on the death of such a person? Will it get dissolved? Will it pass on to the legal heirs?

The answer lies in section 3 of the bill which says, that at the time of the incorporation of an OPC the memorandum of the OPC shall mention the name of the other person (nominee) who shall be in-charge of the ownership and operations in case of the death or incapacity of the original member (owner).

This can only be done if prior consent is given by the other person and such consent shall be prescribed in a written consent and shall be filled by the registrar.

There can be a possibility where the original member loses trust in the nominated person or the nominated person is incapacitated or takes back his consent.

In such a case the nominated member may be changed by the original member. Any such change has to be intimidated to the Registrar by the OPC within prescribed time.

On the death of the sole member, the nominee has all shares and the rights and liabilities of the deceased person. The board of the company shall inform the nominee regarding entitlement of such shares and rights and liabilities.

Appointment of directors

An OPC can appoint maximum 15 directors and minimum of one direct. The appointment is to be made in accordance with the articles of the OPC. If there is no provision regarding appointment of directors then the original member shall be deemed to the director of the company until someone else is appointed.

Meetings

Provisions relating to annual general meetings, general meetings, and extraordinary general meetings are not applicable for an OPC.

In an OPC the resolution is communicated by the sole member to the company and entered into the minutes-book and signed and dated by the member.

A final word

These are the basics of a One Person Company. If you are a solopreneur and don’t mind adhering to some of the legal compliances, THIS is the business vehicle for you. An OPC gives you all the benefits that come with a private limited company!

However, if legal compliances don’t go well with you, your business still has the option of being run as a sole proprietorship.

At the same time, a Private Limited Company still retains its charms. Some of the advantages of a Pvt Ltd Company over an OPC were highlighted in an earlier article here

By Akash Sudhakaran Valappil and Tanuj Kalia