One person Company - Privileges and Penalties ..

ONE PERSON COMPANY

CS.B.VigneshRam.B.Com.,ACS.,

Chennai

The Companies Act,1956 which ruled the Indian Corporate sector for more than half century has been replaced with the new Companies Act,2013. Lot of new initiative have been introduced like mandatory spending on CSR, representation of women directors in the Board and  composition of Independent Directors in the Board etc.

“One Person Company” is such another new concept introduced in the Companies Act,2013 which aims at developing and promoting entrepreneurship across the country.

DEFINITION:

The one person company has been defined under section 2(1) (zzk) as: ―One Person Company means a company which has only one person as a member.

SALIENT FEATURES OF ONE PERSON COMPANY:

1.      The liability risk of the promoter is shifted to the OPC.

2.     The compliance is very less.

3.  There is no need for conducting any meeting like the Board meeting or the shareholders meeting as there is only person as he is the Promoter, Director, shareholder and member of the company.

4.      The OPC is exempt  from certain statutory compliance requirement when compared to a private or a public limited company.

  

LEGAL POSITION OF OPC IN INDIAIN PRESENT SCENARIO:

Under Section 3 of Companies Act,2013, OPC is classified as a  Private Company for all the legal purposes with only one member. All the provisions related to the private company are attracted to an OPC, unless otherwise expressly excluded.

The only exception provided by the Act to an OPC is that according to the rules only "NATURALLY-BORN" Indian who is also a resident of India is eligible to incorporate an OPC. Meaning thereby, the advantages of an OPC can only be obtained by those INDIANs who are naturally born and also a resident of India. At the same, it shall also be worth mentioning that a person cannot form or be a nominee more than one OPC.

FORMATION OF AN OPC:

OPC is incorporated as a private limited company, with only one person as its member and is prohibited from inviting public to subscribeto the securities of the company.

The Salient features of an OPC include the following:

·         An OPC can be formed under any of below categories :

o     Company limited by guarantee.Ø

o     Company limited by sharesØ

o     Unlimited company

·         An OPC limited by shares shall comply with following requirements :

o     Shall have minimum [paid up capital of INR 1 LacØ

o     Restricts the right to transfer its sharesØ

o     Prohibits any invitations to public to subscribe for the securities of the company.Ø

·         An OPC is required to give a legal identity by specifying a name under which the activities of the business could be carried on. The words 'One Person Company' should be mentioned below the name of the company, wherever the name is affixed, used or engraved.

·         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 becoming incapacity, shall become a member of an OPC. The member of an 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.

PREVILAGES AVAILABLE TO OPC:

An OPC has certain privileges and exemptions which are not available to private companies. They are as follows

Ø  Signatures on Annual Returns – Section 92 of the Companies Act,2013

It is provided in section 92 of The Companies Act, 2013, that the annual returns in the case of One Person Company shall be signed by the company secretary or where there is no company secretary, then by the director of the company. 

Ø  Holding Annual General Meetings – Section 122 of the Companies Act,2013
Section 122(1) of The Companies Act,2013, provides that the provisions of S.98, S.100 to S.111(both inclusive) are not applicable to One Person Company. Therefore, provisions relating to General Meetings, Extra Ordinary General Meeting and Notice Convening to General Meeting are not applicable to One Person Company. However, for fulfilling the purposes of S.114 of the Companies Act,2013, where any business is required to be transacted at an Annual General Meeting, or other General Meeting of the company by means of an ordinary or special resolution, it shall be sufficient if the resolution is communicated by the member of the company and entered in the minutes book which is required to be maintained U/s 118 and signed and dated by the member and such date shall be deemed to be the date of meeting under the purposes of Companies Act,2013.

Ø  Board Meetings and Directors – Section149, 152 & 173 of the Act
One Person Company needs to have one director. It can have maximum of 15 directors which can also be increased by passing a special resolution as in case of any other company. For the purposes of holding board meetings, in case of a OPC which has only One director, it shall be sufficient compliance if all resolutions required to be passed by such a company at a board meeting are entered in a minute book – signed and dated by the member and such date shall be deemed to have the date of the board meeting for all the purposes under Companies Act, 2013.

Ø  Signatures on Financial Statements - Section 134 and 137 of the Act.
The OPC shall file with the RoC a copy of financial statements duly adopted by its members along with all the documents which are required to be attached to such financial statement, within 180 days from the closure of the financial year along with cash flow statements. The financial statement shall be signed by only one director and the annual return shall be signed by the company secretary and the director, and in case if there is no company secretary then only by the director.

Ø  Contracts by One Person Company – Section 193 of the Act.
The new Companies Act, 2013 gives special attention to the contracts which will be entered by One Person Company.

PENAL PROVISIONS

If the company fails to comply with the provisions as to providing the information to the RoC then it shall be liable for punishment of fine which will be not less than twenty thousand rupees and extend to one lakh rupees and the imprisonment for a term which may extend upto 6 months.

DIFFERENCE BETWEEN SOLE PROPRITERSHIP AND OPC:

The concept of OPC allows a single person to run a company limited by shares, and Sole proprietorship means an entity where it is run and owned by one individual and where there is no distinction between the owner and the business. The distinction between both the structures is as follows:

·         Limited Liability - Fundamentally the basic difference between a sole proprietorship and an OPC is the way and manner in which the liability is treated in an OPC. OPC is different from sole proprietorship because it is a completely separate entity and that is the distinction between the promoter and the company. The liability of the share holder will be limited to the unpaid subscription money in his name. On the other hand the liability in a sole proprietorship, the person/owner is alone liable for the claims which will be made against the business.

·         Taxmen Point - Though the concept of an OPC has been incorporated in the Companies Act, 2013 but the concept of same does not exist in tax laws as yet, as a result an OPC can be put in the same bracket of taxation as other private companies. According to Income TA,1961 a private limited company is under the bracket of 30% on total income with an additional surcharge of 5% if the income exceeds 10 million with an addition to 3% of education cess.

·         Perpetual Succession - In an OPC there is a nominee designated by the member. The nominee which will be a Natural Born citizen of India and who resides in India. The nominee shall in the event of death of the member become a member of the company and will be responsible for the running of the company. But in the case of sole proprietorship this can only happen through an execution of WILL which may or may not be challenged in the court of law.

·         Compliance Requirement - A One Person Company has to file annual returns etc just like a normal company and would also need to get its accounts audited in the same manner. On the other hand a sole proprietorship would only need to get audited under the provisions of Section 44 AB of the Income Tax Act, 1961 once its turnover crosses the certain threshold.

 OPC IN PRESENT GLOBAL SCENARIO:

OPC has already got its recognition as a corporate entity from across various countries in the globe. China introduced it in October 2005 in which the promoting individual is both the director and the shareholder. The amended company law of Pakistan permits one person to form a single-member company by filing with registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director. In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC). In China, one person is allowed to apply for opening a limited company with a minimum capital of 1, 00,000 Yuan. The amended law of China prescribes that the owner should pay the investment capital at one time and bars him from opening a second company of the same kind. In most countries, the law governing companies enables a single-member company to have more than one director and grants exemptions to such companies from holding AGMs, though records and documents are to be maintained. The concept is also very popular in Singapore.

CONCLUSION:

OPC will give greater flexibility to an individual or a professional to manage his business efficiently and at the same time enjoy the benefits of a company. OPC will open the avenues for more favorable banking facilities, particularly loans, to such proprietors. Besides, the concept will boost flow of foreign funds in India as the requirement of nominee shareholder would be done away with. Moreover Company Secretaries and Corporate consultants are at the responsibility to advise the clients in such a way that both the individual and the economy is benefited by the incidence of OPC.

Written by:

CS.B.VigneshRam.B.Com.,ACS.,

Chennai