M Trivedi And Associates
Chartered Accountants

Companies Act, 2013 introduced new form of Company called One Person Company. Under the Companies Act, 1956 every person who wants to carry out business as corporate entity was use to form a private or public limited company, usually a private limited company. There were many statutory formalities needs to be complied as per companies Act, 1956. e.g. there must be atleast Two or Three Directors and Two or Seven minimum Members to form the Company as well as to run the Company, every major business decisions needs to be taken in Board meeting only, there must be quorum to hold the meeting, if meeting is hold without quorum the entire business transacted at the meeting stands to be void ab intio. In other words all the proceedings are invalid, annual return, Balance Sheet, Profit and Loss Account must be approved by the Board of Directors, members  etc. All these compliances has sometimes resulted into practical problems especially incase of private limited which has only Two Directors or Shareholder or Directors cum Shareholders company and when there is a dispute amongst the Directors or Shareholders.

Where all the important decisions needs to be approved and taken by holding either Board Meeting or General Meeting where due to dispute either of the Director or Shareholder refuse to remain present in the meeting so that there is no quorum, no meeting and hence important decisions cannot be taken. Such situation leads to deadlock in the Company. Though there is a ruling that under such circumstances one person present in the meeting is valid meeting and all proceedings are valid. However, practically no one wants to take such legal recourse.

Sometimes though the Company is a private limited Company, it was managed as proprietory concern by a single person taking all the business decision and other person lends just his name to fulfill the various requirement of law. This is prevalent mainly in family own business or closely held business.   

After considering the practical problems, a need was felt that there should be a corporate form where a single person can form the Company and carry out the business operations with little compliance of law. An idea was mooted that for smaller entity carrying on proprietorship business or a person who wants to carry on business as a corporate entity but do not have any other person as Director or shareholder or do not want to give any other person partnership or ownership of the business by virtue of allowing other person to become Director or Shareholder or both, can carry on the business by forming One Person Company (OPC).

Finally, the Companies Act, 2013 formalise the concept of corporate entity with One Person and define the same in section 62(2) of the Companies Act, 2013 as “One Person Company means a Company which has only one member”.

1. There is only one person who is Single Member i.e. there is only One Shareholder

2.  It has individual identity, perpetual succession with limited liability.

3. Death or incapability does not have any effect on the existence of One Person Company.

4. It is a Private Limited Company with share capital or without share capital but with guarantee i.e. a Company Limited by share or a Company Limited by Guarantee

5. There is restriction on transfer of shares of One Person Company, it prohibits any invitation to public to subscribe its securities and should have minimum paid up capital of Rs.1,00,000/-

6. It has one person should appoint one another person as his nominee. Incase of Death the member or a where a member become incapable to hold affairs of the Company due to the disqualification, the nominee automatically becomes the member of the Company and he can appoint a new nominee. The consent of nominee must be obtained and filed with Registrar of Companies by filing Form INC-3.  

7. A member can at any point of time change the nominee by giving notice to the Registrar of Companies by filing Form INC-4

     - Singing of its Annual Return by a Company secretary (Section 92)

 - Holding of General Meetings i.e. Annual General Meeting, Extra Ordinary General Meeting, Service of Notice of General Meeting (Section 98, Section 100 to Section 111)

 - Holding of Board Meetings and Directors i.e. One Person Company is not require to hold Board Meetings as per the Act. It can have only one Director which can be increase upto 15 Director (Section 149, 152 and 173)

1. Only Indian citizen and a person resident in India for period of 180 days or more during the immediate preceding year can become member of OPC

2.  A person can be member only in One Company. If by virtue of nomination in another OPC, if he became member in another OPC then within 180 days from the date of becoming member he should withdraw his membership from any one Company and intimate the same to the registrar by filing Form INC-4

3. Paid up share Capital of the Company should not exceed Rs.50 Lacs or  Annual Turnover of the Company for three consecutive preceding financial years of the Company exceed Rs. 2 Crore

5.  One Person Company cannot carry out NBFC activities including investment in securities of any body corporate

6. One Person Company cannot convert itself into any other type of Company  for a period of two years from the date of its incorporation unless within that period its paid up Share Capital exceed Rs.50 Lacs or Average Annual Turnover for three consecutive preceding financial years of the Company exceed Rs. 2 Crore.

7. If paid up share Capital of One Person Company exceeds Rs.50 Lacs or average annual turnover for three consecutive preceding financial years of the Company exceeds Rs. 2 Crore then it compulsory needs to be converted into private  or public limited Company by altering its Memorandum and Articles of Association and intimate the same to the registrar of the Company within a period of 6 months from the date of increase in paid up share capital or the last day of the relevant year on which turnover exceeds Rs. 2 Crore by filing Form INC-5 within sixty days from the end of Six months.

 193. (1) Where One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract:

state that where the Company enter into any contract with sole member of the Company who is also a Director of the Company and if it is not written contract then it must ensure that such contract is enter in the memorandum of One Person Company or minutes of the Company and within 15 days from the date such contract is approved by way of writing in minutes must intimate the same to the Registrar of Companies by filing Form Mgt-14

The introduction of One Person Company is a dynamic step forward to encourage small and medium size entrepreneur to work in the form of corporate entity with minimum legal compliance and blend of proprietorship management style to go global. Let us wait for the time to tell the success or failure of the concept. Till then we being professionals promote, educate and encourage small and medium size entrepreneur to adapt new concept.