ONE PERSON COMPANY: PRIVILEGES AND ISSUES UNDER THE COMPANIES ACT 2013

Introduction

Section 2(62) of Companies Act defines a one-man or woman corporation as a corporation that has the simplest one man or woman as to its members. Furthermore, individuals of a corporation are not anything but subscribers to its memorandum of association, or its shareholders.

So, an OPC is correctly a corporation that has the simplest one shareholder as its member. Such corporations are typically created while there's the simplest one founder/promoter for the enterprise. Entrepreneurs whose organizations lie in early degrees choose to create OPCs in preference to sole proprietorship enterprise due to the numerous blessings that OPCs offer. This brought about the popularity of a very new manner of beginning organizations that accorded flexibility which a corporation shape of entity can offer, even as additionally imparting the safety of restricted legal responsibility that sole proprietorship or partnerships lacked. Several different nations had already diagnosed the cap potential of people forming a corporation earlier than the enactment of the brand new Companies Act in 2013. These protected the likes of China, Singapore, UK, Australia, and the USA.


Formation of One Person Companies

An unmarried man or woman can shape an OPC through subscribing his call to the memorandum of affiliation and enjoying different necessities prescribed through the Companies Act, 2013.

Such a memorandum ought to contain information of a nominee who shall turn out to be the agency’s sole member in case the unique member dies or becomes incapable of getting into contractual relations. This memorandum and the nominee’s consent to his nomination ought to be filed to the Registrar of Companies in conjunction with a utility of registration. Such a nominee can withdraw his call at any factor in time through submission of needful packages to the Registrar. His nomination also can later be cancelled through the members.


Membership in One Person Companies

Only herbal people who're Indian residents and citizens are eligible to shape a one-character organization in India.

The identical situation applies to nominees of OPCs. Further, the sort of herbal character cannot be a member or nominee of a couple of OPC at any factor in time. It is essential to be aware that the best herbal people can turn out to be participants of OPCs. This does now no longer occur within the case of agencies in which agencies themselves can personal stocks and be participants. Further, the regulation prohibits minors from being participants or nominees of OPCs. Conversion of OPCs into different Companies Rules regulating the formation of one-character agencies expressly limit the conversion of OPCs into Section eight agencies, i.e. agencies which have charitable objectives. OPCs additionally cannot voluntarily convert into different varieties of agencies till the expiry of years from the date in their incorporation.


Privileges

1. Limited Liability: The maximum crucial motive for the shareholders to fit within the 'unmarried individual organization' dynamics is maximum surely the preference for constrained legal responsibility.

As cited before, sole proprietorship is likewise a choice for you however OPC has its advantages. The essential distinction among a sole proprietorship and an OPC is how the legal responsibility is treated. OPC paperwork is a separate entity with a stark distinction among the promoter and the organization. The legal responsibility of the proportion holder may be restrained to the unpaid subscription cash in his call. On the opposite hand, in a sole proprietorship, the individual or the proprietor is only responsible for the commercial enterprise claims in order to be made. This way, the non-public belongings of the proprietor stays secured must the commercial enterprise wind up in lots of a crisis.

2. Compliance Burden: One individual Company is covered within the definition of Private Limited Company given below segment 2 (68) of the Companies Act, 2013. Hence, an OPC may be needed to stay via the means of the guidelines set for personal agencies and all of the provisions will be observed. But right here is the coolest part: OPCs were supplied with some exemptions and consequently have lesser compliance associated burden. Some of the to be had exemptions are: Section 96: Option to dispense with the requirement of preserving an AGM Section ninety-eight: Power of Tribunal to name conferences of members. Section 102: Statement to be annexed to notice. Section 103: Quorum for conferences. Section 104: Chairman of conferences. Section 106: Restriction on balloting rights. Section 107: Voting via way of means of display of hands. Section 109: Demand for poll

3. Organized Sector of Proprietorship Company: What OPC does nicely is to carry the unorganized sectors of Proprietorship into a prepared model of a personal constrained organization. That way, many small and medium corporations running as small owners can input the company domain. It may even offer a plethora of baking centres to them. And the legal responsibility of the member may be constrained too, as mentioned above.

4. Requirements are minimal: Some of the necessities are very simple and indexed below. Minimum 1 Shareholder The director and shareholder may be equal individual Minimum 1 Director Minimum Share Capital will be Rs. 1 Lac (INR One Lac) Minimum 1 Nominee Letters OPC must be suffixed with the call of OPCs to distinguish them from different agencies

5. Legal popularity and social popularity to your commercial enterprise: A one individual organization version is the maximum depended on within the world. It offers the providers in addition to the clients a feel of self-assurance for your commercial enterprise. History shows that huge groups choose to address personal constrained agencies over proprietorship companies any day. That is due to the fact a One Person Company has a described commercial enterprise shape which enjoys a company popularity, as a result drawing in a greater certified group of workers after which preserving them thru company designations, say directorship.

6. Safeguards: The technique after your death is nicely described. When the authentic director is now no longer alive, or is not capable of serving the features attributable to a disability, any other person is appointed because the nominee director. He/She in turn will control the affairs of the organization until the date of transmission of stocks to criminal heirs of the demised member.

7. Easy loans from the financial institution: As mentioned above, attributable to a more subject withinside the commercial enterprise shape and a greater certified group of workers withinside the company set-up, banks are inclined to help with hassle-loose loans. In all admission, proprietary companies do not locate it as smooth today.

8. One proprietor: The splendour of One Person Company is that the proprietor can hire as many as fifteen administrators withinside the organization for administrative features without compromising on an iota of stocks. So, the actual electricity stays vested in an unmarried person.

9. Easy to control: There isn't any requirement to annual popular conferences, as a result saving lots time that may be dedicated to more obligations at hand. Only that the decision will need to be communicated via way of means of the member of the organization and entered withinside the minus book, duly signed and dated via way of means of the member. That date may be taken into consideration because of the date of the assembly.

When it involves board assembly, a One Person Company may also behave at the least one assembly of the Board of Directors each six months; however, conferences shall now no longer be much less than ninety days apart. In addition, quorum for conferences for forums shall now no longer observe.

10. Goodbye middlemen: When small marketers are allowed withinside the commercial enterprise via way of means of putting in place a One Person Company, the shareholders have an uninterrupted direct get right of entry to the goal marketplace and may avail credit score centres, financial institution loans in place of getting misplaced withinside the maze of middlemen. And now no longer having to proportion your income with middlemen is the finest advantage.

11. Perpetual succession: Through perpetual succession, a corporation's or different organization's lifestyles may be persisted no matter the death, bankruptcy, insanity, extrude in the club or a go out from the commercial enterprise of the proprietor. This makes it less complicated for marketers to elevate capital from the marketplace. But considering the fact that OPC is an entity that breaks away from the proprietor, as a result making him much less liable, the lenders must consequently be warned that the claims towards the commercial enterprise aren't similar to claims towards the proprietor.

12. Filing with ROC: Very few want to be filed with the Registrar of Companies (ROC). The rotation of the auditor after expiry of most time periods isn't always applicable, making matters simpler. The provisions of Section ninety-eight and Sections a hundred to 111 (each inclusive), referring to preserving popular conferences, additionally no longer observe the OPC.

13. Flexibility and tax savings: In OPC, it's far feasible with a view to make legitimate contracts with different shareholders or with one or greater of the administrators. So, even in case you are a director, you may obtain remuneration. Even as a leader, you may obtain rent. Even as a creditor, you may obtain cash. There aren't any tough and speedy guidelines to restrict your role.

14. Easy switch: Businesses presently run below the proprietorship version can get rechristened as a One Person Company with none difficulty.

Issues

A new idea has been delivered withinside the Company's Act 2013, approximately the One Person Company (OPC). In a Private Company, at least 2 Directors and a couple of Members are required while in a Public Company, at least three Directors and at least 7 members. An unmarried character couldn't include a Company previously.

One Person Company (OPC) is an organisation included via the means of an unmarried individual. Before the enforcement of the Companies Act, 2013, an unmarried individual couldn't set up an organisation. If a person desired to set up his enterprise, he/she should decide best for a sole proprietorship as there needed to be not less than administrators and individuals to set up an organisation. As consistent with Section 2(62) of the Company’s Act 2013, an organisation may be fashioned with simply 1 Director and 1 member. It is a shape of an organisation in which the compliance necessities are lesser than that of a personal organisation. The Companies Act, 2013 affords that a person can shape an organisation with one unmarried member and one director. The director and member may be the identical individual.

Thus, one individual organisation method one person who can be a resident or NRI can include his/her enterprise that has the capabilities of an organisation and the advantages of a sole proprietorship.

An OPC additionally faces prohibition of sporting any Non-Banking Financial Investments activities, changing an entirely owned subsidiary into an OPC and additionally issuing any sort of EmployStock Scheme. The Companies Act, 2013 additionally frustrates the entire reason of the OPC through prohibiting someone to have greater than one (1) OPC or emerge as a nominee in greater than one (1) OPC. This, to a huge extent, defeats the entire motive of the advent as referred to withinside the Committee Report.

Though the Government has been selling foremost overseas investments in India, there are regulations imposed at the overseas traders to include an OPC, which has unfolded an air of despondency. The foremost downside of an OPC is precipitated from the tax perspective. The Income Tax Act, 1961 does now no longer realize the idea of an OPC and has located it withinside the identical slab as a personal corporation beneath neath the bracket of 30% (plus surcharges) on overall income. On the contrary, sole owners are taxed at taxed on the fee relevant to individuals.


Conclusion

OPC at a superficial degree appears to be easy and attractive, however but it offers with a first rate deal of its imperfection like impositions and restrictions. Thus, ensuing in gradual development of small marketers or as a substitute it could be perceived that it has in a roundabout way discouraged them to even contain an OPC.

To spruce the incorporation of OPC, positive reliefs and exemptions should be made to be had to the OPC (and its member), such as (i) allow companies (whether or not Indian or foreign) to contain OPCs (for you to perform as their wholly-owned subsidiary); (ii) do now no longer pressure conversion of OPC to a personal or public agency, if the turnover exceeds any limit; (iii) allow an character to have multiple OPC – considering he/ she can also additionally need to perform exclusive agencies beneath neath exclusive agency for prudent management, profitability and cash-flow; (iv) offer affordable tax slabs. The rest of the provisions of Companies Act, 2013 and Income Act, 1961 shall reassure the marketers’ religion withinside the complete idea of OPC altogether. OPC permits someone to include an organization on its personal situations and stops interference. Thus, this idea creates possibilities too. The technique is a piece prolonged however a legitimate one so, it's far essential to observe them on the way to begin an OPC legally and to paintings correctly beneath neath it.



This article is written by Harsh Garg of Amity Law School, Noida.

Recent Posts

See All

“Where there is a right, there is a remedy” In order to provide relief in cases relating to breach of contracts and in the cases relating to law of torts Specific Relief Act, 1877 was enacted which wa

Introduction Digital assets are asset classes that are entirely digital and have no physical component. Digital assets were maintained in a digital wallet in the early days of the industry. These solu

Introduction Defamation is defined as any maliciously false statement issued in written form or verbally that damages a person's reputation, undermines public perception of them, causes them to lose f