With the enactment of the Companies Act, 2013, some modern concepts are introduced into India’s Corporate Legal System that wasn’t a part of the erstwhile previous Companies Act, 1956, one analogous idea introduced by the Act is that the idea of “One Person Company”, which suggests an individual can now compose a company. The whys and wherefores behind integrating this idea are to push and promote entrepreneurship for those who wish to set up a micro-economic industry but are at a lookout for business anatomy with fewer efforts, time period, and financial resources in legal conformity.
One Person Company is outlined under sub-clause 62 of Section 2 of the Act. It defines OPC as “a company which only has one person as a member”.
Only native-born Indians residing in India (that is, having stayed a minimum of 182 days in the previous fiscal year) may constitute One Person. The significant feature of One Person Company is that reduced risks are restricted to the enormity of the worth of the shares controlled and held by that person in the company.
It provides a good likelihood for sole entrepreneurs to enter into the corporate structure. In a private company, there is a minimum of two directors required and in public company minimum mandate of three directors is required but in contrast to them, one person company requires only one director. One person can form only a single OPC. A Sec. 8 company which is a company having charitable objectives cannot be formed as an OPC. OPC can be formed as a company restricted by shares, restricted by guarantee or unrestricted in regard to liabilities. But it limited to carry out any non-banking financial investment activities.
Management and Administration:
The management and administration of a company are conducted through its directors and the board. The minimum requirement of a director according to Sec. 149 (1) (a) of The Companies Act, 2013 is one. The directors can surge to a maximum of fifteen, and if more than fifteen directors are to be appointed then a special resolution is needed to be passed. “The First directors” appointment is essential to be stated in the Article of Association (AOA) and in truancy of such appointment then the subscriber to the Memorandum of Association (MOA) shall be considered to be the first director. The companies having one director are absolved from the obligation of having one board of directors meeting semi-yearly and the difference between the two should not be anytime less than ninety days as per Sec. 173 (5) of the Act. Sec. 174 states the “quorum for a meeting of the board” is exempted from one director company. To pass a resolution in a company normally a majority is necessary in the general meeting but, in case of OPC if a decision is taken by the sole director and communicated, it is assumed that a resolution is passed. The same decision should be entered in the minute book managed under Sec. 118 and, be dated and signed by the director.
Contract by One Person Company:
Sec.193 of the Act states provisions for a contract by OPC (One Person Company). A company can be of three types limited by shares or guarantee or unlimited. As per sub-section 1 of Sec. 193 “ a company either limited by share or guarantee enters into a contract with the sole member being the director, the company shall, unless the contract is in writing, should make sure that the terms of the contract are entered in the Memorandum of Association (MOA) or the minute book of the first meeting after entering into the contract”. If the contract made orally between the company and the sole director cum member then this provision shall not be enforced. The proviso states that other companies not being an OPC do not require to comply with the above-stated subsection.
Subsection 2 states that “every such contract entered and recorded shall be intimated to the Registrar of the Companies(ROC) within a period of 15 days of approval from the board of director(s)”.
Need of One Person Company:
OPC is an outcome of years of study and observations of its performance in other countries. It was earlier felt by the lawmakers that having OPC would be duplication to the concept of a sole proprietorship. But later seeing the great reflection of this concept in the other countries’ development and in the economy, India was forced to introduce this concept. The committee was formed in 2005 headed by Dr. J.J. Irani which stated the need to establish the company. They suggested that the revolution in Information Technology (IT) sector has brought evident growth and to cope with this there is a need to bring revolution in the economic diameter of the country. For the development in the economy individual participation is essential.
Finally, to enhance this participation a new structure of OPC was devised”. One Person Company (OPC) was created with an objective to convert unorganized business sectors to organized business sectors. Precisely speaking the aim was to put in order the private sector out of any supervision. It was projected that this structure would be of great benefit to the small entrepreneurs for example potters, artisans, etc. This concept gave Indian corporate law international footing.
Dr. J.J. Irani and his committee presented the concept of OPC in the year 2005. It was brought after viewing its success in other countries. The concept is still not in its full action and is getting accustomed to the corporate environment). The aim of incorporating was to systematise the unorganized sectors and for small entrepreneurs’ development. The focus relied on was on giving the small entrepreneurs benefit of companies that they cannot receive while being in a sole proprietorship. Certain misuses are possible out of which one is of setting up anonymous OPCs.
An established rule states that “one person can form only one company”, violation of this can be done by forming companies in the name of its family members. This can also be called as Benami Companies or Anonyms Companies. Tax can be evaded by investing in these companies by way of loans only on papers, as paying tax on loans to the company is exempted. It is commendable that the legislators have thought of integrating this concept of new organizational structure to laws in India nonetheless, it is vital to particularize the rules concerning the structure and affix punishments for breach which presently are not sufficient.
This Article is Authored by Siddhi P. Nagwekar, First year, B.A. LL.B (Hon’s) Student of Karnataka State Law University’s Law School.
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