The Companies Act, of 2013 completely revolutionized corporate law in India by introducing several new concepts previously unknown in the country. One of these was the concept of the One Person Company. This led to the discovery of a totally new way of starting businesses that offered the flexibility offered by a company form of the entity while providing the protection of limited liability lacking in sole proprietorships and partnerships.
There were several countries that had already recognized the ability of individuals to form a company before the new Companies Act was enacted in 2013. Among these were China, Singapore, the UK, Australia, and the USA.
One-person companies include:
A one-person company is defined by section 2(62) of the Companies Act as a company that has only one member. Likewise, members of a company are nothing more than subscribers to the company’s memorandum of association or shareholders. In other words, an OPC is a company with only one shareholder as its member.
A company of this type is usually created by a sole founder/promoter. Entrepreneurs whose businesses are at an early stage prefer OPCs over sole proprietorships for several reasons.
The difference between an OPC and a sole proprietorship
There are some differences between sole proprietorships and one-person companies, although they both involve a single owner owning the business.
The main difference between the two is the nature of their liabilities. OPCs are legal entities separate from their promoters and have their own assets and liabilities. Promoters are not personally liable for company debts.
Therefore, sole proprietorships have the same owners as their proprietors. If the promoter fails to meet his obligations, the law allows him to attach and sell his own assets.
One-person companies have these features
The following are some general characteristics of a one-person business:
- A private company includes OPCs as well.
- OPCs can only have one member or shareholder, in contrast to other private companies.
- A unique characteristic of OPCs that makes them stand out from other types of companies is that the sole member of the company must name a nominee when registering.
- Since an OPC has only one member, his death will result in the nominee choosing or rejecting to become its sole member. Other companies do not follow this process since they follow the concept of perpetual succession.
- A minimum of one person must serve as a director for an OPC. The maximum number of directors is 15.
- No minimum paid-up share capital: The Companies Act, 2013 does not specify any minimum paid-up share capital requirement for OPCs.
- OPCs have several privileges and exemptions under the Companies Act that other kinds of companies do not have.
An individual can form an OPC by signing the memorandum of association and meeting other requirements prescribed by the Companies Act, 2013. A memorandum must name the nominee who will become the sole member of the company should the original member die or be unable to enter into contractual relations.
With a registration application, this memorandum and the nominee’s consent should be filed with the Registrar of Companies. The nominee may withdraw his name at any time by submitting the requisite applications to the Registrar. The member may also withdraw his nomination at any time.
Members of one-person companies
One-person companies in India can only be formed by natural persons who are Indian citizens and residents. Nominees of OPCs are subject to the same conditions. Moreover, such a person cannot be a member or nominee of more than one OPC at the same time.
The OPCs can only be joined by natural persons. It does not happen in the case of companies, where the company can own shares and be a member. Further, minors cannot be members or nominees of OPCs.
Companies converting into OPCs
The rules governing the formation of one-person companies expressly prohibit the conversion of OPCs into Section 8 companies, i.e., companies that have charitable purposes. Furthermore, OPCs cannot convert into other kinds of companies until the expiration of two years following their incorporation.
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