One Man Company

Historically, the United Kingdom is the first one, which paved the way for the one-man company through a precedent set in its famous case Saloman v. Saloman & Co..¹ The concept of an OPC was not included in the Companies Act of 1956. In 2005, the JJ Irani Committee recommended the introduction of the OPC due to the potential benefits that it offered.² The Dr. J.J. Irani Committee's report³ included a proposal for One Person Companies (OPCs). In Chapter III, "Classification and Registration of Companies," the committee made a passing reference to OPC and specifically suggested that corporations be classified into the following several categories. The Committee stated its opinion that the law should take into account the possibility of diversity in company forms and, instead of attempting to regulate particular features of each form, should aim to establish guidelines that facilitate economic interaction for the creation of wealth based on well-defined and generally acknowledged guidelines. By virtue of the Companies Act of 2013, the OPC became a newly recognised company entity in India in 2013. An OPC is distinct from other kinds of businesses in that it can be founded by a single person, giving it access to particular benefits and exemptions. It is a useful option for those starting small enterprises since it enables them to form a company with one member who acts as both a director and a shareholder. The OPC concept was introduced to encourage entrepreneurship and self-employment in the country. According to the Companies Act of 2013, “One person company” refers to a business that has just one member.⁴ Small business owners will have new opportunities thanks to OPC. It is a private limited company that has been registered by a single person with limited liabilities. A lone individual is capable of making decisions.

Process of incorporation of OPC

As per the Companies Act, 2013, only a natural person who is an Indian citizen or a Non-resident of India is entitled to form an OPC in India.⁵ A person must first apply for a director identification number and digital signature before incorporating the company. Subsequently, apply for name approval, and the company's registrar will grant it within the following sixty days. Following this, the Articles of Association and Memorandum of Association have to be submitted, both of which must be signed by the individual, to the Registrar of Companies (ROC). The ROC will then issue the certificate of incorporation after confirming the information.⁶ The person who forms and joins an OPC is required to carry out several tasks under the Indian Companies Act of 2013. The yearly return and the annual general meeting report must be filed by the designated person.⁷ He will be the only person answerable to the creditors for overseeing the company's daily operations. However, the member's restriction is that he cannot join another OPC. OPCs can only be established in India by residents and non-resident Indians; people of other nationalities are not allowed to form an OPC.⁸ Furthermore, it is forbidden to invest foreign capital in an OPC under the most recent regulations regarding foreign direct investment. Thus, it can be deduced that the rules governing OPCs in India are strict, demonstrating a dedication to protecting indigenous sectors even in the current globalised setting.

Impact of OPC

OPC of sole-proprietor and company form of business has been provided with concessional requirements under the Companies Act 2013.⁹ The OPC concept's influence on Indian entrepreneurship is still in its infancy and will probably take longer to mature and acquire traction in the business sector. The OPC business model is set to take over as the go-to option in the long run, particularly for small business owners. This concept has many benefits, such as low documentation and compliance needs, the ability to form a distinct legal entity with only one member, and the flexibility to convert to other legal entities by adding more members and changing the Memorandum of Association. The OPC model has a lot of potential for service providers, artists, traders, and entrepreneurs who can take fewer risks. It gives these business owners a stage to demonstrate their expertise to a worldwide audience. Similar OPCs have been successful in Europe, the US, and Australia, which has strengthened those nations' economies.

OPCs are seen in India as well-organized, legally independent commercial entities that will eventually be vital to strengthening the country's economy. If the only director of an OPC dies, the nominee director will manage the business's affairs until the shares are given to the dead member's legal heirs. To further set OPCs apart from other kinds of businesses, the initials 'OPC' should be added to their names.

Salient features of OPC

• A natural person who resides in India and is an Indian citizen is the only person eligible to incorporate a one-person business.¹⁰
• In the event of the original shareholder's demise or incapacity, the shareholder must suggest a substitute person to take over as shareholder. To be appointed as the nominee for the exclusive shareholder, the nominated individual must give their approval.¹¹ To be nominated as the sole member of a one-person company, an individual must be a natural person, an Indian citizen, and a resident of India.
• It is not permitted for one individual to nominate or incorporate in more than one OPC.
• No minor may hold shares with a beneficial interest or become a nominee or member of the OPC.
• Except in situations where capital or turnover threshold limits are met, no such company may voluntarily convert into any other type of company until two years have passed since the date of incorporation.
• It is a requirement for an OPC to have only one member and, at any given time, may only appoint one director. An individual is not permitted to establish or act as a nominee in more than one OPC according to the 2013 Act. The legislation explicitly states that minors are prohibited from becoming members or nominees of an OPC or holding shares with beneficial interest. Additionally, an OPC cannot voluntarily convert into any other type of company until two years have passed since its incorporation unless certain capital or turnover threshold limits are met. The OPC must consistently maintain a single member and may have only one director at any given point.¹²

Conversion of OPC into a Public or Private Company and Vice-Versa:

An OPC may become a one-person company if it has a paid-up share capital of fifty lakh rupees or more, or if its average annual turnover during the relevant period was more than two crore rupees. The OPC may be converted into a private company, which must have a minimum of two members and two directors, or a public company, which must have a minimum of seven members and three directors, within six months of the date on which its paid-up share capital exceeds fifty lakh rupees, or by the end of the relevant period in which its average annual turnover exceeds two crore rupees. This change ought to be compliant with the provisions defined in Section 18 of the Act.¹³ By subsection (3) of Section 122 of the Act, the OPC shall amend its articles and memoranda by passing a resolution to expedite the conversion and effect any incidental adjustments that may be required. The OPC shall notify the Registrar within sixty days of the date on which the aforementioned ceiling limit is exceeded. The notice should state that the firm has exceeded the threshold limit in its paid-up share capital or average annual turnover, and as a result, it is no longer eligible to operate as an OPC and must convert into a private or public company. It is imperative to make clear that the three consecutive financial years immediately prior are referred to as the "relevant period". The OPC and any of its officers will face consequences for breaking any of these regulations. A fine of up to ten thousand rupees may be imposed on the OPC or its executives. In addition, a fine of up to one thousand rupees may be imposed for each day that the infringement continues after the first.

By raising the minimum number of members and directors to two or a minimum of seven members and two or three directors, respectively, an OPC may be converted into a Private or Public company. This conversion must abide by the terms of section 18 of the Act as well as the minimum paid-up capital requirements listed in the Act for such business types.

Transformation of a Private company into an OPC:

A private business may become a one-person company if it has paid-up share capital of fifty lakh rupees or less, or if its average annual turnover during the relevant period was not more than two crore rupees, except for those registered under section 8 of the Act. To accomplish this conversion, a specific resolution must be approved at a general meeting. The corporation shall get in writing 'No objection' from creditors and members prior to the resolution being passed.

Conclusion

This entails streamlining the legal system so small business owners aren’t saddled with onerous legal requirements that take a lot of time, effort, and money to complete. Facilitating individual contributions to economic progress and generating job possibilities are the objectives for the enactment of OPC. Both sole proprietors and corporations are accommodated under the Companies Act of 2013’s concessional and lenient standards for OPC. Through the idea of an OPC, this programme enables one person to launch a business on a national level. OPC is suitable for small companies where the turnover is not likely to cross Rs. 2 Crores, and the maximum amount of capital is limited to Rs. 50 Lac. An OPC can have more than one director. However, one of them must be an Indian Resident. The OPC can be registered by Indian citizens only, and FDI is not allowed in an OPC.¹⁴

This article is authored by Vishal Kumar, a Delhi based lawyer.