One Person Company

Submitted to

Ms. Navita Aggarwal

Faculty Member in Corporate Law

By

Sounak Verma
B. A. LL. B. (Hons.) Student
Semester V, Section A, Roll No. 158

Hidayatullah National Law University

Uparwara Post, Naya Raipur – 492002 (C.G.)
 I

Declaration

I, the undersigned, solemnly declare that this Project work titled, “ One Person
Company” is based on my own research work, carried out during the course of my study,
under the supervision and guidance of my faculty advisor.

I assert that the statements made and the conclusions drawn are the outcome of the
said research work. I further declare that, to the best of my knowledge and belief, proper
references have been given and it does not contain any part of any work that has been
submitted for the award of any other degree in this university or any other university.

Sounak Verma
Semester V (A), Batch XVI,
Roll No. 158
HNLU, Raipur
 II

Acknowledgements

I, Sounak Verma, would like to take up this opportunity to thank all those who have
stood by me throughout the duration of this project and helped me in completing it.

Foremost my teacher and mentor Ms. Navita Aggarwal Ma’ am. I thank her for her
faith in me to provide me with such a topic of research. Her constant guidance at every step
and keen attention to detail have been elementary in the completion of this project.

The college administration and staff had no less a part in this job. The value of their
support cannot be expressed in mere words.

Finally, I would like to thank God for his benevolence and grace in enabling me to
finish this task.

I express my heartfelt gratitude to everyone involved,

Thank You,

Sounak Verma

B.A. LL.B. (Hons.)

Semester – V, Section
A,
Batch XVI
Roll no. 158
 III

Table of Contents

S. No. Topic Pg. No.

Objectives of Study IV

Scope of Study IV

Hypothesis IV
1. Research Methodology
Methodology of Study IV

Organization of Study V

Mode of Citation V
Genesis & Global
1
Development
2. Introduction United Kingdom 2

Origin of Concept in India 2

Salient Features of One
4
Person Company
Incorporation of One Person
7
One Person Company as per Company
3.
Companies Act, 2013. Process of Incorporation of
8
One Person Company
Privileges of One Person
9
Company
Advantages 11
Advantages & disadvantages
4.
of One Person Company
Disadvantages 13
Impact of One Person
Company in Indian 16
One Person Company in
5. Entrepreneurship
Contemporary Scenario
The Future Ahead 16

6. Conclusion 18

7. References 19
 IV

Research Methodology

Objectives of the Study

Set in the Corporate Scenario or background, the broad objectives of the study is to understand
the concept of One Person Company. This is sought to be achieved by dealing with its concept,
advantages and disadvantages, etc. This research also tries to study the recent development in
this concept by studying its application in the present era.

Set in the above perspective or background, the main questions which are tried to be answered
by the study are:

 What is the concept of One Person Company and what importance does it hold in the
corporate world?
 What is its status in Companies Act and what are its advantages and disadvantages?
 Why the concept of One Person Company is of utmost importance in the present era and
what is its future?

Scope of the Study

This project research would cover the study of the concept of state One Person Company in
India only. The report would be limited in its context to understanding the concept at the Indian
level only and not at the international platform.

Hypothesis

One person company is a company incorporated under Companies Act, 2013. It is a company
owned by a single individual. The idea about the topic is that, only natural person can become its
owner. This concept is of recent origin and it came into being in the year 2013. It is hence
presumed that it has a long way to go.

Methodology of the Study

This project work is descriptive analytical in approach and has been done taking the help of
secondary data i.e. websites, articles, journals, books, etc. To construct this project, the help of
dictionaries, websites as well as foreign journals and books on the said case has been taken. The
 V

points as discussed in this project include the study of different sources on the topic as well as
the points guided by the faculty. Footnotes have also been provided for acknowledging the
sources as and where needed.

Organization of the Study

The study is organized into 4 sections:

1. The first chapter deals with the introduction of the topic i.e. One Person Company, its
genesis and origin;
2. The second chapter deals with Concept of One Person Company as per Companies Act,
2013, its incorporation and privileges;
3. The third chapter deals with the advantages and disadvantages of One Person Company;
4. The fourth chapter deals with One Person Company in the contemporary scenario, its
impact and future prospects.

Mode of Citation

A uniform mode of citation i.e., 19th edition of Bluebook Citation, has been thoroughly used for
citing the sources of information used in this project.
 1

Introduction

“ To unleash the entrepreneurial talent of the people in the information and technology driven
environment, law should recognize One Person Company.”
- Irani Committee Report, para 3.2 of Chapter I, May 31, 2005.

One person company is a concept introduced in India by the Companies Act, 2013. The concept
opens up new vistas of business opportunities and particularly spectacular possibilities for sole
proprietorships and entrepreneurs who can enjoy the advantages of limited liability, and the
benefit of separate legal entity as well. Ministry of Corporate Affairs vide its G.S.R. Notification
No. 250(E) dated 31st March, 2014 notified the Companies (Incorporation) Rules, 2014 under
the Companies Act, 2013 which provide for formation of One Person Company.1

This project has been categorically scripted to present an overview about the revolutionary new
concept of OPC as introduced by the Companies Act, 2013. It presents a critical analysis of the
concept. OPC is an opportunity for them who were previously hesitant from perpetuating their
own ventures and will provide a chance to young people who were in a jinx before starting their
own business. It will not only provide them an opportunity to vent into something new but will
also help them to access certain facilities like bank loans, legal shield for their business and a
thorough access to the market as a separate entity. 2

Genesis and Global Development

One person companies are in existence in certain countries. This form of business has already
flourished in some of the developed countries like United States of America, Singapore, China
and various other countries in Europe.

In India this concept has been mooted by the Ministry of Corporate Affairs by allowing One
Person Companies in India. It is a right thinking in right direction by the Ministry of Corporate
Affairs. One Person Companies have been in existence in UK for several years now. China
allowed formation of OPCs as recent as in 2005. A few other countries have also given the legal
status for OPCs.

1
One Person Company (OPC), INSTITUTE OF COMPANY SECRETARIES OF INDIA, (Oct. 20, 2018, 10:04
AM), https://www.icsi.edu/WebModules/CompaniesAct2013/ONE%20PERSON%20COMPANY.pdf
2
Namrata Gupta, One Person Company - A Critical Analysis, 1 INTERNATIONAL JOURNAL OF LEGAL
INSIGHT, Issue 3, ISSN: 2456-3595.
 2

United Kingdom

Historically, United Kingdom is the first country which paved the way to the one man company
through a precedent set in its famous case Saloman v. Saloman & Co.3 Section 7 of the UK
Companies Act, 2006 deals with method of forming company. It provides that:

1) A company is formed under this Act by one or more persons:

a) Subscribing their names to a memorandum of association, and

b) Complying with the requirements of this Act as to registration.

2) A company may not be so formed for an unlawful purpose.

Origin of the concept in India

Under the ‘ old’ Companies Act, 1956 a minimum of two members were required for
formation of a Private Limited Company. This was a hindrance to the entrepreneurs who wanted
to go ‘ solo’ .

According to the old Act,4 the only options were either to form a private company with a
minimum of two members or a public company with a minimum of seven members, which was
either limited by shares or by guarantee or was unlimited. The reason provided by the
parliamentarians for having at least two members for a private company was so as to
differentiate it from a sole proprietorship concern which could be started by any individual. But
people started forming companies by adding a nominal member/Director and allotting them a
single share, which was a pre-requisite to be a Director, and retaining the rest with themselves.
This was a way of bending the law, in order to satisfy the legal provisions while at the same time
exercise dominance.5

This was seen by the legislatures as a fraudulent activity. Though it was formed in compliance
with the statutory provisions, it seeks to violate the very reason for which such a restriction was
imposed, i.e. the mischief sought to be remedied by section 12 of the Companies Act, 1956 was

3
(1897) AC 22.
4
S.12, the Companies Act, 1956.
5
Aditya Thejus Krishnan, One Person Company, ACADEMIKE, ISSN: 2349-9796,
https://www.lawctopus.com/academike/%EF%BB%BFone-person-company/#_edn1.
 3

to ensure that a company would not be left to the sole control of an individual but would rather
be shared by at least two individuals. But this intention of the legislature was defeated by
incorporating private companies with a nominal member. Later, it was established that there is
nothing wrong in permitting one person to form a company with proper checks and balances,
upholding the Constitutional right of an individual to start a business, trade or commerce on his
own, ensuring that it is not for the purpose of defrauding the public.

OPC provides a legitimate way to form a company with only one member. It can work like
proprietorship but it holds the status of company and of course enjoys the benefits that come
with it (limited liability, trust factor etc.).6

The concept of OPC was mooted, in the report of Dr. J.J. Irani Committee.7 Regarding OPC, the
suggestions of the Committee were,

“With increasing use of information technology and computers, emergence of the

service sector, it is time that the entrepreneurial capabilities of the people are given
an outlet for participation in economic activity. Such economic activity may take
place through the creation of an economic person in the form of a company. Yet it
would not be reasonable to expect that every entrepreneur who is capable of
developing his ideas and participating in the market place should do it through an
association of persons. We feel that it is possible for individuals to operate in the
economic domain and contribute effectively. To facilitate this, the Committee
recommends that the law should recognize the formation of a single person
economic entity in the form of ‘ One Person Company’ . Such an entity may be
provided with a simpler regime through exemptions so that the single entrepreneur
is not compelled to fritter away his time, energy and resources on procedural
matters.”

6
Neha Yati, Krusch. P A, One Person Company in India, 2 INTERNATIONAL JOURNAL OF LAW AND
LEGAL JURISPRUDENCE STUDIES, Issue 4, ISSN: 2348-8212.
7
Dr. Jamshed J. Irani, Report on Company Law, EXPERT COMMITTEE ON COMPANY LAW, NEW
DELHI, 31st May 2005, http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf.
 4

One Person Company as per Companies Act, 2013

Generally, a company is a form of business organization. In English law, and therefore in the
Commonwealth realm, a company is a form of body corporate or corporation, generally
registered under the Companies Acts or other similar legislation. It does not include a
partnership or any other unincorporated group of persons.8

As per Section 2 (62) of the Companies Act, 2013 One Person Company is a company which
has only person as a member. Chapter II of the Companies Act, 2013 section 3 allows one
person to form a company for any lawful purpose. It also mentions that the memorandum shall
indicate the name of the other person, with his prior consent, who will in the event of the
subscriber’ s death or incapacity to contract become the member of the company and the same
consent in written shall be filed with the registrar of companies at the time of Incorporation of
the company along with the memorandum and articles. The minimum capital required to start up
with One Person Company is Rs. 1, 00,000/-

One Person Company may be constituted under any of the following three categories:

1) A Company limited by shares.9

2) A Company limited by guarantee.10
3) An Unlimited Company.11

Salient Features of OPC

 One Person: The most prominent and striking feature of an OPC is the fact that it has only
one Director and one shareholder – both rolled into one. This is the most distinctive feature
of an OPC. Since it has only one Director, he exercises complete control over the
functioning of the enterprise. He is also the only single shareholder. It can however have a
maximum of 15 Directors.12 Member/Shareholder of the One Person Company acts as first
Director, until the Company appoints Director(s).

8
Beihui Miao, A Comparative Study of Legal Framework for Single Member Company in European Union and
China, 5 JOURNAL OF POLITICS AND LAW, ISSN 1913-9047.
9
Section 2(22) of the Company Act, 2013, “ herein referred the Act” .
10
Section 2(21) of the Company Act, 2013.
11
Section 2(92) of the Company Act, 2013.
12
Section 149(1) of the Company Act, 2013.
 5

 Minimum paid up capital: It shall have a minimum paid up capital of Rs.1lakh.

 Nominee: The Act clearly prescribes that the Director of the company shall appoint a
nominee to take charge of the company when the sole Director/member is disabled or
diseased. The nominee shall be a natural person, Indian citizen and resident13 in India. The
name of the person has to be provided in the memorandum.14 The naming can however only
be done with the prior consent of the nominee in writing. The reason being that he is
accepting to take on the company with all its liabilities as well; the registrar has to make sure
that the nominee has voluntarily consented to it. The written consent has to be filed with the
registrar at the time of incorporation along with the Articles and the Memorandum.
Provisions are provided for the nominee/ other person to withdraw his consent at any time.15
Further, the member/Shareholder of OPC may change the nominee/other person at any time,
by giving notice to the other person and intimate the same to Company. Then the Company
should intimate the same to the Registrar.

 Meetings:

With respect to Board Meetings (Section 149(1)(a)) - At least one meeting of Board in each
half of a calendar year and the gap between 2 meetings should not be less than 90 days.
However, no Board Meeting is required, if there is only one Director. If there is any business
which is required to be transacted in a Board meeting and OPC has only 1 Director, then it
will be sufficient if the resolution by such Director is entered in the minutes-book and is
signed and dated by such Director and such date shall be taken as the date of Board meeting.

With respect to Annual General Meetings (Section 96(1)) - There is no requirement of

holding AGM, however any business which is required to be transacted at an AGM or other
general meeting, by means of an ordinary or special resolution, shall be taken as passed by
OPC, if the resolution is communicated by the member to the company and entered in the

13
Resident in India will mean a person who has stayed in India for a period of not less than 182 days during the
immediately preceding one financial year.
14
Section 3(1) of the Company Act, 2013.
15
Section 3 of the Company Act, 2013.
 6

minutes-book and signed and dated by the member and such date shall be deemed to be the
date of the meeting.16

 Financial Statements: Financial statements of OPC may not include the Cash Flow
Statement (Section 40). It may only include Balance Sheet, Profit & Loss and any
explanatory note, as a part of the same. Unlike other companies, here it is to be signed by
only one Director. A copy of the financial statements is to be filed with the Registrar of
Companies, within 180 days from the closure of the financial year.17

 Style of writing Name of Company: ‘ ‘ One Person Company’ ’ is required to be

mentioned in brackets below the name of such name of the company, wherever its name is
printed, affixed or engraved.18

 Annual Return: Annual return is required to be prepared by OPC and be signed by the
Company Secretary (CS) of Company and when there is no CS, by any Director of
Company. However, it is not clear, whether the same is required to be filed with ROC, as the
time limit of filing return is connected to the date of holding AGM, however, we know that
OPC is not required to hold AGM. Hence, it is an open question.19

 Non-applicable Clauses: As far as an OPC is concerned, in Chapter VII, it is provided that

the various sections prescribing certain formalities and procedures are not applicable.

 Contract by One Person Company: If an OPC limited by shares or by guarantee enters into a
contract with the sole member, who is also the Director of the company, then it should be
ensured that the terms of contract are contained in a memorandum or are recorded in the
minutes of the first meeting of Board, held next after entering into contract. However, it
should not apply to contracts entered into, in the ordinary course of its business. The
company shall inform the ROC of such a contract and shall record the approval of the Board
in the minutes, within a period of 15 days of the Board meeting.

16
Abhiyansh Kumar Dikshit, One Person Company, (oct 21, 2018, 10:15 AM), http://assets.cacharya.com/one-
person-company-6MZ69DFN.pdf?1437812351.
17
One Person Company (OPC) - Company Incorporation in India, (oct. 22, 2018, 10:04 AM),
http://www.onepersoncompany.in/features-of-opc.html.
18
Section 12(3) (d) of the Company Act, 2013.
19
CS Dhanapal, OPC - Salient Features under Co. Act, 2013, (oct 22 2018, 10:04 AM),
https://www.caclubindia.com/articles/opc-salient-features-under-co-act-2013-20607.asp
 7

 The member and nominee: should be natural persons, Indian Citizens and resident in India.
The term "resident in India" means a person who has stayed in India for a period of not less
than 182 days during the immediately preceding one calendar year.

 One person cannot incorporate more than one OPC or become nominee in more than one
OPC. If a member of OPC becomes a member in another OPC by virtue of his being
nominee in that OPC then within 180 days he shall have to meet the eligibility criteria of
being Member in one OPC.

 OPC to lose its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is
more than 2 crores in three immediate preceding consecutive years.

 No minor shall become member or nominee of the One Person Company or hold share with
beneficial interest.

 Such Company cannot be incorporated or converted into a company under section 8 of the
Companies Act, 2013. (Association not for Profit)

 Such Company cannot carry out Non- Banking Financial Investment activities including
investment in securities of any body corporate.

 No such company can convert voluntarily into any kind of company unless 2 years have
expired from the date of incorporation, except in cases where capital or turnover threshold
limits are reached. An existing private company other than a company registered under
section 8 of the Act which has paid up share capital of Rs. 50 Lakhs or less or average
annual turnover during the relevant period is Rs. 2 Crores or less may convert itself into one
Person Company by passing a special resolution in the general meeting.

Incorporation of One Person Company

A natural person who is Citizen of India and resident in India is eligible to incorporate a One
Person Company, i.e., a person who has stayed in India for a period of not less than one hundred
and eighty two days during the immediately preceding one calendar year shall be eligible to
incorporate a One Person Company and a nominee for the sole member of a One Person
Company. It shall be noted that no person is eligible to incorporate more than one OPC or
 8

nominee in more than one such company. The process of incorporating One Person Company is
far easier as compared to Private limited and public limited company. There are many
relaxations in terms of legal complexities as involved in incorporation of other companies under
the Companies Act, 2013.20

Process of Incorporation of One person Company21

Obtain Digital Signature Certificate [DSC] for the proposed Director(s)

Obtain Director Identification Number [DIN] for the proposed director(s)

↓
Select suitable Company Name, and make an application to the Ministry of Corporate Affairs
for availability of name
↓

Draft Memorandum of Association and Articles of Association [MOA & AOA]

↓
Sign and file various documents including MOA & AOA with the Registrar of Companies
electronically
↓

Payment of Requisite fee to Ministry of Corporate Affairs and also Stamp Duty

Scrutiny of documents at Registrar of Companies [ROC]

Receipt of Certificate of Registration/Incorporation from ROC

Privileges available to OPC

Some of the privileges and benefits identified with OPCs are:

20
Sagar Gupta, How to incorporate a One Person Company? (oct. 24 2018, 08:31 AM),
https://taxguru.in/company-law/incorporate-person-company.html/.
21
One Person Company (OPC), INSTITUTE OF COMPANY SECRETARIES OF INDIA, (Oct 24 2018,
10:04 AM), https://www.icsi.edu/WebModules/CompaniesAct2013/ONE%20PERSON%20COMPANY.pdf
 9

 Advantage of limited liability- The most significant reason for shareholders to incorporate
the ‘ single-person company’ is certainly the desire for the limited liability.22

 OPCs are not proprietorship concerns; hence, they give a dual entity to the company as well
as the individual, guarding the individual against any pitfalls of liabilities. This is the
fundamental difference between OPC and sole proprietorship.

 Unlike a private limited or public limited company (listed or unlisted), OPCs need not bother
too much about compliances. Businesses currently run under the proprietorship model could
get converted into OPCs without any difficulty.

 OPCs require minimal capital to begin with. Being a recognized corporate, could well raise
capital from others like venture capital financial institutions etc., thus graduating to a private
limited company.

 Mandatory rotation of auditor after expiry of maximum term is not applicable.

 The annual return of a One Person Company shall be signed by the company secretary, or
where there is no company secretary, by the director of the company.

 The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of
general meetings, shall not apply to a One Person Company.

 A One Person Company needs to have minimum of one director. It can have directors up to
a maximum of 15 which can also be increased by passing a special resolution as in case of
any other company.

 For the purposes of holding Board Meetings, in case of a one person Company which has
only one director, it shall be sufficient compliance if all resolutions required to be passed by
such a Company at a Board meeting, are entered in the minutes-book, signed and dated by
the member and such date shall be deemed to be the date of the Board Meeting for all the
purposes under this Act. For other One Person Companies, at least one Board Meeting must
be held in each half of the calendar year and the gap between the two meetings should not be
less than 90 days.
22
ANAR & co., Privileges of a OPC, (oct. 24, 2018, 17:59 PM) https://caasmeet.wordpress.com/company-
law/privileges-of-a-private-limited-company/.
 10

 The financial statements of a one person company can be signed by one director alone. Cash
Flow Statement is not a mandatory part of financial statements for a One Person Company.
Financial statements of a one person company need to be filed with the Registrar, after they
are duly adopted by the member, within 180 days of closure of financial year along with all
necessary documents.

 Board’ s report to be annexed to financial statements may only contain explanations or

comments by the Board on every qualification, reservation or adverse remark or disclaimer
made by the auditor in his report.
 11

Advantages and Disadvantages of a One Person Company

Advantages

 Limited Liability: The most significant reasons to incorporate One Person Company is that it
provides limited liability to the entrepreneur. The usual argument advanced by the courts is:
Limited liability is a privilege held out by the corporation law of the state; one who
organizes a one-man or family corporation, in compliance with the formalities of that law,
for the purpose of attaining limited liability in a commercial venture, is merely taking
advantage of a privilege conferred by law.23

 Perpetual Succession: A One Person Company being an incorporated entity shall be a

perpetual entity and thereby unlike a sole proprietorship, the death or incapacity of the sole
member would not dissolve the company. This would hence enable many successful
ventures to run irrespective of the death or any incapacity of the proprietor to run the
venture.

 Middlemen eliminated: One Person Companies enable small entrepreneurs to set up a

company by allowing the shareholders to directly access the target market and avail credit
facilities, bank loan rather than being forced to share their profits with middlemen. Thus,
such companies will provide an opportunity to various small entrepreneurs like weavers,
artisans etc. to start their own ventures with a formal business structure.

 Compliances One Person Companies have been exempted from various procedural
formalities not otherwise available to private companies such as conducting an AGM,
General meeting or Extraordinary General Meeting (EGM) etc. thereby, making its
operation very convenient and hassle free.24

 Mandatory rotation: of auditor after expiry of maximum term is not applicable on One
Person Company.

23
Elenkrieg v. Siebrecht, 238 N. Y. 254, 144 N. E. 519 (1924); Salomon v. Saloman & Co., Ltd. [1897] A. C.
22. See Inland Revenue Commissioners v. Sansom, [i921] 2 K. B. 492, 500, 125 L. T. R.37.
24
Dr. Madhu Sudan Dash, One Person Company: A Critical Analysis, 5 INDIAN JOURNAL OF APPLIED
RESEARCH, Issue: 6, ISSN - 2249-555X.
 12

 Cash Flow Statement: The financial statement of One Person Company is not to include the
Cash Flow Statements.

 Alternative to AGM, EGM and other general meetings: The Act provides that any business
which is required to be transacted at an AGM or any other general meeting of the company
by means of ordinary or special resolution, it shall be sufficient if, in case of one person
company, the resolution is communicated by the sole member to the company and entered in
the minutes book and signed and dated by the sole member.

 Section 173 (Frequency of board meetings): A minimum of four board meetings of the
board of the directors in each year is required to be held in such a manner that not more than
120 days shall intervene between two consecutive meetings of the board. In case of One
Person Company, if there is only one director, there is no such compulsion to conduct such
board meetings so as to comply with section 173. And if there are more than 1 director in an
OPC then this section is deemed to have been complied with if at least one board meeting
has been conducted in each half of a calendar year and gap in between two meetings is
minimum 90 days.

 The annual return of a One Person Company shall be signed by the company secretary, or
where there is no company secretary, by the director of the company.

 A One Person Company needs to have minimum of one director. It can have directors up to
a maximum of 15 which can also be increased by passing a special resolution as in case of
any other company.

 For the purposes of holding Board Meetings, in case of a one person Company which has
only one director, it shall be sufficient compliance if all resolutions required to be passed by
such a Company at a Board meeting, are entered in the minutes-book, signed and dated by
the member and such date shall be deemed to be the date of the Board Meeting for all the
purposes under this Act. For other One Person Companies, at least one Board Meeting must
be held in each half of the calendar year and the gap between the two meetings should not be
less than 90 days.

 The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of
general meetings, shall not apply to a One Person Company.
 13

Disadvantages

Sole Owner is not eligible to incorporate more than 1 one person company: & become nominee
in more than 1 one person company.25

Requirement to appoint a nominee for incorporating a One Person Company: The very purpose
behind introducing the concept of One Person Company is to enable even an individual to enter
into a business venture with limited liability without wasting his time and energy looking for a
partner. However, this entire objective has been overshadowed due to the legal mandate, which
requires that the shareholder shall during the incorporation of a One Person Company mention
the name of a nominee in the memorandum of the company who in the event of death of the
subscriber or his incapacity to contract shall become the member of the company. Though this
provision was introduced with the objective of preserving the basic characteristic of a company
i.e. perpetual succession but at a practical level this mandate ultimately creates procedural hassle
for such sole subscribers by compelling them to enter into the process of looking for a suitable
nominee, obtaining his consent etc. Further, the freedom extended to the nominees to withdraw
their consent to their nomination presents yet another challenge for the sole subscriber, requiring
him to nominate another person within fifteen days from such withdrawal, intimating it to the
company, amending the memorandum of the company and further communicating such fact to
the registrar of the company. Thus, the concept of nominee though has a rationale objective but
at a practical level it mars the entire objective of the concept through its procedural
complications.26

OPC cannot carry non-banking financial activities: including investing in shares of another
body corporate.

OPC cannot convert into section 8 Companies: Section 8 companies are those companies that
have been registered as Non Profit Company under section 8 of Companies Act, 2013.

25
Kanungo, Roji and Dash, Sakti Ranjan, A Conceptual View on Companies Act 2013: With Special reference
to Share Capital, 4 INTERCONTINENTAL JOURNAL OF FINANCE RESEARCH REVIEW, Issue 3, pp-78-
88.
26
Dr. Swapan Kumar Roy, Suhas Roy, One Person Company in India: A Synoptic View In The Light Of The
Companies Act, 2013, 5 JOURNAL OF BUSINESS MANAGEMENT & SOCIAL SCIENCES RESEARCH,
ISSN No: 2319-5614, September 2016.
 14

Section 193(2): OPC shall inform the registrar of company about every contract entered into by
the company & recorded in the minutes of meeting of its board of directors within 15 days from
the date of approval by the board.

One person company must be converted to a private limited company: if the turnover exceeds
Rs. 2 crore or paid up share capital of the OPC is increased beyond 50 Lakhs. Intimation
regarding exceeding the threshold limit shall be given in e- form INC-5.27

NRIs not allowed to incorporate One Person Company: As per Companies Act, 2013 only a
natural person who is an Indian citizen and resident in India shall be eligible to incorporate a
One Person Company. This provision seems to be an irony, as the entire objective behind
introducing the concept of One Person Company was to boost economic growth of the country
by promoting entrepreneurship. This concept though encourages small entrepreneurs but on the
other hand, discourages foreign direct investment by disallowing foreign companies and
multinational companies to incorporate their subsidiaries in India as a One Person Company.

Procedural Complexities: Though the Act extends slew of exemptions to a One Person company
in terms of conducting AGM, EGM, Quorum of meetings, restriction on voting rights or filing
its financial statements, yet the incorporation of such a company requires lots of paper work as
compared to a sole proprietorship. These procedural complexities with respect to incorporation
of One Person Company might make this concept less attractive for sole entrepreneurs.28

Creditor’ s psychology: It is also relevant to note that most of the creditors of the company will
be sentient of the danger posed by this new concept. Usually a company which has at least two
members is a welcome investment. But when it comes to a single individual the chances of him
manipulating or using the company name for fraud are always present.29

27
Lukey, Krishna Rao (2015), One Person Company: A Paradigm Shift in the Corporate Realm, DMIETR, 1
INTERNATIONAL JOURNAL ON FINANCIAL MANAGEMENT, pp-4-13.
28
Ruchita Dang Nishant Sharma, One Person Company: Concept, Opportunities & Challenges in India, 4
INTERNATIONAL JOURNAL FOR RESEARCH IN MANAGEMENT AND PHARMACY, Issue 3, ISSN:
2320- 0901.
29
Aditya Thejus Krishnan, One Person Company, ACADEMIKE (ISSN: 2349-9796),
https://www.lawctopus.com/academike/%EF%BB%BFone-person-company/#_edn1.
 15

One Person Company in Contemporary Scenario

Impact of OPC in Indian Entrepreneurship

The concept of OPC is still in its nascent stages in India and would require some more time to
mature and to be fully accepted by the business world. With passage of time, the OPC mode of
business organisation is all set to become the most preferred form of business organization
especially for small entrepreneurs. The benefits emanating from this concept are many, to name
a few are:

 Minimal paper work and compliances.

 Ability to form a separate legal entity with just one member.
 Provision for conversion to other types of legal entities by induction of more members
and amendment in the Memorandum of Association.30

The One Person Company concept holds a bright future for small traders, entrepreneurs with
low risk taking capacity, artisans and other service providers. The OPC would act as a launch
pad for such entrepreneurs to showcase their capabilities in the global arena. The counterparts of
Indian OPCs in Europe, United States and Australia have resulted in further strengthening of the
economies in the respective countries. OPCs in India are aimed at structured, organised business
units, having a separate legal entity ultimately playing a crucial role in further strengthening of
the Indian economy.

The Future Ahead

One Person Company is in its stage of infancy and is in a grey area in India. But corporate
professionals predict an emergence of the traditional concept of sole proprietorship, elevating it
in the corporate world. It will bring in a more structured arrangement and bring in the
unorganized sector of proprietorship firms in the organised version of private limited company.
It will give greater flexibility to an individual or a professional to manage his business efficiently
and at the same time enjoy the benefits of a company. It will be further be a benefactor for FDI

30
Shameema V, Hetha P, One Person Company- An Ideal Approach For Transforming New Age Business, 5
ABHINAV INTERNATIONAL MONTHLY REFEREED JOURNAL OF RESEARCH IN MANAGEMENT &
TECHNOLOGY, Issue 11, ISSN-2320-0073.
 16

in India. Moreover, due to its limited liability clause, the personal assets of the shareholders and
directors remain protected in case of a credit default.

However, one must note that the tax implications of OPC are much higher than of sole
proprietorship. The OPC is charged at a base tax rate of 30% along with other applicable taxes
like minimum alternative tax (base tax rate 18.5%), dividend distribution tax (base tax rate 15%)
and others. The tax incidence is the main deterrent for setting up of OPC. This concept has been
a keen interest among entrepreneurs looking forward to doing business with the entrepreneurial
freedoms as afforded by proprietorships but without the baggage of personal liability that a
proprietorship is bound to carry .OPC provide many opportunities to all those who are looking
forward to kick start their own venture with a structure of the organized business. This concept
will help the young or start-up entrepreneurs test a business model, a product or a service before
attracting new investors. The compliance pressure which has to be mandatorily followed is
comparatively less and the feature of limited liability is an added privilege to it. Such a concept
will benefit a lot to all the individual proprietors and proprietors engaged in small scale
industries. It will provide a greater flexibility to an individual to manage his business at the same
time enjoy the benefits of a company. The point to be noted here is that with the use of this
concept it will make a way for more favourable banking facilities, particularly loans and
advances to individual proprietors. At the same time, it will also boost the foreign funds in
India.31

31
Nikunj Keyal, One Person Company, (Oct 24, 2018, 10:46 AM),
http://www.legalservicesindia.com/article/article/one-person-company-2188-1.html.
 17

Conclusion

The concept of One Person Company is advantageous both for the regulators and the market
players. The conferment of the status of private limited company on a One Person company will
not only limit the liability of sole entrepreneurs but also provide access to market players to
various credit and loan facilities and hence would encourage entrepreneurship.

However, this concept has been criticized on grounds of excessive procedural formalities and tax
burden. Further, this concept is also being regarded as unnecessary as India already has a
Limited Liability Partnership Act, 2008, which limits the liabilities of the members of a
partnership.

The authors after critically analysing the various provisions and rules related to One Person
Companies has arrived at the conclusion, that though the concept might have certain grey areas
but overall the Indian version of One Person Company is very sound and complete.

The concept is a necessity in the changing business arena of the country where entrepreneurs are
require taking risk and at the same time needs protection to cover up that risk. The single
entrepreneurs are in the need of a speedy mechanism to get incorporated in company form of a
business and OPC seems to be the possible solution where the entrepreneurs are not required to
fritter away their time, energy and resources on procedural matters. Though OPC appears a
promising form of business but there is a long way to go since in India the outlook of sole
traders is more traditional and they usually don’ t want to deviate from the way they have doing
their business.

Freedom should always be regulated and hence the procedural requirements in incorporation and
operation of a One Person Company are merely to check the abuse of liberty and immunity
given to single person business entities. Hence, this concept will act as a big incentive for small
entrepreneurs and thereby will boost the economic growth of the country.
 18

References

Books/Dictionaries/ Documents

 Dr. Jamshed J. Irani, Report on Company Law, EXPERT COMMITTEE ON

COMPANY LAW, NEW DELHI.
 One Person Company (OPC), INSTITUTE OF COMPANY SECRETARIES OF
INDIA.

Journals/ Newspaper Articles/ Reports

 Namrata Gupta, One Person Company - A Critical Analysis, 1 INTERNATIONAL

JOURNAL OF LEGAL INSIGHT, Issue 3, ISSN: 2456-3595.
 Aditya Thejus Krishnan, One Person Company, ACADEMIKE, ISSN: 2349-9796,
https://www.lawctopus.com/academike/%EF%BB%BFone-person-company/#_edn1.
 Neha Yati, Krusch. P A, One Person Company in India, 2 INTERNATIONAL
JOURNAL OF LAW AND LEGAL JURISPRUDENCE STUDIES, Issue 4, ISSN:
2348-8212.
 Beihui Miao, A Comparative Study of Legal Framework for Single Member Company
in European Union and China, 5 JOURNAL OF POLITICS AND LAW, ISSN 1913-
9047.
 Dr. Madhu Sudan Dash, One Person Company: A Critical Analysis, 5 INDIAN
JOURNAL OF APPLIED RESEARCH, Issue: 6, ISSN - 2249-555X.
 Kanungo, Roji and Dash, Sakti Ranjan, A Conceptual View on Companies Act 2013:
With Special reference to Share Capital, 4 INTERCONTINENTAL JOURNAL OF
FINANCE RESEARCH REVIEW, Issue 3, pp-78-88.
Websites

 Abhiyansh Kumar Dikshit, One Person Company, http://assets.cacharya.com/one-

person-company-6MZ69DFN.pdf?1437812351.
 Abhiyansh Kumar Dikshit, One Person Company, http://assets.cacharya.com/one-
person-company-6MZ69DFN.pdf?1437812351.
 One Person Company (OPC) – Company Incorporation in India,
http://www.onepersoncompany.in/features-of-opc.html.
 19

 CS Dhanapal, OPC – Salient Features under Co. Act, 2013,

https://www.caclubindia.com/articles/opc-salient-features-under-co-act-2013-20607.asp
 Mansukhlal Hiralal & Company, One Person Company - Evolution,
http://www.mondaq.com/india/x/366520/Corporate+Governance/One+Person+Compan
y+Evolution+Under+New+Companies+Act.