Corporate law in India has been completely changed by the Companies Act, 2013 by introducing several concepts never before seen. Among them was the concept of a Person Company. A new way of starting businesses appeared that provided both limited liability protection and the flexibility of a company while being more flexible and affordable than sole proprietorships and partnerships. Before the new Companies Act of 2013, several other countries had recognized the ability of individuals to form companies. China, Singapore, the UK, Australia, and the USA were among these.
One Person Company Definition
Companies Act section 2(62) defines a one-person company as one with only one member. A company’s members are nothing more than its shareholders or subscribers to its memorandum of association. As a result, an OPC has one shareholder as its member. These companies are typically created by the same entrepreneur or promoter. Entrepreneurs who are in the early stages of their businesses prefer OPCs over sole proprietorships due to the several advantages that OPCs offer.
A comparison of OPCs and sole proprietorships
There are some differences between sole proprietorships and one-person companies, although they both involve a single owner owning the business. Their main difference is that they have different liabilities. It is an independent legal entity from its promoter and has its assets and liabilities. Promotional personnel is not personally responsible for company debts. A similar situation exists for sole proprietorships and their owners. Due to this, in case of non-fulfillment of business obligations, the law permits a promoter to sell his assets.
The advantages of a one-person company
The following are some general characteristics of a one-person business:
- OPCs are classified as private companies under this section.
- The one-member company can only have one shareholder, unlike other private companies.
- The registering of an OPC requires that its sole member mentions a nominee.
- The member of an OPC is the only member; if he dies, the nominee can accept or refuse the position. Other companies have perpetual succession.
- At least one director should be present in an OPC. More than 15 directors cannot participate.
- By law, there has never been a requirement for a minimum paid-up capital in the Companies Act, 2013.
- Company law grants OPCs several privileges and exemptions that are not available to other kinds of companies.
One-person companies are formed
Companies Act, 2013 prescribes the policy statement and other requirements for forming an OPC. In such a memorandum, a nominee needs to be stipulated who will become the sole member of the company when the original member dies or is rendered incapable of engaging in contractual relations. Registrar of Companies, this memorandum as well as the nominee’s consent should be filed with an application for registration. The nominee may withdraw his name at any time by submitting the requisite applications to the Registrar. The member may cancel his nomination at any time.
One-person companies membership
A one-person company in India may only be formed by an Indian citizen or resident. A nominee to an OPC is also bound by this rule. One person cannot serve on more than one OPC at the same time. The OPCs can only be joined by natural persons. The companies themselves are unaffected by this, as they can own shares and join. Nominated members and minors are prohibited from being involved with OPCs.
A person’s own company cannot be converted into a Section 8 company, a charitable organization. Moreover, OPCs cannot change into other kinds of companies until two years have passed from the date they were formed.