RAYAT COLLEGE OF LAW

AFFILATED TO PANJAB UNIVERSITY

COMPANY LAW PROJECT...

TOPIC :- Applicability of One Person Company in

Modern World.

SUBMITTED BY: SUBMITTED TO:

Name:- Anant Madaan Ms. Balwinder Kaur
Class: B.com. LLB (Hons.) ( Assistant Professor.)
Section:-B
Semester:-8th
Roll.NO:-17610
 ACKNOWLEDGEMENT

This project involves a huge amount of work, research and dedication. Still
implementation would not have been possible if I did not have the support of many
individuals and the institute. Therefore I would like toextend my sincere gratitude to all of
them.First of all I am thankful to my institute Rayat College of Law, Railmajra fortheir
infrastructural support and for providing guidance to mould in theproject.I am also
grateful to the Principal of the University Dr. Monika Sharma for her support and
guidance in preparing this project.Last but not the least I am also grateful to my mentor
and guide Assistant Professor for providing this Ms. Balwinder Kaur interested topic to
prepare a project upon and providing in with some pertinent inferenceswhich proved to be
of great help in moulding this project. Without his superior knowledge and experience, the
project would like in quality ofoutcomes, and thus their support has been
essential.Nevertheless, I would also like to thank my peers for providing assistance in
preparing this project in times of need.
 Table Of Contents

Abstract 1
INTRODUCTION 2
Meaning 4
FEATURES OF ONE PERSON COMPANY 6
CRITICAL ANALYSIS OF THE CONCEPT OF ONE PERSON COMPANY:- 8
ONE PERSON COMPANYv. SOLE PROPRITERSHIP:- 10
ADVANTAGES OF ONE PERSON COMPANY: 13
CONCEPT OF ONE PERSON COMPANY: AN INTERNATIONAL PERSPECTIVE:- 14
Criticisms:- 14
CONCLUSION 15
BIBLIOGRAPHY 16
 Abstract:-

 A man is known by the company he keeps. But with the implementation of the Companies Act,
2013, an individual person can now constitute a Company under the concept of “One Person
Company” (hereinafter mentioned as OPC).
 The Companies Act, 20131 opens a new segment for organizing a business in India by providing
the concept of OPC which is a legitimate way to incorporate a company with only one member.
OPC is similar to the existing concept of Sole-proprietorship with separate legal entity distinct from
its proprietors and promoters. OPC can run and undertake its business like Sole-proprietorship with
the status of Company. This form of business is already flourished in some of the developed
countries like USA, Singapore, China and various other countries in Europe. This new concept of
business will provide a whole new bracket of opportunities for those who look forward to start their
own ventures with a structure of organized business.
 This article has been categorically scripted to present an overview about the revolutionary new
concept of OPC as introduced by the Companies Act, 2013. The researchers have not only delved
deep into the relationship of OPC with sole proprietorship but have also strived hard to provide a
critical analysis of the concept. This fairly new concept of business may encourage various small
and medium size enterprises doing business as sole proprietors to organise their business into the
corporate domain.
One Person Company (hereinafter mentioned as OPC) is a radical idea which came into the picture
with the introduction of the Companies Act, 2013. The concept of OPC was first recommended by
an expert committee constituted under the leadership of Dr. J. J. Irani in 2005.2 OPC is an
opportunity for them who were previously hesitant from perpetuating their own ventures. OPC will
provide a chance for all the 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.

1
The Companies Act, 2013
2
Dr. J. J. Irani in 2005
 INTRODUCTION

 In view of the changing national and international economic environment and in furtherance of the
objective of creating necessary environment for contemporary global corporate structure in India,
revolutionary changes have been introduced in the Indian company law regime by the enactment of
Companies Act, 2013 (the ‘Act’). The Act marks a remarkable shift in India’s corporate regime and
aims to repair and fine tune the existing lacunas by ensuring more transparency in governance of
the corporate bodies and introducing various novel concepts. One such novel concept introduced by
the Act is the concept of “One Person Company”. Theenshrined goal behind the incorporation of
this conceptis to promote entrepreneurship . Prior to the introduction of the concept of One Person
Company, Companies Act, 1956(the ‘Old Act’) required minimum two shareholders for
establishing a private company and hence, the only option available to persons seeking to start a
venture alone was sole proprietorship . Since, proprietorship is not legally recognized as a separate
legal entity, it discouraged persons from undertaking business ventures. Hence, this concept is
being well received by the entrepreneurs and it is likely to change the manner in which traditional
and household businesses function3.
 Section 4 of the Act deals with the maternity benefits entitled to pregnant and lactating women and
Section 5 and Section 6 provides various benefits for the children upto 14 years of age, elucidating
the government’s concern for various sections of the society, ranging from women to fruitless
endeavour involving complex procedures and much paperwork as compared to a sole
proprietorship.Some business experts perceive it as a still born, half baked concept.
 The first part of the article explains the meaning of the concept of one Person Company. Further,
the article in its subsequent parts highlights some key issues associated with the concept. The
article further with an objective to analyse the feasibility and success of the concept of One Person
Company in Indian scenario has compared it with the countries having already implemented this
concept.Towards the end, the article intends to make certain suggestions with regard to One Person
Company in order to suit the need of the entrepreneurs so as to promote entrepreneurship and hence
the economic growth of the country.

3
A business entity exclusively controlled by a single person with all responsibilities and risks.
 Meaning:-
 OPC is defined under sub section 62 of section 2 of the Companies Act, 2013. It defines OPC as a
company which has only one person as a member where all the legal and financial liabilities are
limited to the company and not to its members. It is a kind of revolutionary concept in the new
Companies Act, 2013, as previously under the old Companies Act, 1956 a minimum of two
members were required to form a company.
Sub- Section 62 of Section 2 of the Companies Act, 20134, reads as follows:
 'One Person Company means a company which has only one member'

It shall also be important to note that Section 3 classifies OPC as a Private Company for all the
legal purposes with only one member. All the provisions related to the private company are
applicable to an OPC, unless otherwise expressly excluded.
The only exception provided by the Act to an OPC is that according to the rules only
"NATURALLY-BORN" Indian who is also a resident of India is eligible to incorporate an OPC.
Meaning thereby, the advantages of an OPC can only be obtained by those INDIANs who are
naturally born and also a resident of India. At the same, it shall also be worth mentioning that a
person cannot form more than 5 OPC's.

Background:-
 The concept of OPC is comparatively new to India. As mentioned earlier, the propounded term was

already in vogue in other countries prior to its inception in India. In the US several states have
given their assent for companies registering as OPC’s and they are known as Limited Liability
Companies. Many other countries like Singapore introduced the concept of OPC in 2004, followed
by China in 2005. The concept of OPC also exists in other countries like Mauritius, UK, Ireland,
Qatar and Bahrain. Pakistan also inducted this concept by amending their companies act. In most
countries the law provides that OPC should or can have more than one director and exempts from
holding annual general meeting.

4
Sub- Section 62 of Section 2 of the Companies Act, 2013
 FEATURES OF ONE PERSON COMPANY:-

The Act enumerates the concept of One Person Company in its various provisions. On a detailed
analysis of the relevant provisions of the said Act following important features of a One Person
company can be inferred:

1. One Person Company is one of the classifications of companies based upon the number of persons.
2. It is a company consisting of only one person as its member.
3. It has all the characteristics of a private company unless excluded by theAct.
4. It has the minimum paid up share capital of INR one lakh (INR 1, 00,000/-) or such higher paid-up
share capital as may be prescribed.
5. A One Person Company may be either a company limited by share or a company limited by
guarantee or an unlimited company.
6. It is mandatory for every One Person Company to give a legal identity to its business by specifying
the name under which its business activities are carried. This has to be ensured by mentioning the
words “One Person Company” in brackets below the name of such company wherever the name is
printed, affixed or engraved . This ensures transparency as it makes persons dealing with a One
Person Companyaware of its corporate status.
7. The memorandum of a One Person Company shall state the name of the person or a nominee with
his prior consent, who, in the event of death of the subscriber, shall become the member of the
company. This written consent should be filed with the registrar of companies at the time of
incorporation of a One Person Company alongwith its memorandum and articles of association.
However, the nominee or other person is free to withdraw his consent at any time. Similarly, the
member or shareholder of such a company is free to change the nominee at any time, by giving
notice to such other person and intimating the same to the company who inturn is supposed to
intimate the same to the registrar of companies.
8. Member/Shareholder of a One Person Company acts as first director, until the Company appoints
director(s). Further, it is not necessary that the shareholder and director of such a company should
be same.
9. One Person Company shall have atleast one director and a maximum of fifteen (15) directors.
10. One Person Company need not hold annual general meetings (AGM) every year.
11. Cash Flow Statement may not be included in the financial statements of a One Person Company.
12. One director is sufficient to sign the Financial Statements/Director's Report and there is no mandate
as to appointment of a company secretary.
13. One Person Company should inform the registrar about every contract entered and also should
record in the minutes of the meeting within fifteen (15)days from the date of approval by the board
of directors

 CRITICAL ANALYSIS OF THE CONCEPT OF ONE PERSON COMPANY:-

 The introduction of the concept of One Person Companyin the Act is being regarded as a promising
concept. This conceptenvisages bringing in the unorganized business sector into the form of
organized business sector by conferring them the status of a private limited company and also
promotes entrepreneurship by providing various incentives and exemptions to persons aspiring to
establish a One Person Company.

The Old Act mandated a minimum of two shareholders in order to constitute a company which was
an obstacle for entrepreneurs who intended to launch a business venture with limited liabilities.
Such entrepreneurs were left only with the option of starting a sole proprietorship.The foregoing
requirement of bringing in two shareholders was a hurdle for aspiring entrepreneurs to incorporate
a company and also an obstacle for the growth of the Indian economy. In an attempt to make things
more logical and with a view to promote more avenues for sole business ventures, the Act has
incorporated the concept of One Person Company.

This part of the article critically analyses the concept of One Person Company and an attempt has
been made to carve out certain advantages and disadvantages of the concept against the concept of
sole proprietorship.

 ONE PERSON COMPANYv. SOLE PROPRITERSHIP:-

In order to critically examine the concept of One Person Company and its success over sole
proprietorship it becomes pertinent to draw a distinction between the two concepts.
 The table herein below highlights the significant differences between the concept of a One Person
Company and that of a sole proprietorship:

ONE PERSON COMPANY SOLE PROPRIETERSHIP

Separate Legal entity Not a Separate Legal EntityA sole proprietorship

A One Person Company has a separate legal does not have a separate legal identity from its
identity from its shareholders i.e. the company and members.
the shareholders are two different entities for all
purposes.

Limited Liability Unlimited Liability

The liability of the shareholder of a One Person The liability of members of a sole proprietorship is
Company is limited. It means that the sole member unlimited. It means that in case of any failure to
of such a company is not liable personally for the pay debt owned by the sole proprietor(s), even the
debt of the company. The liability of the member personal properties of the members of such entity
is limited only up to the extent of his share in the can be charged for discharge of such debt.
company.

Perpetual succession No Perpetual Succession

The existence of a One Person Company is not Sole proprietorship is an entity whose existence
dependent upon its members and hence, it has a depends on the life of its members and in the event
perpetual succession i.e. death of a member does of death or any other contingency may lead to the
not affect the existence of the company. dissolution of such an entity.

ComplexLegal requirements Simple Legal requirements:

The incorporation and operation of a One Person A sole proprietorship need not adhere to such
Company requires various procedural formalities. procedural complexities and need not register itself
for its operation and functioning.

Huge Tax Burden Reasonable Tax burden

A One Person Company fall under the same tax Sole proprietors are taxed at the rates applicable to
slab as is applicable on private companies (30% individuals, which mean that different tax rates are
tax slab) and hence the tax burden is huge. applicable for different income slabs.
ADVANTAGES OF ONE PERSON COMPANY:

1. Limited Liability: One Person company confers a separate legal identity upon single person

business entities and thereby limits the liabilities of the entrepreneurs to the extent of paid
subscription money only. Hence, by limiting the liabilities of the single shareholders this concept
extends a protective cover and encourage their participation in the economy.
2. 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.
3. 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.
4. 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.

 CONCEPT OF ONE PERSON COMPANY: AN INTERNATIONAL

PERSPECTIVE:-
The concept of One Person Company might be a novel concept in India but itis a well established
notion in countries like U.S.A, China, Singapore, France and various other European countries.
England was the first country which paved the way for the development of this concept through its
decision in Saloman v. Saloman & Co. Ltd5 . Finally in 1925 England gave statutory status to the
concept of One Person Company thereby, becoming aninnovator.

5
[1897] AC 22 is a landmark UK company law case.
 With due course of time various other countries adopted this concept and currently around 36
countries have introduced this conceptas part of their company law. Though, the structure and legal
requirements for incorporation of a One Person Company in these jurisdictions may vary but all
these countries introduced this concept with the common objective of promoting entrepreneurship
and thereby accelerating their economic development.

The authors have analyzed the Indian version of the concept of one Person Company with
that of other countries and have highlighted some of them as below mentioned:

 Capital Requirement:-
U.S.A and U.K have adopted a flexible standard with respect to minimum capital requirement for
incorporation of a One Person Company as they do not provide fora minimum capital requirement
for incorporation of such companies. According to their rules, the capital of the company should
“meet the expectable strains of a business of its size and nature”. On the other hand, countries like
China, Pakistan, France, they have expressly provided minimum capital requirement with respect to
a One Person Company.India expressly provides the minimum capital requirement for a One
Person Company. This has been done to ensure clarity. The “expectable strains test” as followed by
U.S.A and U.K. is very subjective and may give rise to various ambiguities, thereby, burdening the
judiciary. Hence, from this perspective the Indian position is very sound and perfect.
 Demonstration and Disclosures:-
The rules laid down by U.S.A, Germany and France related to a One Person Company provides for
robust demonstrations and disclosures regime in order to secure the interest of the creditors and
prevent any abuse of this concept. However, China, fails on this count.
India has introduced stringent disclosure and demonstration requirements.It provides for mandatory
registration of a One Person Company, filing of financial statements, auditing of their reports etc.
This is a positive aspect as it ensures the protection of the creditors and maintains transparency in
the governance of such companies. However, excessive procedural requirements should be avoided
in this context.
 Legal and natural person:-
Majority of countries, with respect to qualification as to incorporation of a One Person Companydo
not put restrictions in terms of natural and legal persons.
 India, however, allows only natural persons to incorporate a One Person Company, which is a
negative aspect. This deters the objective of the concept.
 Transferred One Person Company:-
As per English law if the member of an existing legal entity reduces to only one, the legal entity
may continue to exist provided that this doesn’t conflict with the provisions in the company’s
articles of association.
 Memorandum & Articles of Association of OPC:-

Although the OPC will be formed by one person only by subscribing the Memorandum of Association
but the Memorandum of OPC shall also indicate the name of any other person nominated by OPC with
his prior written consent in the prescribed form, who shall, in the event of the subscriber’s death or his
incapacity to contract become the member of the company and the written consent of such person shall
also be filed with the Registrar at the time of incorporation of the OPC along with its Memorandum
and Articles of Association. The Member of OPC may at any time change the name of such other
person by giving notice to the Registrar of Companies in such manner as may be prescribed.
Upon the death of the member of OPC, the nominee shall be entitled to all the shares. The nominee
will be entitled to the same rights & liabilities to which sole member of company was entitled or liable.
On becoming member such nominee will nominate any other person as nominee with his prior written
consent in the prescribed form and intimate the same to Registrar of Companies.
 Number of Directors:
A Minimum of one director is required for OPC but there is no constraint to recruit more than one
director with a maximum of fifteen directors. Every OPC shall have at least one director who has
stayed in India for a total period of not less than one hundred and eighty-two days in the previous
calendar year.
 Appointment of directors:
If there is no separate provision made in the Articles of OPC, an individual being the member of OPC
shall be deemed to be its first director. Other Directors shall be appointed in General Meeting. The
Articles of OPC may confer on its Board of Director the power to appoint any person as an additional
director at any time who fails to get appointed as a director in a general meeting who shall hold office
up to the date of the next annual general meeting.
 Board meeting:-
 The OPC having only one director shall not require holding Board Meeting. In case of more than
one director then at least one meeting of the Board of Directors shall be conducted in each half of a
calendar year and the gap between the two meetings shall not be less than ninety days to comply
with the provisions under the Companies Act, 2013.6
Where there is only one director on the Board of Director of OPC, any business which is required
to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if the
resolution by such director is entered in the minutes-book which is required to be maintained under
section 118 and signed and dated by such director and such date shall be deemed to be the date of
the meeting of the Board of Directors for all the purposes under this Act.
 Annual General Meeting:-
 Section 122(1) of Companies Act, 2013 provides that the provisions of Section 98, Section 100 and
Section 111 are not applicable to OPC7. In other words the provisions relating to General Meeting,
Extra-Ordinary General meeting and Notice convening to general meeting are not applicable to
OPC. However, for the purposes of Section 114 where any business is required to be transacted at
an annual general meeting or other general meeting of a company by means of an ordinary or
special resolution, it shall be sufficient if the resolution is communicated by the member to the
company and entered in the minutes-book which is required to be maintained under section 118 and
signed and dated by the member and such date shall be deemed to be the date of the meeting for all
the purposes under this Act.
 Contract by OPC:-
The OPC limited by shares or by guarantee when enters into a contract with the sole member of the
company who is also the director of the company, the OPC shall, unless the contract is in writing,
ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the
minutes of the first meeting of the Board of Directors of the company held next after entering into
contract. However, this condition shall not apply to contracts entered into by the company in the
ordinary course of its business. The OPC shall inform the Registrar of Companies about contract
entered into by it and recorded in the minutes of the meeting of its Board of Directors within a period

6
the provisions under the Companies Act, 2013
7
Section 98, Section 100 and Section 111 are not applicable to OPC
of fifteen days of the date of approval by the Board of Directors.

Financial Statement and Annual return:-

The Financial Statement shall be signed by only one director and the annual return shall be signed by
the company secretary, or where there is no company secretary, by the director of the OPC.

 Criticisms:-
Limited Liability Partnership Act, (LLP Act) 2008 was enacted on January 7, 2009. The LLP Act
was introduced with the objective of providing limited liability for the partners in business, besides
bringing the all small and medium enterprises in the unorganised sector into organised sector. The
concept of LLP has not been successful and till date approximately only 10,000 entities are
registered. The LLP model of business is not fully encouraged even by professionals.
 The success of the very concept is doubtful to some extent due to some reasons which have
been mentioned below:

1. The existing proprietors are free to raise funds from their relatives, friends and others when the
need arises. On the other hand, an OPC, being a private limited company, is not permitted to
borrow from others.
2. Several existing private limited companies may be as good as proprietorship firms but such
private companies may consider and introduce several other shareholders, up to a limit of 200. On
the other hand, the capital of the OPC is only to the extent of available funds of the person who
owns OPC.
3. The concept of nomination is slowly being introduced in bank accounts, share trading etc., but
has not come into the business enterprises. Normally, the existing proprietorship business assets are
shared by the legal heirs which may be more than one. Conversion of existing proprietorship
business into OPC requires providing one nominee which may not be acceptable to the other family
members.
4. Foreign companies may not be able to incorporate their subsidiaries as OPC’s as the subscriber
has to be only an individual and that too, with a nomination of another individual. The concept of
subsidiary company is that the entire shares are held by the holding company and therefore, it is not
possible for MNCs to incorporate their subsidiaries as OPCs.
 5. The expectation that the bankers will provide funds easily to OPCs seems unrealistic. At present,
bankers do insist on collateral and other securities for extending credit facilities to small individual
business entrepreneurs. Since the OPC now allows the same individual proprietors to claim limited
liability, the risk avenue is more to the bankers.

6. Above all, the requirement of filing documents with the Regulator may not encourage small
business entrepreneurs to incorporate as or to switch over to OPCs.

CONCLUSION

OPCs are imperative because they would give entrepreneurial capabilities of people an expeditious
participation in economic activity and such economic activity may take place through the creation of an
economic person in the form of a company. However, there has been criticism in certain quarters
against the formation of such a company as it may give room for evasion of public funds and tax
liability by an individual.OPC will provide greater flexibility to an individual to manage his business
efficiently and at the same time enjoy the benefits of a company. The concept of OPC will also help
many foreign companies, which need to appoint a minimum of two nominees now when they form a
wholly-owned subsidiary. OPC will open the doors for more favourable banking facilities, particularly
loans, to such proprietors. Besides, the concept will boost flow of foreign funds in India as the
requirement of nominee shareholder would be done away with.
 BIBLIOGRAPHY
 Company law/Avtar Singh/2020
 Applicability of one person company in modern world IN LAW - Google Searchwww.google.com
 OPC: The one man show: Understanding the concept of One Person Company - The Economic Times
economictimes.indiatimes.com
 One Person Companywww.legalservicesindia.com
 One Person Company: A concept of Modern Age taxguru.in
 One Person Company - A Complete Analysis - iPleaders blog.ipleaders.in