The Companies Act, 2012 passed by the Lok Sabha provides for the concept of an OPC. Sec 2(1)(zzk) of the Companies Bill, 2009 brought in the concept of a “One Person Company”. It is essentially a legal entity which functions on the same principle as a Company, but with only one member and one shareholder. It was an alternative for Indians, who typically operate using the risky concept of a proprietorship Company establishment in Istanbul.
One person company- As the name suggests, it means a company which has only one person as a member and where legal and financial liability is limited to the company only and not to that person. (i.e. liability is limited).
A New Concept – The reason why the old Companies Act of 1956 had made it compulsory for a Company to have a minimum of two members was so that it could be clearly separated from a sole proprietorship, a corporate structure which is categorically excluded from the Act. However, the duplicity of this provision was blatant and rampant. People started forming companies by adding a nominal member/ director, allotting them one single share, which is the minimum requirement for a director as per the Act, and retaining the rest of the shares themselves. Thus a person could enjoy the status and benefits of a Company while operating and functioning like a proprietary concern for all practical purposes. Hence, to make things clearer and more logical, an option has been created wherein a person can form a company as a one person entity.
Draft Companies Bill, 2009- OPC
The Draft Companies Bill, 2009, (Bill No. 59 of 2009), as introduced in Lok Sabha on 3rd August 2009, introduces the OPC concept for the first time in India. Some of the the provisions in the Draft Bill are as follows.
One Person Company is defined under section 2(1) (zzk) as: ‘One Person Company’ means a company which has only one person as a member”.
Chapter II deals with the Incorporation of the Companies. Section 3(1) (c) deals with the formation of One Person Company. It states, “One person, where the company to be formed is to be a One Person Company, by subscribing their names or his name to a memorandum in the manner prescribed and complying with the requirements of this Act in respect of registration. Provided that the memorandum of a One Person Company shall indicate the name of the person who shall, in the event of the subscriber’s death, disability or otherwise, become the member of the company. Provided further that it shall be the duty of the member of a One Person Company to intimate the Registrar the change, if any, in the name of the person referred to in the preceding proviso and indicated in the memorandum within such time and in such form as may be prescribed, and any such change shall not be deemed to be an alteration of the memorandum”
Section 5(1) deals with the memorandum of the One Person Company. It states “The memorandum of a company shall state— the last letters and word “OPC Limited” in the case of a One Person limited company”. Section 13(1) a, b, c deals with alteration of articles including the conversion of Private Companies, Public Companies to One Person Companies and vice-versa. One very important feature of the OPC concept is the conduction of Annual General Meeting.
Section 85(1) of the Draft Bill excludes One Person Company from holding Annual General Meeting at least once in a year. Section 171 is perhaps the most important provision to look out for. It states,
- Where a One Person Company limited by shares or by guarantee enters into a contract with the sole member of the company who is also director of the company, the company 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 the entering into the contract. Provided that nothing in this sub-section shall apply to contracts entered into by the company in the ordinary course of its business.
- The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within fifteen days of the date of approval by the Board of Directors with such fee as may be prescribed, or with such additional fee as may be prescribed within the time specified, under section 364.
- Where the company fails to inform the Registrar under sub-section (2) before the expiry of the period specified under section 364 with additional fee, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.