Incorporation of one person company

'With the development of the practice, there will be more and more 'exception' phenomena which can't be explained by the original thoughts or theories. Once these exceptions developed to such an extent that waved people's confidence in the former thoughts or theories, crisis will happen, and scientific revolution begins.'- Thomas S. Kuhn

An Entrepreneur is an individual who chooses to go into business by himself. Often entrepreneurs decide to stay a one-person company to keep decisions and quality of work under control. These single entrepreneurs are often called solo entrepreneurs, too. These entrepreneurs are often referred to as free agents, freelancer, self-employed, sole proprietor, or home based business owner (although not all single person entrepreneurs are home based). This often depends on the professional field they work in.

Being a one person business does not mean being completely on your own. These entrepreneurs often collaborate with other businesses or build alliances with other entrepreneurs or consultants. It all depends on their business needs. Outsourcing of basic work or certain project related work is the closest these businesses get to in regards to having "staff".

Businesses run as one-person companies often have owners that meet certain characteristics. What are typical Solo Entrepreneur characteristics?

• The desire for personal freedom that allows them to adopt the lifestyle of choice.

• The drive and passion to implement the business plan and to fulfill their personal dreams.

• The willingness to go the extra mile and the desire to succeed

• They are very passionate about what they do. Being committed to their venture.

The introduction of one-person company into the legal system is a move that would encourage corporatization of business and entrepreneurship. Before 31st march, 2014, an entrepreneur in India has to find another person to implement his skills through incorporation of a company while in the UK, Australia, Singapore, Pakistan, etc; a single person can form a company.

OPC is a one shareholder corporate entity, where legal and financial liability is limited to the company only.

Most small companies are actually owned and managed by a single individual, but currently are required to bring in another shareholder. This increases compliance requirements, for example, shareholder meetings require the presence of both the shareholders. With the implementation of the Companies Act 2013, a single person will constitute a Company, under the One Person Company (OPC) concept. OPC will help small single entrepreneurs, who are currently operating under a proprietorship model, move to the corporate structure with benefits of limited liability but with minimal compliance.

In India, the JJ Irani Expert Committee recommended the formation of one-person company (OPC). It has suggested that such an entity may be provided with a simpler legal regime through exemptions so that the single entrepreneur is not compelled to fritter away time, energy and resources on procedural matters.

Status of OPC in Other Countries:

Various countries permit this kind of a corporate entity (China introduced it in October 2005) in which the promoting individual is both the director and the shareholder.'

The amended company law of Pakistan permits one person to form a single-member company by filing with registrar, at the time of incorporation, a nomination in the prescribed form indicating at least two individuals to act as nominee director and alternate nominee director.

In US, several states permit the formation and operation of a single-member Limited Liability Company (LLC). In China, one person is allowed to apply for opening a limited company with a minimum capital of 1, 00,000 Yuan. The amended law of China prescribes that the owner should pay the investment capital at one time and bars him from opening a second company of the same kind.

In most countries, the law governing companies enables a single-member company to have more than one director and grants exemptions to such companies from holding AGMs, though records and documents are to be maintained.

Further, aspects relating to nomination in case of death of sole member and change of status of the firm are also covered.

Introduction:

The Companies Act, 2013 passed by the Lok Sabha provides for the concept of a One Person Company (OPC) in India as against the existing structure of a private company requiring a minimum of two shareholders and two directors.

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. Ltd . Finally in 1925 England gave statutory status to the concept of One Person Company thereby, becoming an innovator. With due course of time various other countries adopted this concept and currently around 36 countries have introduced this concepts 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.

Definition:

As defined in Section 2 (62) of the Companies Bill, 2013, 'One Person Company'means a company which has only one person as a member.

Que: 1) what type of OPC can be formed/incorporated

A: There are three methods Section 3(1) (a,b,c) in which a Private Limited Company could be formed

a. A Company limited by shares; or
b. A Company limited by guarantee; or
c. An Unlimited company.

Step Wise Formalities for Formation of a New Company:

Persons desirous of forming a company must adhere to the step by step procedure as discussed below:-

I. Apply for Directors Identification Number and Digital Signatures, if does not have.

II. Selection of name for the proposed company.

III. Drafting of Memorandum and Articles of Association.

IV. Stamping, digitally signing and e-filing of various documents with the Registrar.

V. Payment of Fees.

VI. Obtaining Certificate of Incorporation.

VII. Obtaining Certificate of Commencement of business (in case of public limited Companies).

"I worship individuals for their highest possibilities as individuals and I loathe humanity for its failure to live up to these possibilities."

WHAT DOES THE ACT SAY REGARDING PRE INCORPORATION AND POST INCORPORATION?

PRE INCORPORATION:

• At Least 1 Promoters: who will promote/ incorporate the company.

• At Least 1 Directors: Directors should be individual only. No Body corporate/ HUF or Partnership Firm can be appointed as Directors.

• Generally, in most of the cases, Promoters and Directors are the same in One Person Companies.

• Director must have DIN (Directors Identification Number) Process Given Below:

• Director must have DIGITAL SIGNATURE who can apply with any of DSC Vender i.e. E -Mudra/ Siffy/ TCS etc.

Some question will come in your mind after reading 'Pre Incorporation'FAQ'S:

QUE: 2) who can form or Incorporate a OPC?

Soul: As per Rule 3(1) of the Companies (Incorporation) Rules 2014, Only a Natural Person who is an Indian Citizen and resident in India shall be eligible to Incorporation/form a OPC.

QUE: 3) Who can't become a member of OPC or act as a nominee in OPC?

• Minor (as per Rule 3(4) of the Companies (Incorporation) Rules, 2014). A minor can't even hold share with beneficial interest.

• Foreign Citizen.

• Non Resident (see meaning of resident in India above and relate)

• A person Incapacitated to contract.

• Person other than a Natural Person i.e. living human being.

QUE: 4) How many directors can OPC appoint?

OPC can have one or more Directors on its board. As per the provisions of Sec 149 a OPC can have a maximum of 15 directors. It can, however appoint more than 15 directors after passing a special resolution.

Que. 3) Who is a resident of India for the Purpose of the Provision laid down for OPC

As per the explanation given to Rule 3(1), a resident of India for the purpose of the provisions governing OPC is a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

Que.5) Is there any number of restrictions on formation of OPC by a person?

As per Rule 3(2) of the Companies (Incorporation) Rules 2014, no person shall be eligible to incorporate more than one OPC.

Que. 6) is there any number restriction on acting as a nominee of person?

As per Rule 3(2) of the Companies (Incorporation) Rules 2014, no person shall be eligible to become a nominee in more than one OPC.

AFTER THIS PROCESS:

PROCESS FOR NAME APPROVAL

• The promoter should apply for the name of the company to be approved with the concerned ROC of the State where the company has to be formed in E Form INC 1 by payment of Rs. 1000 through Credit Card or Net Banking.

• Promoter should fill up e-form INC1, digitally sign by Promoter and Professional and then upload the e-Form on the MCA21 Portal. Before doing so, the following three points have to be complied with:

a. Promoter should have their DIN No.
b. Promoter should have the DSC. (Class 2 Digital Signature)
c. The proposed names selected should fall in guidelines prescribed. (Name should indicate the Main Objects of Company)

• Info. Require to give in form INC- 1 (Describing the Capital of Company, Main Objects, State In Which The Company is to be Incorporated and to Affix the Digital of Applicant.

• The reservation by the Registrar of name applied for is valid for 60 days from the date of application. Hence if a company is proposed to be registered with the said name referred to above, the promoters shall produce the documents to the Registrar for registration with in a period of 60 days from the date of application for name. If Promoters fail to file all the relevant form for incorporation within 60 days, then name will not be Available for you, Promoter have to file form INC- 1 again for approval of Name.

AFTER NAME APPROVAL PROCESS:

PROCESS - PRE INCORPORATION:

Once Name is approved by ROC, following are the Pre-Incorporation Steps:

STEP-I

Nomination by Member of OPC:

The Subscriber of MOA of OPC shall nominate a person, after obtaining prior written consent of such person. Consent will be in form INC-3. [As per Section- 4 (1)(2)]

STEP-II

Application for incorporation of company- Rule 4 of the companies (Incorporation Rules, 2014):

For the purpose of Sub-section (2) of Section 4, an application shall be filed, with the Registrar within whose jurisdiction the registered office of the company is proposed to be situated in FORM NO. INC-2 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 for registration of company.

STEP-III

Drafting of Memorandum of Association (MOA) and Article of Association (AOA) is generally a step subsequent to the availability of name made by the registrar It should be noted that the main objects should match with the objects shown in e-Form INC-1 and must reflect in the name of company (Name should be like that a lay man can estimate the objects of company by Name of Company).

These two documents are basically the charter and internal rules and regulations of the company. Therefore, it must be drafted with utmost care and with the advice of the professional. The Director/ promoter with the help of professional draft MOA and AOA.

Article of Association:

AOA should be followed by the tables F,G,H, I & J prescribed in SCHEDULE- I to be signed by subscribers in Articles all the bye laws of the company corresponding to Companies Act, 2013 have to be considered. The names of First Director are mandatory to be given in AOA.

Memorandum of Association:

MOA should be followed by the tables A,B,C,D & E prescribed in SCHEDULE- I to be signed by subscribers -

There are 5 clause mainly i.e.

• Name Clause;

• Registered Office Clause,

• Object Clause (Furtherance of Object)

• Liability clause

• Capital Clause

• Subscribers Clause will have to take into consideration and mention following in handwriting of subscribers.

a. Name

b. Fathers name

c. Occupation

d. Resident Address

e. Share subscribed

f. Affix one Passport Size Photo graph

g. Signed in given colloum.

• Nominee Clause

One person who will act as witness and will sign in the witness column and mention:

'I hereby witnessed that subscribers signed in my presence on Date____________, at ___________.further I have verified their identity details (Through ID)for their identification satisfy myself of their identification particular as filled in'

Below this witness must mention:

• Name

• Address

• Description

• Signature

Subscriber sheet must be mentioned Date & Place at the end. The word subscribers here used is because of the reason that these subscribers will subscribe for the shares in the company at time of incorporation and will invest the minimum capital i.e. Rs. 1, 00, 000. They will contribute the amount by way of cash or cheque when the company gets incorporated and shares will be allotted to them followed by the share certificates.

STEP-IV

Pursuant to section 7(1) (b) and rule 14 of the Companies (Incorporation) Rules, 2014:

Require to take a Declaration from Professionals Like: ( CS-CA-CWA), Giving declaration that, all the requirements of Companies Act, 2013 and the rules made there-under relating to registration of the company under the Act and matters precedent or incidental thereto have been complied with. On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated). In DELHI value of Stamp paper is Rs.10 /-. Professional will sign the declaration and will mention Date, Place and Membership No.

STEP-V

AFFIDAVIT FROM SUBSCRIBERS AND FIRST DIRECTORS IN INC 9

[Pursuant to section 7(1)(c) of the Companies Act, 2013 and rule 15 of the Companies (Incorporation) Rules, 2014:

Requires to take affidavit from Subscribers and First Directors of Company. Giving Declaration That,

• I have not been convicted of any offence in connection with the promotion, formation or management of any company during the preceding five years; and

• I have not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law during the preceding five years; and

• All the documents filed with the Registrar for registration of the company contain information that is correct and complete and true to the best of my knowledge and belief.

On Stamp Paper, Value of Stamp Paper as per the State stamp Act (State: Where register office of Company will be situated). In DELHI value of Stamp paper is Rs.10 /-. (ATTACHED LIST BELOW).

Declaration should be signed, Dated and Place.

STEP-VI

FORM FOR VERIFICATIONOF SIGNATUREOF SUBSCRIBERS IN INC-10

The Specimen signature and latest photograph duly verified by the Banker or Notary shall be in form INC-10.

PURSUANT TO RULE16 (1) (Q) OF COMPANIES (INCORPORATION) RULES, 2014:

STEP-VII

Documents Require From First Director:

• As per section 152 Rule (8) of Chapter XI- Every person before appointment furnish to the company a consent in writing to act as such in form - DIR-2. [FORMAT ATTACHED:]

• As per Section 164 rule 14 of Chapter XI- Director will inform to company in Form DIR-8 at the time of appointment and re-appointment. FORMAT ATTACHED:

• As per Section 184(1) rule 9 of Chapter XII-Director will disclose his/ her interest in any company, companies or bodies corporate (Including Shareholding Interest), firms or other associates of individuals , by giving a notice in writing in form MBP-1.FORMAT ATTACHED:

STEP-VIII:

REGISTERED OFFICE OF COMPANY:

As per section 12(1) and rule 25 of Chapter II- Company shall have a place as its registered office in the State stated in the Memorandum on and from the 15th Day of its Incorporation. (Practically from the date of incorporation).

Verification of Registered Office:

• Verification of Registered office filed in form INC-2.

There shall be attached to said Form, any of the following documents, namely :-

• The Registered Document of The Title of the premises of the registered office in the name of the company; or

• The Notarized Copy of Lease Or Rent Agreement in the name of the company along with a copy of rent paid receipt not older than one month;

• The Authorization From The Owner Or Authorized Occupant of The Premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and

• The Proof of Evidence of Any Utility Service likes: Telephone, Gas, Electricity, etc. depicting the address of the premises in the name of the owner or document, as the case may be, which is Not Older than Two months.

STEP-IX:

Following documents are required to file with Registrar:- Forms will be filled as per sequence given below.

• Memorandum of Association + Article of Association+ INC-8+INC-9+INC-10

• Identity proof, Residential Proof and PAN card of member and Nominee

• List of all Companies (Specifying their CIN) having the same registered office, if any (Attached in e-form- INC-2)

• DIR-2+DIR-8 (Attached in e-form- DIR-2)

• Verification Documents as mention above (Attached in e-form- INC-2)

Other Documents Require to File WITH ROC:

• POA, if any, executed by any subscriber authorizing a person to sign the Memorandum and Articles on his behalf. FORMAT ATTACHED

• Where subscriber is body corporate, Certified True Copy (CTC) of resolution of the Board of Directors authorizing a person to sign the Memorandum and Articles on its behalf.

• POA in favour of person (professional) authorizing to make any correction at the time of registration. FORMAT ATTACHED.

STEP-X:

Procedure for filling of e-forms with ROC/MCA:

After Preparation of documents mention at Step-I to Step-VII require to file these documents with ROC as per STEP- VIII:

• Prepare above mentioned e-forms (Attach the STEP-I to VII documents to the e-Form mention with STEP-VIII).

• After preparation put DSC of one director and Professional ( CS, CA & CWA)

• Then press pre-scrutiny button of e-form.

• Now your form is ready for filling.

• Go to MCA portal. (Link Given: http://www.mca.gov.in )

• Access the My MCA on link. (http://www.mca.gov.in/DCAPortalWeb/ )

• The applicant or a representative of the applicant will then submit the duly signed documents electronically.

• The system will calculate the fee, including late payment fees, if applicable.

• Payments will have to be made through appropriate mechanisms - electronic (credit card, Internet banking) or traditional means (at the bank counter).

• The payment will be exclusively confirmed for all online (Internet) payment transactions using payment gateways.

• Acceptance or rejection of any transaction will be explicitly communicated to the applicant (including facility to print a receipt for successful transactions).

• MCA21 will provide a unique transaction number (SRN), which can be used by the applicant for enquiring status pertaining to that transaction.

• Filing will be complete only when the necessary payments are made.

• In case of a rejection, helpful remedial tips will be provided to the applicant.

• The applicants will be provided an acknowledgement through e-mail or alternatively they can check the MCA portal.

STEP-XI is the last Step of Pre-Incorporation. After Filling e-form as given above now ROC will process the Form check the particulars and Attachments of e-from. If ROC found everything is as per requirement of Act and the Rules in respect of registration. He shall register in the Register all the documents and information as given and ISSUE CERTIFICATE OF INCORPORATIONS in form INC-21. The Effect that company is incorporated under the Act.

ABOVE MENTION ARE XI STEPS FOR PRE INCORPORATION OF A COMPANY!

POST INCORPORATION:

Once you get Certificate of Incorporation in form INC-21. You company Name and Details of Directors will be available on MCA Web-Site. Now a Company having share capital required to obtain a separate CERTIFICATE OF COMMENCEMENT of business according to section 11 of the Companies Act, 2013.

CERTIFICATE OF COMMENCEMENT OF BUSINESS:

• Declaration from Director attached in e-form INC-21. (On stamp paper)

Points to be Remember:

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

• Such Company cannot be incorporated or converted into a company under section 8 of the Act.

• Such Company cannot carry out Non-Banking Financial Investment activities including investment in securities of anybody corporate.

• No such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

Conclusion:

This is a concept that is expected to give big impetus to Corporatization in the country. The only care to be taken is that there should be no regulatory mess ups like the ones which hampered the growth of Limited Liability Partnerships in this country. Otherwise the rules framed so far with respect to One Person Company have been very sensible.