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1. Section 3 of the Companies Act deals with the Formation of Companies. 

2. The corresponding section of the erstwhile Act was Section 12 – Mode of forming incorporated Company. 

3. This section states that a minimum of 7 persons may form a public limited Company and 2 or more persons can form a private limited company. 

4. The section also specifies that Companies so formed may be limited by shares, limited by guarantee or be an unlimited company. 

5. Further, this section also permits the formation of a One Person Company

6. The section requires that a person creating an OPC is required to indicate another person as the nominee in the event of death or incapacity of the subscriber to the memorandum. 

7. The express written consent of the nominee is required in a prescribed form and such consent can be withdrawn as well. 

8. The subscriber is also entitled to change the nominee by giving notice in such manner as may be prescribed.

Old Vs New

1. The erstwhile Section 3 of the 1956 Act which defines private limited and public companies now features as part of the definition sections.

2. The key changes in reference to the context discussed are as under

3. Permission to incorporate OPC’s a completely new concept and feature of this Act. 

4. Modification with reference to private companies stands modified with reference to the earlier Act.  The maximum number of members in a Private limited Company is now 200 vs the earlier number of 50 members. 

5. The key definition sections that merit attention are 2 (68) : Private Company , 2 (71) : Public Company, 2 (21) : Company limited by guarantee, 2 (22) : Company limited by shares, 2 ( 62) : One Person Company

Key Aspects

1. Whilst the Section is extremely brief on OPC’s, elaborate rules have been framed in this regard.  Some of the important aspects in relation to OPC’s as encapsulated in the rules are as under

2. Only a natural person who is an Indian Citizen resident in India ( 182 days or more ) is eligible to incorporate an OPC.  Such eligibility is also mandated for a person who is chosen as a nominee. 

3. A person can hold only one OPC “or” become nominee in an OPC. Minors cannot be appointed as nominees

4. Section 8 companies formed for charitable objects can never be OPC’s.  Further an OPC cannot be converted to a Section 8 company.

5. OPC’s cannot carry out Non Banking Financial Investment Activities including investment in body corporates.

6. If the paid up share capital exceeds Rs 50 lakhs or the average annual turnover exceeds Rs 2 crores  ( in the preceding three years ), such OPC’s cannot function as such and need to convert as Private limited Companies or as Public limited Companies with the requisite number of members and directors. 

- This is a mandatory conversion requirement.

- The conversion shall be as per Section 18 of the Act and will require the consent of the registrar

7. Similarly Private limited companies (other than Section 8 Companies) can convert into OPC’s if the paid up capital and turnover criteria as above is not exceeded.

8. However, two years should have expired from the date of incorporation of such companies. 

9. This would require a special resolution in a general meeting and specific consent of the creditors by way of a No Objection from them. 

10. Upon submission of the relevant documents including the consent of the creditors, the list of members and directors, the latest audited balance sheet and profit and loss account,

11. The registrar upon being satisfied will issue a registration certificate

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Category Corporate Law, Other Articles by - CA Sripriya K