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Concept of One Person Company

The Companies Bill,2012 (hereinafter referred as ‘The Bill’)  passed by the Lok Sabha introduces a new form of company by the name of  ‘One Person Company (hereinafter referred as ‘OPC’). It a concept parallel to existing sole proprietorship form of entity wherein OPC shall be recognized as a separate legal entity distinct from its promoter or proprietor. This form is already prelevant in some of the developed nations in the world namely, China, USA, Singapore and many countries in Europe and shall pave its way in India after the bill is passed in Rajya Sabha.

It is expected that with acceptance of OPC as a legal corporate form of entrepreneurship, the growth of unorganized sector into organized form will be expedite. It should further open avenues of opportunities for entrepreneurs under the existing sole proprietorship form to attract private equity and easier bank finance with reduced risk and limited liability.

Considering the benefits associated with the OPC, the Companies Bill provides several relaxation keeping in mind the level of operations and risk reward trade off. The brief features and statutory requirements as provided in the existing Companies Bill,2012 is as follows-


Section 2(62) of the Bill defines One Person Company as a company which has only one person as a member. This is paradigm shift in the entire concept of a company’s formation, operation and management under the existing provisions of  The companies Act,1948 wherein  a minimum two members  is required for floating, both,  private as well public companies, irrespective of the fact whether they are limited by shares or guarantee.

Status-whether Private Limited or Public Limited?

Section 2(68) of The Bill provides for the definition of private company to include OPC. It also explicitly  excludes OPS from the condition for minimum number of members i.e. 2 for its formation.  This implies that  all the provisions of the Act which is applicable to a private company shall also be applicable to OPC unless otherwise it is specifically excluded from its compliance. Also section 3 of The Bill, further clarifies the fact that OPC shall be treated as a private company for all legal purposes with only one member.

Special feature at the time of incorporation o OPC

Nominee of the sole member-Section 3 of the Bill  provides that at the time of incorporation of OPC, the Memorandum of OPC shall include the name of  the other person, with his prior consent,  who shall become the member of the company incase of death or incapacity to contract, of the subscribing person.  The consent of such other person shall be in prescribed written format and shall also be filed with the Registrar.

Change of Nominee- The Bill further provides that  such other nominated may be changed by the member of the OPC or the other person  may withdraw his consent anytime and some other person may be nominated in his place . Such a change should be intimated to the Registrar by the OPC within prescribed time and it shall be the duty of the member to ensure the same. It also provides that such a change in the name of the other person shall not be deemed to be an alteration in the Memorandum.

Death of Sole member- On the death of the sole member, the person nominated by such member shall

(i) have  title to all the shares of the deceased member;

(ii) the nominee on becoming entitled to such shares in case of the member’s death shall be informed of such event by the Board of the company;

(iii) such nominee shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable;

(iv) on becoming member, such nominee shall nominate any other person with the prior written consent of such person who, shall in the event of the death of the member, become the member of the company.

Naming Clause

The name of the OPC shall include the words ‘One Person Company’ within brackets below the name of the company, wherever its name is printed, affixed or engraved.

Relaxations to OPC

Financial Statements not to include cash Flow Statement-The Bill provides the financial statement of OPC, small company and dormant company, may not cash flow statement. This implies all other companies including  private limited companies shall include a cash flow statement as a part of their financial statements. (Section 2(40))

Signing of Financial Statements and annual return- The financial statements shall be signed by only one director irrespective of the number of directors of an OPC.  Also, the annual return  shall be signed  by Company Secretary, or where there is no Company Secretary by the director of the company.

Report from Board of Directors- In case of an OPC, the report from Board of Directors as required U/S 134(3) of The Bill shall include a report containing explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report. Other information such as Directors’ Responsibility Statement, other information such as  extracts of annual return, policy for directors’ appointment, their remuneration and other matters as provided U/S 178(3), statement of declaration by independent directors, etc.; as stated U/S 134(3) is not required to be specifically disclosed

Due date for filing-OPC shall file with the Registrar a copy of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within one hundred eighty days from the closure of the financial year. Hence, an OPC shall be required to required to file form 23AC,23ACA and 20B within the above mentioned prescribed time but not  form 60.

Provisions related to General Meetings-Section 122(1) PROVIDES THAT the provision of section 98 and section 100-111 (inclusive) are not applicable to OPC i.e. Provisions related to annual general meetings, general meetings, extraordinary general meetings, notice convening such meetings and procedures to conduct general meetings does not hold good for an OPC .

Alternative to AGM,EGM and other general meetings- The Bill provides that any business which 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, in case of One Person Company, the resolution is communicated by the sole member to the company and entered in the minutes-book  and signed and dated by the member. Thereafter, the resolution shall become effective from the date of signing such minutes.

Appointment of Director- The directors shall be appointment as per the provisions laid down in the Articles of the OPC. However, where there is no provisions in the articles of a company for the appointment of the first director, an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the sole member .

Number of Directors- Although The Bills restricts number of members to one incase of OPC, there is no constraint to recruit more than one director subject to a maximum of fifteen. Also the minimum number of directors has been provided as  one.

Frequency of Board Meetings ( Section 173)- Generally, a minimum of four meetings of the Board of Director in each year is required to be held in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board.  In case of OPC, if there is only one director, there is no such compulsion to conduct Board meetings.

However, incase of OPC having more than one director, at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. In such a case, provisions relating to notice convening such meetings, quorum and passing of resolutions by the board  shall also be made applicable to OPC .

Passing resolutions at Board Meetings- where there is only one director on the Board of Director of a 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, in case of such OPC, the resolution by such director is entered in the minutes-book required and signed and dated by such director . The resolution shall become effective from the date of signing such minutes by the director.

Contract with Sole Member (Section 193)-Where OPC limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall ensure that the terms of the contract or offer are contained in a memorandum and  are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.  Further, the OPC shall also inform the Registrar about every contract entered into by the company within a period of fifteen days of the date of approval by the Board of Directors.

However, this provision shall not apply to contracts entered into by the company in the ordinary course

In view of above, it can be said that the government has tried to provide several relaxations to promote the concept of One Person Company. However, its actual benefits shall be felt only it is well recognized by the other legislations such as The Indian Income Tax Act as well as the banking sector. Until unless OPC maintains its status as a separate legal entity distinct from its sole members, this form of business organization shall only remain in theory with large scale documentation and comparatively low benefits.

Published by

(Risk Analyst)
Category Corporate Law   Report

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