The Companies Bill 2012 proposes a new concept of One-person Company
(OPC). The obvious objective is to overcome the hurdle of needing a second
person to form a company, despite the saying that “two’s company”. This brief
post is to highlight its nature, some issues and also questioning the real
benefit of an OPC.
(OPC). The obvious objective is to overcome the hurdle of needing a second
person to form a company, despite the saying that “two’s company”. This brief
post is to highlight its nature, some issues and also questioning the real
benefit of an OPC.
OPC, as the term implies, is a company with one and only one
shareholder. The need to have two directors also is avoided and only one
director is needed. However, unlike a shareholder, the number of directors can
be more than one. And the single shareholder need not be the director or any of
the directors. A succeeding shareholder will have to be named in case of death
of the initial shareholder.
shareholder. The need to have two directors also is avoided and only one
director is needed. However, unlike a shareholder, the number of directors can
be more than one. And the single shareholder need not be the director or any of
the directors. A succeeding shareholder will have to be named in case of death
of the initial shareholder.
Thus, it is expected to help an individual incorporate himself/herself.
The need to find a second shareholder/director for a proprietary business in
corporate form is avoided.
The need to find a second shareholder/director for a proprietary business in
corporate form is avoided.
Succession/transfer of a business in corporate form is clearly easier
than if it owned in a sole proprietary form. And one can delink different
businesses in separate OPCs since there is no limit on how many OPCs one single
individual can form.
than if it owned in a sole proprietary form. And one can delink different
businesses in separate OPCs since there is no limit on how many OPCs one single
individual can form.
The OPC will have to add the tag One-person Company under its name.
Some other procedural concessions in terms of meetings, etc. are given for
obvious reason that there cannot be a “meeting” of a single
shareholder/director.
obvious reason that there cannot be a “meeting” of a single
shareholder/director.
However, beyond a few procedural concessions, and avoidance of the need
of second shareholder/director, it is not clear what substantial benefits are
available. The relatively long/complicated procedure for formation, maintenance
and dissolution of a Company remain without any major relief. The requirement
of finding a second shareholder/director is generally not found cumbersome in India
where a friend, relative or staff member can easily act as such.
of second shareholder/director, it is not clear what substantial benefits are
available. The relatively long/complicated procedure for formation, maintenance
and dissolution of a Company remain without any major relief. The requirement
of finding a second shareholder/director is generally not found cumbersome in India
where a friend, relative or staff member can easily act as such.
Further, except a few minor procedural concessions, the provisions of
accounts, audit, etc. would also apply to an OPC.
accounts, audit, etc. would also apply to an OPC.
Certain businesses like that of finance may face problems if sought to
be carried in a Company form. Thus, an individual engaged in business of
lending or investments may need prior registration from the Reserve Bank of
India, minimum net owned funds of Rs. 2 crores, etc.
be carried in a Company form. Thus, an individual engaged in business of
lending or investments may need prior registration from the Reserve Bank of
India, minimum net owned funds of Rs. 2 crores, etc.
Conversion of existing proprietary businesses can create complexities of
tax. There is an existing provision in the Income-tax Act, 1961 (section
47(xiv)) which should help in availing relief from capital gains, even if
originally it was not framed with an OPC in mind. However, other tax issues may
remain. The concern of deemed dividends under Section 2(22)(e), the question of
allowability of remuneration to proprietor, etc. are some other challenges an
OPC may face. The other challenge will be of stamp duty on transfer of the
business to the OPC.
tax. There is an existing provision in the Income-tax Act, 1961 (section
47(xiv)) which should help in availing relief from capital gains, even if
originally it was not framed with an OPC in mind. However, other tax issues may
remain. The concern of deemed dividends under Section 2(22)(e), the question of
allowability of remuneration to proprietor, etc. are some other challenges an
OPC may face. The other challenge will be of stamp duty on transfer of the
business to the OPC.
Strangely, it is not clear how an OPC may go to the next logical step of
becoming a non-OPC when it wants to introduce more shareholders. Ideally, a
simple amendment of its memorandum and articles should have sufficed. However,
there are no specific provisions enabling this. The question therefore is
whether an OPC is doomed to remain a one shareholder company during its
existence?
becoming a non-OPC when it wants to introduce more shareholders. Ideally, a
simple amendment of its memorandum and articles should have sufficed. However,
there are no specific provisions enabling this. The question therefore is
whether an OPC is doomed to remain a one shareholder company during its
existence?
Conversion from a non-OPC to an OPC has also not been provided for.
Thus, an existing private limited company may not be able to convert itself
into an OPC.
Thus, an existing private limited company may not be able to convert itself
into an OPC.
OPCs should have been useful particularly in case of wholly owned
subsidiaries of companies where the parent company would be the sole
shareholder. However, there is a requirement that makes one wonder whether a
company can be the sole shareholder. The definition of OPC does talk of a
“person” being a shareholder. However, it is required that a succeeding
shareholder be named in case of death of the initial shareholder. The concept
of death is generally understood in sense of natural persons and not companies.
Thus, unless one takes a view that this requirement is not a mandatory one or
stretch it to include dissolution of a company, the concept of OPC may not be
available for forming a WOS.
subsidiaries of companies where the parent company would be the sole
shareholder. However, there is a requirement that makes one wonder whether a
company can be the sole shareholder. The definition of OPC does talk of a
“person” being a shareholder. However, it is required that a succeeding
shareholder be named in case of death of the initial shareholder. The concept
of death is generally understood in sense of natural persons and not companies.
Thus, unless one takes a view that this requirement is not a mandatory one or
stretch it to include dissolution of a company, the concept of OPC may not be
available for forming a WOS.
All in all, it seems that despite the initial enthusiasm that this
concept received, it seems that in practice, this by itself is not likely to
encourage sole proprietors to convert into a company in large numbers.
concept received, it seems that in practice, this by itself is not likely to
encourage sole proprietors to convert into a company in large numbers.
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