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ONE PERSON COMPANY IN INDIA & ITS COMPARATIVE ANALYSIS WITH THE UNITED KINGDOM (U.K) BY: TAMANNA BANSAL
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ONE PERSON COMPANY IN INDIA &
ITS COMPARATIVE ANALYSIS WITH THE UNITED KINGDOM (U.K)
AUTHORED BY: TAMANNA BANSAL
RAJIV GANDHI NATIONAL UNIVERSITY OF
LAW, PATIALA
ABSTRACT
The article
shall focus on the concept of OPC (One Person Company) comprising of only one
member. Under the Act a person can individually form a company by subscribing
his name in the Memorandum of Association and by further compliance of various
provisions under the Act. This concept was first recommended in the J J Irani
Committee report. This concept was adopted in the companies Bill of 2009 that
was later took the shape of the companies bill of 2011. Further it was this
bill that had got the ascent of the parliament and was enacted as the Companies
Act, 2013. The article will focus on the difference between the One Person
Company and Sole Proprietorship. Further, it will focus on the exemptions,
restrictions and compliances on the OPC. The advantages of OPC and how the
conversion will take place from a company To OPC. Lastly, the article will
compare the OPC in India with OPC in UK.
Key words: Exemption,
Restriction, Conversion, Committee Report, Sole Proprietor
INTRODUCTION:
With the enactment of the new Companies
Act, 2013, various new concepts have been introduced into the Indian corporate world
that was earlier absent in the Companies Act, 1956. One such inclusion was ‘One
Person Company’ (OPC). An OPC is a
company comprising of only one member.[1]
Under the Act a person can individually form a company by subscribing his name
in the Memorandum of Association[2]
and by further compliance of various provisions under the Act. This concept was
first recommended in the J J Irani Committee report.[3]
This concept was adopted in the companies Bill of 2009 that was later took the
shape of the companies bill of 2011. Further it was this bill that had got the
ascent of the parliament and was enacted as the Companies Act, 2013.[4]
The concept of OPC might be
relatively new in India but it is a very successful model of business in the
United Kingdom (UK) and various other European countries from a long time.
However in this project the author tends to focus only on the laws relating to
OPC in the UK and its analysis with the Indian laws.
This concept is a new structure of
business added in the family of Sole Proprietorship, partnerships, Limited liability
Partnerships (LPP), etc and aims to not only focus on individuals to enter in
to the corporate world but also tends to enable new employment opportunities in
the corporate world.
One Person Company (OPC)
Vis A Vis Sole Proprietorship:
In the concept of OPC it is a single
person who runs the limited by share whereas in case of sole proprietorship, it
is owned and run by an individual where there is no distinction between the
personal identity and that of the business. However there are certain other
distinctions between both the models of business. They are as follows:
·
Limited
Liability - Prima Facie the basic principal difference in both the business
models is with regard to the liability each person responsible shares[5].
OPC is different from Sole Proprietorship because under the law it is treated
as a separate corporate entity. The liability of the shareholder will be
limited to the unpaid subscription money in his name. However in case of a sole
proprietorship the owner is solely responsible for all the claims made against
the business.
·
Tax
bracket – As the concept of OPC is relatively new, there doesn’t exist any
special provision with regard to the OPC in the Tax Laws yet. The OPC tends to
fall under the same slab rate as that of Private companies[6].
·
Succession
– In OPC there is provision for a nominee designated by the member. In the
event of the death of the member, the nominee may take charge of the company
and it’s functioning. Whereas in case of sole proprietorship succession may be
possible only by execution of WILL. However there are high possibilities of the
WILL being challenged before the court of law.
·
Compliance
- In India, the law mandates for an OPC to file annual returns in a similar
manner as that of a private company and also prescribes for its audit in a
similar manner. Whereas in case of sole proprietorship its only needs an audit[7]
once its turnover has crossed a certain threshold.
Incorporation Of One Person Company
One Person Company (OPC) may be
formed by an individual for a lawful purpose[8]. Under
the law, OPC falls in the category of a private company. Therefore the
incorporation procedure of OPC is moreover the same as that of any private
company but with certain distinctions.
The Companies (Incorporation) Rules,
2014 lays down various rules relating to incorporation of OPC. It lays down
that only a natural person, that too citizen of India and resident of India
shall be able to incorporate OPC by subscribing his name to memorandum of
association.[9] The
resident in India is a person who has stayed in India for not less than one
hundred and eighty two days in the preceding calendar year. The OPC like any
other company carries the characteristic of perpetual succession, that is,
members may come members may go but the company goes on forever. This feature
is present in OPC despite of the fact that there is only one member as
Companies (Incorporation) Rules, 2014 lays down provision for nomination by
single member constituting OPC. The person who is nominated becomes member if
in case there is death or incapacity of the original member. The nominee must
be an Indian individual and is required to give written consent of his
nomination. Such consent is required to be filed with the registrar of
companies.[10]
Exemptions, Restrictions And
Compliances For OPC
One person Company has many
distinctive exemptions, restrictions and compliance requirements as they have
only member governing the working of the company. As only one person is the
master of the company various responsibilities are bestowed upon him such as passing
of any resolution and further communicating it, entering the same in the minute
book, etc. The advantage here is that there is no requirement of any type of
simple or special resolution to be passed unlike other types of companies.
Also, there is no requirement for any annual general meeting in case of OPC[11].
The board of directors in OPC must
constitute of atleast one resident director. The criterion is that he should be
that particular person should have stayed in India for one hundred and eighty
two or more days. Also, in OPC mandate of women directors and Independent
directors are exempted[12].
However if OPC wishes to have a women director, they are permitted to have.
The OPC is required to hold a meeting
of the board in six months or twice a year. However the gap in between two
meeting cannot be less than ninety days.[13]
The provision regarding qualification
of director is to be followed in case of OPC and the director must qualify
under the Act. The duties of director under OPC are similar to that of other
models under the Act. [14]
However there are certain
restrictions relating to the membership and nominee in OPC. Under the Act, only
a natural person is permitted to be a nominee under the act. Also, there is a
restriction under the act on the total number of companies to which a person
may be permitted to be nominee. The number is restricted one (1). Further even
the minor below the age of eighteen (18) years of age are not allowed to be a
member or a nominee under the Act.
Further, there is a restriction on OPC,
as an OPC cannot be incorporated for the purpose of social charity.[15]
Also, there is a restriction on the capital that is permitted. An OPC is
permitted to have a capital of only fifty lakhs only and its turnover cannot be
above Rs. Two Crore.[16] However
in case such an event takes place, the OPC is provided to convert itself to
private company or a public company.
Advantages And Disadvantages Of OPC
Each model of business comes with its
own set of merits and demerits. As this business model is comparatively new
there are high chances of the corporate world thinking only about the
advantages of this set of model and not being aware of its merits and demerit.
The OPC just like any other company
has the advantage of Independent existence, Limited liability, Transferability
of shares, Separate property.[17]
Even the sole proprietorship business model that provides for a similar
mechanism of business and control lacks the above features.
In case of private limited and public
limited company where there as similar types of advantages the numerous
Paperwork make it a difficult task to execute for companies having small
capital.
Therefore, OPC is an ideal Business
model and an appropriate vehicle for companies having small capital[18].
The owner of OPC model of business
enjoys a privilege to take quick decisions, as he has no one to consult and is
his own master so also there doesn’t lie any chances of deadlock in opinion as
in cases of other companies which makes decision making process an extremely
complicated process.
However along with this the OPC has
several disadvantages also. Few of them are:
Various research scholars have
highlighted the tax issue prevalent in OPC due to its differential surcharge
rate on domestic companies. In case of OPC a flat rate of 30.9 percentage
taxation is prevalent which is higher to that of a sole proprietorship model as
OPC being a company falls under the corporate tax slab ratting[19].
Also, In case of OPC the chances of
fraud are higher than that of any other business model as there is no mechanism
of check and balances. The power is bestowed in the hands of one person who
acts as a member as well as a director. For instance, under the law, a person
may lawfully incorporate as many as four OPCs and continue transferring the
assets from one OPC to the other to avoid liabilities and to evade tax[20].
Another issue with OPC is the
liability of director. In this business model as it is only one person who is
in charge and acts in the capacity of director, it becomes very easy to make him
criminally liable even incases where he might not be personally liable, the
burden tends to be bestowed upon him as he is the master of roaster.
Conversion Of OPC
The OPC business model is made for
individuals having small paid up capital. Thus, under the Companies Act 2013,
an OPC will cease to be recognized as OPC when either the paid-up capital
exceeds Rs.50 Lakhs or the average turnover exceeds Rs. Two (2) Crores[21].
The remedy available for
the company is that it will have to convert itself into a private limited or a
public limited company.
OPC In The United Kingdom:
The concept of OPC might be
comparatively new in India but in the United Kingdom it has been prevalent for
years.[22]
The concept of OPC in the United
Kingdom lay down by a precedent in the case of Salomon v. Salomon[23]
where the concept of One person company was acknowledged by the court.
This case relates to one Mr. Salomon who
happens to be running his boot manufacturing business and decided to convert
this business in to a private limited company. In order to fulfill this
objective he sold his business to the newly formed company by the name of A
Salomon & Co. Limited. With regard to payments he received payments in the
form of shares and debentures of 10,000 Euro.[24]
After few years, the company didn’t
happen to be performing well and therefore it went into liquidation. In this
scenario Mr. Salomon claimed to be entitled to be paid first as a secured
debenture holder. However the liquidators was in this favor as it was Mr.
Salomon who ran the business and therefore he should not be the first to be
paid. Therefore the matter went to the House of Lords and it held that the
company was a different legal person from the shareholders and therefore Mr.
Salomon was entitled to be repaid the debt as his happened to be the first
secured creditor.[25]
Thus in this case we see that Mr. Salomon
happened to be the majority shareholder, the director, an employee as well as a
creditor of the company that was created by him.
Therefore this case lay down that a
company might be formed under the Act by One or more persons by complying with
certain essential requisites. They are:
By subscribing their names to a
memorandum of association[26],
By complying with the requirements of
this Act as to registration[27],
Comparative Analysis Of OPC In India
And UK
In India, the concept of OPC has been
adopted from the United Kingdom. There are certain similarities and differences
in both the laws permitting this business model.
In India, a minimum sum of Rs. 1 Lakh
is required to incorporate an OPC but in case of U.K, under the UK Companies
Act, 2006 there is no minimum sum required to incorporate an OPC.
In UK prior to 2006 only a private limited
company could be established as an Single Member company (SMC) but after 2006
even a public company could be established as a SMC. However in India, only a
private limited company could be established as OPC but it can be converted
into a private limited or a public limited by following the due process of law
under the Act.
Under the Indian laws it is required
to mention a nominee who in the event of death would take over the affairs of
the company. However in the UK there is no such concept of nominee.
With regard to the age of an
individual incorporating OPC, under the UK laws the person incorporating SMC
has to attain minimum age of sixteen (16) years. However in case of India, the
person willing to establish an OPC has to attain majority (i.e. age of Minimum
18 Years). Until then he shall be regarded as a minor and shall not be allowed
to form an OPC.
With regard to the director, under
the UK laws, a natural person or a corporate person may be a director in an SMC
but it is mandate for atleast one person to be a natural person. However in
case of India, the Companies Act, 2013 prescribe for only natural person who is
a resident of India to be a director.
With regard to Tax rate, under the UK
laws, OPC is entitled to tax benefits, as the tax to be paid by these companies
is only 19%. However in India no tax benefit is awarded to OPC and they pay the
same tax as that of any other private company of 30%.
Apart from this, one similarity that
exists between both the laws with regard to OPC is that both prescribe for a
minimum of one shareholder for formation of Company.
Conclusion
The concept of OPC in India is a
relatively new concept whereas in the United Kingdom it is already an
established model to do business. As it is a new concept in India it tends to
face a lot of obstructions and issues. However it is a great initiative as it
allows the sole owners also to enter in to the corporate world, a privilege
that was earlier available only the companies. The features such as perpetual
succession, limited liability and being considered as an separate legal entity
were earlier available only to the companies. But with the incorporation of the
concept of One Person Company these privileges now will be available also to
the Sole Owners.
In this stage the legislature as well
as the executing agencies should work with an aim to promote and solidify the
concept as well as encourage small size business to take up this model of
business.
However it is essential to highlight
certain obstructions that OPC faces. One of them being with regard to the
limitation on the turnover and capital investment as it is essential for these
to be removed. Also it is essential for the legislature to enact a suitable
balanced tax regime which tend would tend to attract the small businesses into
conversion into an OPC. On the other hand the legislature should also focus
that there is no loss of revenue.
Further in India, an individual can
incorporate only one company as sole owners, the legislature should also
consider this and as a mechanism to promote OPC it should allow sole owners to
incorporate more than one company. As the concept has already been derived from
the United Kingdom, the above stated measures as prevalent in the UK should
also be adopted with an optimistic approach.
[1]
Section 2 (62) of Companies Act, 2013.
[2]
Section 3(1)(c) of Companies Act, 2013.
[3] Committee
Report. [online] Available at:
http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf [Accessed 1 Oct.
2018]
[4] Gazette of India, August 30, 2013.
[5] One
Person Company- A Concept For New Age Business Ownership - Corporate/Commercial
Law - India. [online] Available at:
http://www.mondaq.com/india/x/278154/Corporate%2BCommercial%2BLaw/One%2BPerson%2BCompany%2BA%2BConcept%2BFor%2BNew%2BAge%2BBusiness%2BOwnership
[Accessed 1 Oct. 2018].
[7] Section 44AB of Income Tax act, 1961.
[8] Legalservicesindia.com.
(2018). One Person Company under Companies Act 2013. [online]
Available at: http://www.legalservicesindia.com/article/1758/One-Person-Company-under-Companies-Act-2013.html
[Accessed 1 Oct. 2018].
[9]
Rule 3 of Companies
(Incorporation) Rules, 2014.
[10] Rule 4 of Companies (Incorporation) Rules, 2014.
[12] Id at 10
[13] Section 173 of the Companies Act, 2013.
[14] Section 92 of the Companies Act, 2013.
[15] Section 8 of the Companies Act, 2013.
[16] Corporate
Law Reporter. (2018). An Analysis of One Person Company under Companies
Act 2013 – by Karandeep Makkar. [online] Available at:
http://corporatelawreporter.com/2013/10/17/analysis-one-person-company-companies-act-2013-karandeep-makkar/?s=one%20person%20company
[Accessed 1 Oct. 2018].
[17] Delep Goswami and Anirrud Goswami,
“One Person Company – Boon In Pursuit Of Professional Excellence”, Chartered
Secretary, August 2014, pp. 32-35, at p. 33.
[18] K. C. Goel, 2014, at p. 48.
[19] Ibid.
[20] ibid.
[21] Supra Note 16.
[22] Ierj.in.
(2018). [online] Available at: http://ierj.in/journal/index.php/ierj/article/viewFile/43/36
[Accessed 1 Oct. 2018].
[23] (1897) AC 22
[24] ibid
[25]ibid
[26] Section 8 of the UK Companies Act, 2006.
[27] Section 9 – 13 of the UK Companies Act, 2006.
Article Information
ONE PERSON COMPANY IN INDIA & ITS COMPARATIVE ANALYSIS WITH THE UNITED KINGDOM (U.K) BY: TAMANNA BANSAL
Authors: TAMANNA BANSAL
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/05/22
- Issue 7
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International Journal for Legal Research and Analysis
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