• Pratham Dave

COMPANIES ACT, 2013: ONE PERSON COMPANY AND CONTRACT BY ONE-PERSON COMPANY

Updated: Sep 30



INTRODUCTION:


The Companies Act, of 2013, fundamentally transformed Indian corporate law by incorporating several previously unknown ideas. The introduction of the One Person Company concept was one such game shift. This resulted in the discovery of an entirely new way of creating enterprises, one that provided the flexibility that only a company form of entity can provide while also giving the security of limited liability that sole proprietorships and partnerships lacked.


WHAT IS ONE PERSON COMPANY ?


In accordance with Section 2(62) of the Companies Act, 2013, A one-person company is one that has only one member. Moreover, members of a corporation are nothing more than subscribers to its memorandum of association or shareholders. As a result, One Person Company is practically a firm with only one shareholder as a member.


Such enterprises are typically formed when there is only one founder/promoter. Entrepreneurs in the early phases of their enterprises choose to establish OPCs rather than sole proprietorships due to the numerous benefits that OPCs provide.


DIFFERENCE BETWEEN OPC AND SOLE PROPRIETORSHIP:


The One-person company and sole proprietorships features a single individual controlling the business, sole proprietorships and one-person companies may appear to be very similar, but there are some differences between them.


The primary distinction between the two is the type of the obligations they bear. Because a One Person Company is a distinct legal entity from its promoter, it has its own assets and obligations. The proprietor is not personally accountable to repay the company's debts.


In contrast, sole proprietorships and their owners are the same people. As a result, the legislation provides for the attachment and sale of the promoter's own assets in the event that the business's liabilities are not met.


CONTRACTS BY ONE PERSON COMPANY [SECTION-193]:


Section 193 of the Companies Act of 2013 covers the provisions pertaining to a One-Person Company.


It states that when a One-Person Company limited by guarantee or by shares enters into a contract with the only member of the company who is also the company's director, the company should ensure that the contract's terms and conditions are asserted in the memorandum or minutes of the board meeting.


It is also critical that the registrar of corporations be informed of each, and every contract entered into by the firm, and that this information be noted in the minutes.


FEATURES OF ONE PERSON COMPANY:

The features of One-person company are:

  • Private Company: In all legal aspects, Section 3 proclaims that a One-Person Company to be a private company. All of the regulations that apply to private companies also apply to a one-person firm. A single person can incorporate a company for any lawful purpose.

  • Single member: A one-person company can only have one member who is both a shareholder and a director, unlike other private companies.

  • No perpetual Succession: Whereas a One Person’s Company has only one member, his death will conclude in the nominee deciding whether or not to become its single member. This does not occur in other firms since they adhere to the principle of everlasting succession.

  • Nominee: One distinguishing feature of One Person Company, from other types of corporations, is that the primary member of the firm must name a nominee when registering the company. This clause serves as a protection in the event that the sole person in charge of the firm dies or becomes disabled.

  • No minimum paid-up share capital: The Companies Act, 2013 does not specify a minimum paid-up capital for One Person Companies.

  • Minimum one director: One Person Companies must have at least one person (the member) as a director. They are limited to a maximum of 15 directors.

  • Special Privileges: Under the Companies Act, 2013 One Person Companies have various advantages and exemptions that other types of companies do not have. The one-person company is excluded from legal responsibilities such as board and general meetings, mandatory rotation of auditors, the appointment of the company secretary, quorums, and inclusion of cash movements in financial records.


FORMATION OF ONE PERSON COMPANY:


A single individual can incorporate an OPC by subscribing to the Memorandum and satisfying the other requirements outlined in the Companies Act of 2013. The nominee of the OPC must be specified in the Memorandum of Association. The nominee must give his or her approval to such an appointment. The appointment of a nominee director is critical to mitigating losses in the event of the sole person's death or incapacity.


This memorandum, along with the nominee's consent to his nomination, should be submitted to the Registrar of Companies along with a registration application. Such a nominee may withdraw his name at any moment by submitting the necessary applications to the Registrar. The member may also withdraw his nomination at any time.


LEGAL PROVISIONS RELATING TO ONE PERSON COMPANY:


A One-Person Company is defined as a company having only one member in Section 2(62) of the Companies Act of 2013. As a result, it only has one shareholder who is also a director as a member.


Section 3 of the Companies (Incorporation) Rules, 2014 specifies who can be a member of a One-Person Company. Only a natural person who is an Indian Citizen and resides in India can be a member of the One-Person Company.