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A man is known by the company he keeps is a well-known proverb. The Companies Bill, 2009 provides an opportunity for a single person to bestow upon himself with the status of a company by propounding a concept called “one-person company” (OPC). Though new in India, OPC's are in existence in quite a few countries across the world, notably China.
Limited Liability Partnership
Enterprises normally took the shape of public or private limited companies. Those who did not want the rigours of a company opted for a partnership firm - which could be incorporated by registering a deed on a stamp paper. Those who did not want the trials and tribulations of a partnership chose to remain sole proprietors. A few years back, a concoction of the two was introduced - limited liability partnership (LLP) which was neither a partnership nor a limited company but had features of both. The principal advantage of the LLP was to limit the liability of the designated partners. India has about 7,000 registered LLPs till date.
Duties
According to Sec 2(1)(zzk) of the Companies Bill, 2009, OPC means a company which has only one person as a member. It is a one shareholder corporate entity, where legal and financial liability is limited to the company only. OPC Company may be registered as a private company with one member and also have at least one director.
The memorandum of an OPC has to prescribe the name of the person who will be member in the event of the death, disability or otherwise, of the one member of the company.
It is also the duty of the member of an OPC to intimate the Registrar, the change of name of the person mentioned in the memorandum and such change will not be deemed to be an alteration of the memorandum. Letters “OPC Limited” should be suffixed with the name of the company to distinguish it from other companies. Annual return of an OPC should be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company. Provision of Annual General Meeting is not applicable for an OPC.
Where an OPC enters into a contract with the sole member of the company who is also a director, the company should, unless the contract is in writing, ensure that the terms of the contract or offer are contained in the memorandum or are recorded in the minutes of the first Board meeting held after entering into the contract and every such contract should be informed to the Registrar.
Small Company
The Bill also defines a small company as a company that has a paid-up capital of less than Rs 5 crore or turnover less than Rs 20 crore. However, public limited companies cannot qualify to be small companies.
Companies that are holding or subsidiary companies, companies incorporated under Section 4 (Section 25 companies in the present avatar) or a company incorporated under a special act cannot apply the small company tag to themselves.
The definition becomes critical due to the application of Ind-AS standards. While International Financial Reporting Standards (IFRS) have a separate standard for small and medium enterprises, small companies as defined in the Companies Bill could expect a separate standard on Ind-AS standards. However, that seems light years away considering the pace at which accounting standards are being implemented, at present.
Supporting legislation
While the idea behind an OPC is to encourage entrepreneurship, it would be critical to ensure that supporting legislation also recognise OPC as an entity and do not consider it to be an extension of a sole proprietorship. The MCA would also have to clarify if exceeding certain turnover or capital criteria would automatically convert an OPC into a private limited company through deeming provisions.
Whether the provisions relating to small companies would apply to OPC's is another issue that needs to be tackled. Opting between an OPC and a LLP would be based on whether the plunge into entrepreneurship is taken singly or jointly.
After some stuttering, the Companies Bill 2009 is finally seeing some hope of being implemented after having been cleared by the Cabinet. The Bill attempted to simplify a gargantuan Companies Act and has quite a few beneficial provisions on corporate governance, corporate social responsibility and prevention of oppression and mismanagement through class action suits.
(The author is a Bangalore-based chartered accountant.)
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