One-person company — concept still in the making

French philosopher Jean-Paul Sartre once remarked “If you’re lonely when you are alone, you’re in bad company”.

Heads of business are often quoted as saying that it is lonely at the top. The freshly-minted Companies Bill further extends this concept of loneliness by provisioning that a single person can commence a company, which would be christened as a one-person company (OPC). OPCs are common abroad and this concept is now being brought into India.

OPC provisions

Provisions relating to OPC are strewn all across the Bill. Clause 2(62) of the Bill defines an OPC to be a company that has only one person as a member. The Clause on incorporation of an OPC requires the person registering an OPC to nominate another person with his prior written consent in the prescribed form, who shall, in the event of the death or incapacity of the registering member to contract become the member of the company and the written consent of such person shall also be filed with the Registrar at the time of incorporation of the OPC along with its memorandum and articles.

The nominee has a right to withdraw his nomination at any time and the person registering the OPC has the freedom to change the nominee. The words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

Relaxations given to an OPC are that there is no need to prepare a cash-flow statement (Clause 2(40)), the annual return can be signed by the Director and not necessarily a Company Secretary ( Clause 92), there is no necessity for an Annual General Meeting ( AGM) to be held (Clause 96), specific provisions related to general meetings and extraordinary general meetings would not apply (Clauses 100 to 111), compliance can be said to have been done if the resolutions are entered in the minutes book of the company (Clause 122), it would suffice if one director signs the audited financial statements (Clause 134), they get six months from the close of the financial year to file their financial statements (Clause 137).

In addition, one meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings should not be not less than ninety days (Clause 173). Where the 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, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract (Clause 193).

The standard Articles of Association that accompany the Bill state that on the death of the promoter of an OPC, the person nominated by such member shall be the person recognised by the company as having title to all the shares of the member and shall be entitled to the same dividends and other rights and liabilities to which such sole member of the company was entitled or liable.

Collateral legislation

In a country with no dearth of entrepreneurs, the question that needs to be debated is whether the OPC concept would boost further entrepreneurship and encourage the unorganised sector (sole proprietors) to embrace the OPC concept. The provisions in the Bill for OPCs seem to be focused on minimising compliance requirements of the Companies Act. Entrepreneurs in India are used to a plethora of compliance requirements and though they would welcome any relief on this front, they may not embrace a concept only because compliance provisions appear minimal.

The critical factor would be to see how supporting legislation pushes the concept of OPC — would banks, for example, treat the OPC as a full-fledged company or a compromise for a company? Is winding up an OPC as laborious as winding up a normal company? Such intangible factors would be playing on the minds of entrepreneurs.

One of the other advantages being touted in an OPC is that the liability of the members is limited. Limited Liability partnerships (LLPs) were permitted for this express purpose a couple of years back and have met with a good response. If there is more than one person taking the plunge into entrepreneurship, they would prefer the LLP route, while if a person has a great idea but does not want to share it with anyone, he would probably prefer the OPC route. In an era of collaboration and partnerships in every area, the number of persons falling in the latter category can probably be counted on one’s fingers. Having provisions for OPC in a major Act looks good, but that’s about the only thing that one can expect from it now, till collateral legislation embraces the concept.

(The author is Director (Finance), Ellucian)

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