One Person Company

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One Person Company:

One Person Company Dr. Rajeev Babel, FCS, MBA, Ph.D , LLB, AIIB, M.Com Dip in Corp. Governance (ICSI) Dip in Training & Development, Dip in Bank Management, Dip in Financial Services, Company Secretary in Practice, Email: babelrajeev@gmail.com 1

Evolution of the concept of OPC:

The OPC form of business organization has been given legal status in the Companies Act, 2013, on the recommendations of an expert committee set up by the Ministry of Corporate Affairs, in Dec 2004 under the Chairmanship of Dr. J.J.Irani . The Committee submitted its report in May 2005 and recommended the introduction of the concept of OPC in the Act. 2 Evolution of the concept of OPC

OPC or Proprietorship Concern:

OPC Sole Proprietor ship Concern Separate Legal entity Not a separate legal liability Limited Liability Unlimited liability Perpetual succession No perpetual succession Loan not the sole responsibility of the owner Loan-sole responsibility of the owner Registration required Registration not required Finance –credit record of the OPC Finance –credit record of the owner 3 OPC or Proprietorship Concern

Exemptions available to OPCs:

Section Particulars 96 Option to dispense with the requirement of holding an AGM. 98 Power of Tribunal to call meetings of members 100 Calling of extraordinary general meeting 101 Notice of meeting 102 Statement to be annexed to notice 103 Quorum for meetings 104 Chairman of meetings 105 Proxies 4 Exemptions available to OPCs

Exemptions available to OPCs…:

Section Particulars 106 Restriction on voting rights 107 Voting by show of hands 108 Voting through electronic means 109 Demand for poll 110 Postal ballot 111 Circulation of members’ resolution 5 Exemptions available to OPCs…

Meaning of OPC:

As per section 2(62) of the Companies Act, 2013, One Person Company means a company which has only one person as a member. Section 3(1)(c) provides that where the company to be formed is to be OPC, it shall be considered as a private company. 6 Meaning of OPC

Who can form OPC:

Rule 3(1) of the Companies (Incorporation) Rules, 2014 provides that a only a natural person who is an Indian Citizen and resident in India :- (a) shall be eligible to incorporate a OPC (b) shall be a nominee for the sole member of OPC 7 Who can form OPC

Meaning of resident in India :

Rule 3(1) of the Companies ( Incorporation) Rules, 2014 provides that resident in India means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year. 8 Meaning of resident in India

Whether a person can form more than one OPC or become nominee?:

No person shall be eligible to incorporate more than one OPC or become member in more than one OPC. Where a natural person, being member in OPC in accordance with this becomes a member in another OPC by virtue of his being a nominee in that OPC, he shall meet the eligibility criteria of maximum one OPC within a period of 182 days. He may opt to convert the OPC into Private or Public Ltd Company. 9 Whether a person can form more than one OPC or become nominee?

Types of OPC :

Section 3(2) of the Companies Act, 2013 provides that the OPC formed under section 3(1) may be either: A company limited by share; or A company limited by guarantee; or An unlimited company. 10 Types of OPC

Name of the OPC:

Section 4(1) of the Companies Act, 2013 provides that the Memorandum of the OPC shall state the name of the company with the last words “Private Limited” in case of private limited company, except a company registered under section 8 of the Act. (Corresponding section 25 of the Act 1956) 11 Name of the OPC

Liability of the subscriber of OPC:

The liability of the member of the OPC may be limited or unlimited, and MOA of the OPC shall state: ( i ) in the case of a company limited by shares, that liability of its member is limited to the amount unpaid, if any, on the shares held by them; and (ii) in the case of company limited by guarantee , the amount up to which member undertakes to contribute- 12 Liability of the subscriber of OPC

Liability of the subscriber of OPC…:

(ii) (a) to the assets of the company in the even of its being wound up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be; and (b) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributions among themselves. 13 Liability of the subscriber of OPC…

Liability of the subscriber of OPC…:

OPC shall be required to convert itself, within 6 months of the date on which its paid up share capital is increased beyond Rs 50 lacs or the last day of the relevant period duirng which its average annual turnover exceeds Rs 2 crores as the case may be, into either a Private company with minimum of 2 members and two directors of a public company with minimum of 7 members and 3 directors in accordance with the provisions of section 18 of the Act. 14 Liability of the subscriber of OPC…

Minimum share capital:

In case of OPC having a share capital, the MOA shall state that the amount of share capital with which the company is to be registered and the division thereof into shares of fixed amount and the number of shares which the subscriber to the MOA agree to subscribe which shall not be less than one share and number of shares subscriber to the memorandum intends to take, indicate opposite his name. 15 Minimum share capital

Nomination:

The name of the nominated person shall be given in the MOA who, in the event of death of the subscriber, shall become the member of the company. 16 Nomination

Change in the Nomination:

It has been provided that the subscriber/ member of OPC may at any time change the name of the nominated person by giving notice to the Registrar. It shall be duty of the subscriber or member of a OPC to intimate the company the change, if any, in the name of the person nominated by him by indicating in the MOA or otherwise. 17 Change in the Nomination

Change in the Nomination…:

For the purposes of third proviso of section 3(1), the subscriber or member of a OPC may, by intimating in writing to the company, change the name of the person nominated by him at any time for any reason including in case of death or incapacity to contract of nominee and nominate another person after obtaining the prior consent of such other person in Form No. INC-3. 18 Change in the Nomination…

Change in the Nomination…:

Provided that the company shall, on receipt of such intimation, file with the Registrar, a notice of such change in Form INC-4 along with the fee as provided in the Companies (Registration Office and Fee) Rules, 2014, and attach the written consent of the new nominee in Form INC-3 within 30 days of receipt of intimation of change. 19 Change in the Nomination…

When Nominee becoming member and to appoint new nominee :

When a nominee becomes the member of OPC, such new member shall nominate within 15 days of becoming the member a person who shall in the event of his death or his incapacity to contract become the member of such company, and the company shall file with the Registrar an intimation of such cessation and nomination in Form INC-4 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 within 30 days of the change in membership and with the prior written consent of the person so nominated in Form INC-3.l 20 When Nominee becoming member and to appoint new nominee

Nomination…:

Any such change in the name of the nominee person in the MOA of the OPC shall not be deemed to be an alteration of the MOA. 21 Nomination…

Withdrawal of Nomination by the Nominee of OPC:

The nominee may withdraw his consent by giving a notice in writing to such sole member and to the OPC. The sole member shall nominate another person within 15 days of receipt of the notice of withdrawal and shall send an intimation of such nomination in writing to the Registrar along with the written consent of such other person so nominated in Form INC-3. 22 Withdrawal of Nomination by the Nominee of OPC

Filing of intimation for withdrawal of nominee and intimation of another nominee to the RoC:

The company shall within 30 days of receipt of the notice of withdrawal of consent file with the Registrar, a notice of such withdrawal of consent and the intimation of the name of another person nominated by the sole member in Form INC-4 along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 and the written consent of such another person so nominated in Form INC-3 shall be attached with the Form INC-4. 23 Filing of intimation for withdrawal of nominee and intimation of another nominee to the RoC

Restriction on OPC:

The Companies (Incorporation) Rules, 2014,has put certain restrictions on the OPC: No minor shall become member or nominee of the OPC or can hold share with beneficial interest. OPC can not be incorporated of converted into a company under section 8 of the Act. OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any body corporate. 24 Restriction on OPC

Restriction on OPC ( contd…):

OPC can convert voluntarily into any kind of company unless 2 years have expired from the date of incorporation of OPC except threshold limit (paid up share capital) is increased beyond Rs. 50 lacs or its average turnover during the relevant period exceeds Rs 2 crores . 25 Restriction on OPC ( contd …)

Name of the OPC:

Section 4(2) of the Act provides that the name of the OPC shall not- (a) be identical with or resemble too nearly to the name or an existing company registered under this Act or any previous law; or (b) be such that its use by the company- ( i ) will constitute an offence under any law for the time being in force; or (ii) is undesirable in the opinion of the Central Government. 26 Name of the OPC

Name of the OPC ( contd…):

A company shall not be registered with a name which contains: (a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Govt , any State Govt , or any local authority, Corporation of body constituted by the Central Govt or any State Govt under any law for the time being in force; or (b) such word or expressions, as may be prescribed approval of the Central Govt has been obtained for the use of any such word or expression. 27 Name of the OPC ( contd …)

Application for reservation of name of OPC:

A person may make an application, in the Form INC-1 accompanied by fee of Rs 1000/- as per the Companies ( Registration Offices and Fee) Rules, 2014, to the Registrar of a name set out in the application for the name of the proposed company or the name to which the company proposes to change its name. 28 Application for reservation of name of OPC

Reservation of name by the Registrar:

Upon receipt of an application under section 4(4) of the Act, in the Form INC-1, the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of 60 days from the date of the reservation made by the Registrar. 29 Reservation of name by the Registrar

Incorporate OPC::

After name approval, form INC-2 shall be filed for incorporation of the OPC within 60 days of filing form INC-1. Form DIR-12 shall be filed along with (linked) form INC-2 except when promoter is the sole director of the OPC. The company shall file form INC-22 within 30 days once form INC-2 is registered in case the address of correspondence and registered office address are not same. 30 Incorporate OPC:

Forms filing - OPC:

Form No. Purpose for e-form INC-1 Application for reservation of name INC- 2 Application for Incorporation INC-3 Nominee- Consent Form INC-4 Change in Member / Nominee INC-5 Intimation of exceeding threshold – i.e. ceased to be OPC INC-6 OPC- Application for conversion INC-8 Declaration by professionals INC-9 Affidavit of Subscriber and first directors 31 Forms filing - OPC

MOA of OPC:

The MOA of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable to such company. 32 MOA of OPC

Penalty:

If OPC or any office of the OPC contravenes the provisions of these rules, OPC or any officer of the OPC shall be punishable with fine which may extend to Rs. 10000/- and with a further fine which may extend to Rs. 1000/- for every day after the first during which such contravention continues. 33 Penalty

OPC to convert itself into Pvt or Public company in certain cases:

Rule 6 of the Companies (Incorporation)Rules, 2014 provides that where the paid up share capital of an OPC exceeds Rs 50 lacs or average turnover during the relevant period exceeds Rs 2 crores , it shall cease to be entitled to continue as OPC. 34 OPC to convert itself into Pvt or Public company in certain cases

Alteration of MOA and AOA on conversion of OPC:

OPC shall alter its MOA and AOA by passing an ordinary or special resolution in accordance with section 122(3) of the Act to give effect to the conversion and to take make necessary changes incidental thereto. 35 Alteration of MOA and AOA on conversion of OPC

Notice of conversion of OPC to the RoC:

The OPC shall within a period of 60 days from the date of applicability of sub-rule (1), give a notice to the Registrar in Form INC-5 informing that it has ceased to be an OPC and that it is now required to convert itself into a private company of a public company by virtue of its paid share capital or average annual turnover, having exceeded the threshold limit laid down in sub-rule (1). The relevant period means the period of immediately preceding 3 consecutive financial years. 36 Notice of conversion of OPC to the RoC

OPC cannot be wholly owned subsidiary:

As in OPC, only an individual, natural person, could be the single member, the question of any ‘body corporate’ or other form or organizations being the single member does not arise. 37 OPC cannot be wholly owned subsidiary

Board Meetings:

Where there is only one director of an OPC, in the case of anything requiring Board Resolution, it shall be sufficient if the resolution is prepared, entered in the minutes book dated and signed and such date shall be deemed to be the dame of the meeting of the Board. 38 Board Meetings

Board Meetings…:

It is important to note that OPC, small company and dormant company shall be deemed to have complied with section 173 relating to meeting of Board of Directors, if at least one meeting of the Board of Directors, if aat least one meeting of the BoD has been conducted in each half of a calendar year and the gap between the two meetings is not less than 90 days. 39 Board Meetings…

Appointment of director:

The provisions relating to appointment of woman director, independent director and small share holder director do not apply. Section 161 relating to appointment of additional director, alternate director do not apply. Section 164 applies to OPC as it pertains to disqualification of directors and numbers of directorship specified under section 165 will include directorships of OPC also. ( Directorship in 20 companies) 40 Appointment of director

Appointment of Director…:

As per section 149(l)(a), a minimum one director required in OPC. However, there is no bar on appointment of more than one director. Section 152(1)- Until director(s) are appointed, individual, being a member shall be deemed director of the Company. 41 Appointment of Director…

Certain provision not applicable:

Chapter XII on Appointment of Managerial Personnel can apply. Provisions relating to mandatory need for appointment KMP including the need for appointment of a CS or the need for a mandatory Secretarial Audit will not apply. The need to constitute the Audit Committee or any other committees and whistle blower mechanism will not apply. 42 Certain provision not applicable

Share transfer:

If the single member wants to transfer his entire shares in the company to another individual, all the provisions with respect to transfer of shares will also apply. In case the transfer is not approved by the Board, the transferee has the statutory right to apply for a rectification of register of members of the OPC. 43 Share transfer

General Meetings:

OPC need not hold the AGM. Sections 100 to 111 shall not apply to OPCs. As a result provisions such as approaching the NCTL for calling a General Meeting, a shareholder submitting a requisition to call an extra-ordinary general meeting, notice of General Meetings statement annexed to the notice of the General Meetings etc do not apply. 44 General Meetings

General Meeting…:

Section 117 of the Act, requires every resolution in respect of which explanatory statement should be given and every special resolution and every resolutions agreed to all the members of the company are all required to be filed with the RoC . 45 General Meeting…

Annual Return:

Like any other company, even an OPC must file its annual return with the RoC . As an OPC need not call and hold an AGM, there seems to be lacuna with respect to the time within which the annual returns must be filed with the RoC . The Annual Return of an OPC could be signed by its CS and if the OPC do not have CS then it should be signed by its director. 46 Annual Return

Advantages of the OPC:

Separate legal entity. It enables the small time businessman to enter the ‘corporate sector’ by incorporating OPC. Liability of the sole member would be restricted to the amount unpaid on the shares held by him. Mandatory rotation of the auditor after expiry of maximum term is not applicable. There have been a lot of exemptions provided to the OPC. 47 Advantages of the OPC

Advantages of the OPC (contd…):

OPC will aid individuals who are in the less organized and unorganized sectors ( small and medium sized traders, weavers, artisans, mechanics, carpenters, designers and other skill dependent professions and vocations. OPC need not prepare Cash Flow Statement as part of its Financial Statements under proviso to section 2(40). 48 Advantages of the OPC ( contd …)

Disadvantages of the OPC:

The act prohibits any foreign participation. From taxation perspective, the concept of OPC may not appeal to smaller proprietors ( to convert themselves in OPCs) since the base rate of tax of a company is quite high ( 30% approx) and may result in a higher incidence of taxation for them. OPC may also be used by unscrupulous individual entrepreneurs to siphon off funds and evade tax liability. 49 Disadvantages of the OPC

Disadvantages of the OPC ( contd…):

From the lender’s perspective, financial institutions and banks- would they treat them as normal company. The Act has not granted any relief to OPC from the provisions of accounts and audit. OPC have to file Financial Statements, Balance Sheet and P&L account duly adopted by the its member within 180 days from the close of the FY as per proviso 137(1). 50 Disadvantages of the OPC ( contd …)

Disadvantages of the OPC ( contd…):

Dividend distribution tax: If an OPC declares divided it will have to pay dividend distribution tax @16.995% ( 15% +10% surchage+3% cess ) apart from income tax @30.9%. Where the sole proprietor makes any drawings, the same is not treated as deemed dividend, but in OPC when a director takes a loan and the OPC have distributable income, the loan availed by the director is treated as deemed dividend to the extent of accumulated profits by a closely held company u/s 2(22)(e) of I.T.Act , 1961. 51 Disadvantages of the OPC ( contd …)

Whether a PCS form OPC:

Section 26 of the Company Secretaries Act, 1980 stipulates that ‘companies not to engage in Company Secretaryship and no company, whether incorporated in India or elsewhere, shall practice a Company Secretaries’. The explanation to this section also makes it clear that ‘for the removal of doubts’ it is hereby declared that ‘company’ shall include any limited liability partnership which has company as its partner for the purposes of this section. 52 Whether a PCS form OPC

Questions on OPC:

FAQs about OPC 53 Questions on OPC

How to incorporate an OPC? :

Name reservation: Form INC-1 shall be filed for name availability. Incorporate OPC: After name approval, form INC-2 shall be filed for incorporation of the OPC within 60 days of filing form INC-1. Form DIR-12 shall be filed along with (linked) form INC-2 except when promoter is the sole director of the OPC. The company shall file form INC-22 within 30 days once form INC-2 is registered in case the address of correspondence and registered office address are not same. 54 How to incorporate an OPC?

How to inform ROC about change in membership of OPC:

The company shall file form INC-4 in case of cessation of member of OPC on account of death, incapacity to contract or change in ownership. In the same form, user needs to provide details of the new member of the OPC. 55 How to inform ROC about change in membership of OPC

Threshold limits for an OPC :

In case the paid up share capital of an OPC exceeds Rs. 50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs 2 crore , then the OPC has to mandatorily convert itself into private or public company. 56 Threshold limits for an OPC

How to intimate ROC:

he OPC shall inform RoC in form INC-5, if the threshold limits is exceeded and is required to be converted into private or public company. 57 How to intimate ROC

Time limie for INC 5:

Form INC-5 shall be filed within 60 days of exceeding threshold limits. 58 Time limie for INC 5

Form for conversions of OPC:

Form INC-6 shall be filed by an OPC for conversion of an OPC into private or public company. Yes, the private company will also file form INC-6 for converting itself into an OPC. The paid up share capital of private company should not be exceeding fifty lakh rupees and should not have average annual turnover more than two crore rupees at the time of such conversion into OPC. The company shall be having one member and shall appoint one nominee to act as member in case of death or incapacity of the member at the time of conversion into OPC. Form INC-6 shall be filed within 30 days in case of voluntary conversion and within six months of mandatory conversion. 59 Form for conversions of OPC

Who is eligible to act as member of OPC:

Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC. For the above purpose, the term "resident in India" means a person who has stayed in India for a period of not less than 182 during the immediately preceding one financial year. 60 Who is eligible to act as member of OPC

In how many OPC’s can a person be member :

A person can be member in only one OPC. 61 In how many OPC’s can a person be member

If member of an OPC become member of another OPC:

Where a natural person, being member in One Person Company becomes a member in another OPC by virtue of his being a nominee in that OPC, then such person shall meet the eligibility criteria of being a member in only one OPC within a period of one hundred and eighty days, i.e., he/she shall withdraw his membership from either of the OPCs within one hundred and eighty days. 62 If member of an OPC become member of another OPC

How to withdraw the consent by nominee:

Form INC-4 shall be filed in case of withdrawal of consent by the nominee or in case of intimation of change in nominee by the member. 63 How to withdraw the consent by nominee

Thank You:

64 Thank You

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