The Companies Act of 2013 introduced a groundbreaking provision allowing the establishment of a company by a single individual with limited liability, referred to as a One Person Company (OPC). This type of company is classified as a private company under section 3(1)(c) of the Act. Specific provisions governing OPC formation are outlined in section 3(1) along with rules 3 and 4 of the Companies (Incorporation) Rules, 2014.
Who can form a One Person Company?
Only a natural person, excluding minors, who is an Indian citizen—whether residing in India or not—is eligible to incorporate a One Person Company. Residency in India is defined as a stay of not less than one hundred and twenty days in the immediately preceding financial year.
Additionally, OPCs cannot be incorporated or converted into a company under section 8 of the Act, and they are prohibited from engaging in Non-Banking Financial Investment activities, including investing in securities of any body corporates.
Indication of Name & Consent of Nominee
The memorandum of a One Person Company must specify the name of the natural person (other than a minor) who is an Indian citizen, whether residing in India or not, and serves as a nominee. This nominee, along with their prior written consent in Form No. INC-3, is designated to become the member of the company in the event of the subscriber's death or incapacity to contract. This provision ensures the perpetual succession of the legal existence of the OPC.
Example: Ms. Mohan formed an OPC with Mr. Sudan as the nominee. If Ms. Mohan becomes insolvent, Mr. Sudan becomes the member of the OPC, as specified in the MOA.
The details of the nominated person and their consent in Form No. INC-3, along with the required fee, must be filed with the Registrar at the time of incorporation.
Note: A natural person cannot be a member of more than one OPC simultaneously, and the person cannot be a nominee of more than one OPC.
Withdrawal of Consent by Nominee
If the nominee wishes to withdraw their consent, they must provide written notice to both the sole member and the OPC. In such cases, the sole member has fifteen days to nominate another person as a nominee and must submit the nomination in writing to the company along with the new nominee's written consent in Form No. INC-3.
Note: Any changes in the nominee's name, despite being specified in the memorandum, are not considered an alteration of the memorandum.
Replacing Nominee with Another One
The member has the authority to change the nominated person at any time, for any reason, by providing prior written consent from the new nominee in Form No. INC-3. The member must notify the company in writing of such changes.
Example: Rajesh, having an OPC, wants to replace his wife Roopali as a nominee due to her terminal illness. He can appoint his friend Ramnivas as the new nominee but not his minor son Rakshak.
When Nominee Becomes a Member
If the sole member ceases to be a member, and the nominee becomes the new member, the new member must nominate another person within fifteen days of becoming a member. This new nominee, in the event of death or incapacity of the new member, ensures the continued existence of the company.
Notice of Change to Registrar In cases of withdrawal of consent by the nominee, replacement of the nominee, or when the nominee becomes a member, the OPC must file the notice of withdrawal, change, or cessation with the Registrar within thirty days. The company should use Form No. INC-4 and provide the fee along with the prior written consent of the new nominee in Form No. INC-3.
Additional Reading: Relaxations available to an OPC include:
· Not required to prepare a cash-flow statement as per section 2(40).
· The annual return under section 92 can be signed by the Director, and an abridged annual return may be prescribed.
· Section 134 allows one director to sign audited financial statements, and an abridged form of the director's report may be prescribed.
· Holding an annual general meeting is not necessary for OPCs, and specific provisions related to general and extraordinary general meetings do not apply.
· Convening board meetings is simplified for OPCs, requiring only one meeting in each half of a calendar year.
· Section 137 permits OPCs to file financial statements within six months from the close of the financial year instead of the standard 30 days.
