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Soon, one person can start a company

Last updated on: December 20, 2012 08:15 IST

Soon, one person can start a company

N Sundaresha Subramanian in New Delhi

The passage of Companies Bill in the Parliament will pave way for a new concept of "One Person Company". Under the Companies Act, 1956, it required at least two people to form a company. The new concept will provide an opportunity to Indian Entrepreneur to enter into the corporate world even without adding any family member in the company just for the namesake, which is the common practice.

"This will bring the unorganised sector of proprietorship in the organised version of Private Limited Company. The organised version of One person company will open the avenues for more favorable banking facilities particularly loans to such proprietor," Pavan Kumar Vijay, Managing director, Corporate Professionals.

" The proprietor always have unlimited liability, if such proprietor does business through One Person Company then liability of member is limited. This will open all the options for Indian Entrepreneur with pros and cons and leave it in the hands of such promoter to decide the best options. It will help many foreign companies which just need to appoint nominees for the namesake of minimum two members when they form wholly owned subsidiary," Vijay added.

Various small and medium enterprises (SMEs) who are doing business as a sole proprietor, may enter into the corporate domain. The concept would boost flow of Foreign Funds in India as the requirement for nominee shareholder would be done away with, however mandatory Resident Indian Director on the board could be a bottleneck, experts added.

One person company can be formed by subscribing the name of such one person to the memorandum and complying with the requirements of the Act in respect of registration. As regards the name of a 'One Person Company', the Act provides that the words 'One Person Company' shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

The law comes with provisions that cover various situation that may arise in such a new format.

For example, any business which is required to be transacted at an annual general meeting or other general meeting of a company by means of an ordinary or special resolution, in case of One Person Company shall be done by passing a resolution that is communicated by the member to the company and entered in the minutes book required to be maintained under law.

Key investor - friendly clauses in the New Companies Bill
Clause 151 --- Appointment of Director elected by small shareholders
Clause 108 --- Right to Vote at Meetings by Electronic Means
Clause 13(8) ii & Clause 27 ---  Exit option to shareholders in case of dissent to change in objects
Clause 230 (7) (e) -- Exit option to shareholders in case of Compromises, Arrangements And Amalgamations
Clause 245 ---  Provisions for Class Action Suits
Clause 211 -- Constitution of Serious Fraud Investigation Office (SFIO)
Clause 75 -- Acceptance of deposits from public subject to a more stringent regime
Clause 221 --Inspection, enquiry and investigation
Clause 229 -- Punishment for falsification during inspection  
Clause 228 -- Inspection and Investigation of foreign companies
Clause 139 (2) --- Rotation of Auditors
Clause 149 (7)  -- Code for Independent Directors

It also provides that the memorandum of One Person Company shall indicate the name of the other person as nominee, with his prior written consent in the prescribed form, who shall, in the event of the subscriber's death 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 along with its Memorandum and Articles.

In countries like USA, and many countries of Europe, Singapore etc. the entrepreneur have options to decide the constitution of company as per their need and the option of 'One Person Company' is available to them. The concept of OPC is prevalent in many countries and notably in China.

Experts feel the key challenge for such a company will be to ensure that supporting legislations also recognise such a company as an entity and not just an extension of a sole proprietorship.