One Person Company- A way to Corporatization of a Proprietorship Concern

The JJ Irani Com­mit­tee in its report in 2005 recog­nised the need for the small and pri­vate com­pa­ny to pro­vide greater oppor­tu­ni­ty to them and free­dom of oper­a­tion to the small businesses. 

Now with Com­pa­nies Act, 2013 the One Per­son Com­pa­ny has intro­duce in India. One per­son Com­pa­ny means a com­pa­ny with only a sin­gle nat­ur­al mem­ber as defined in the sec­tion 2(62) of the Com­pa­nies Act, 2013. Most­ly all pro­vi­sion applic­a­ble to a pri­vate lim­it­ed com­pa­ny (except some pro­vi­sions) has applic­a­ble to the One per­son Com­pa­ny except the pro­vi­sion of the min­i­mum num­ber of members.

Only Nat­ur­al Per­son can form a One per­son Company

Only a nat­ur­al per­son, being a res­i­dent in India can incor­po­rate One per­son Com­pa­ny. The term “res­i­dent in India” means a per­son who stayed in India for a peri­od of not less than 182 days dur­ing the imme­di­ate pre­ced­ing one finan­cial year. The nom­i­nee (if any) of the sole mem­ber also has to sat­is­fy the said criteria.

The Act defines a One per­son Com­pa­ny as con­sist­ing of one per­son as mem­ber. A per­son means any per­son whether Nat­ur­al or Arti­fi­cial but Rules pro­vide that only a nat­ur­al per­son can form a One per­son Company.

The res­i­den­tial sta­tus of the mem­ber is rel­e­vant only at the time of incor­po­ra­tion of com­pa­ny. After incor­po­ra­tion such res­i­den­tial sta­tus may sure­ly change for the mem­ber as well as for the nominee.

Max­i­mum num­ber of com­pa­ny one can incorporate:

A per­son can incor­po­rate a max­i­mum of 1 One per­son Com­pa­ny. For the pur­pose of the lim­it, in case of a nom­i­nee becom­ing a mem­ber (by virtue of death or inca­pac­i­ty), the rule pro­vides for opt­ing out of 1 One per­son Com­pa­ny, so as to com­ply with the lim­it of 1.

One per­son Com­pa­ny los­es its status:

Under the fol­low­ing cir­cum­stances One per­son Com­pa­ny is to manda­to­ri­ly con­vert­ed if self into a pub­lic com­pa­ny or pri­vate company:

• Paid up share cap­i­tal of One per­son Com­pa­ny exceeds Rs. 50/- lakhs. Or,
• Its aver­age annu­al turnover dur­ing the rel­e­vant peri­od exceeds Rs. 2/- crore.

In the above cas­es One per­son Com­pa­ny shall with­in 6 month con­vert itself into pub­lic com­pa­ny or pri­vate com­pa­ny with min­i­mum num­ber of direc­tor and members.

One per­son Com­pa­ny can’t be vol­un­tar­i­ly con­vert into any kind of com­pa­ny unless 2 years have expired from the date of incor­po­ra­tion of One per­son Com­pa­ny except where either of the thresh­old lim­it men­tioned above is breached.

Con­ver­sion of Pri­vate Com­pa­ny into One per­son Company:

A pri­vate com­pa­ny ( oth­er than a sec­tion 8 com­pa­ny) not meet­ing the above thresh­old lim­it may con­vert itself into a One per­son Com­pa­ny by pass­ing a spe­cial res­o­lu­tion in the gen­er­al meet­ing after obtain­ing No Objec­tion in writ­ing from mem­bers and cred­i­tors of the exist­ing pri­vate lim­it­ed company.

Effec­tive tool for trans­fer of property:

In case the prop­er­ty owned, let us say, by an indi­vid­ual, own­ing a flat, is acquired in the name of a One per­son Com­pa­ny, the prop­er­ty becomes trans­fer­able by the way of trans­fer of shares. There­fore, the stamp duty and tax val­u­a­tion issues become eas­i­er as there will be no con­veyance on such transfer.

Ben­e­fits of One per­son Company:

Since, the con­cept is lim­it­ed to an incor­po­rat­ed pro­pri­etor­ship; this may be a way to encour­age a small trad­er to move to incor­po­rat­ed sta­tus. From tax­a­tion point of view, the con­cept of One per­son Com­pa­ny may not appeal to small pro­pri­etors as  the base tax rate in case of any kind of com­pa­ny is quite steep (30% approx.) and may result in a high­er inci­dence of tax­a­tion for the small­er sole ventures.

The oth­er ben­e­fits can be enjoyed are as

• Less pro­vi­sions of the Act to be com­piled with like hold­ing of meet­ing, quo­rum require­ments, main­te­nance of reg­is­ters etc.
• Less main­te­nance of records.
• Low admin­is­tra­tive cost.
• Sim­ple legal regime pro­vid­ed by way of exemptions.
• De-risk­ing the busi­ness by trans­fer­ring the lia­bil­i­ties to the company.