One Man Company; now a reality

The new Companies Act, 2013 (passed by both the houses of the Parliament) has introduced the concept of a “one person company” (OPC). This concept, though already prevalent in the UK and several countries of the European Union, was first recommended in India by an expert committee in 2005 and was subsequently inserted in the Companies Bill so as to provide an option to persons operating under the sole proprietorship model to operate as a company.

Provisions of the Companies Act, 2013 relating to one man company :

Section 2 (62) “One Person Company” means a company which has only one person as a member

Eligibility for the formation of OPC:

  

a. Firstly, the person is to give a separate name and legal identity to the Company, under which all the activities of the business are to be carried on. This ensures that a separate legal entity is formed.

b. Secondly, Section 3 of The Act, provides that at the time of incorporation of OPC, the memorandum of OPC shall include the person has to nominate a name with that person’s written consent as a nominee to the OPC. This person will be the default and ad hoc member in case of the existing sole member’s death or disability. The consent of nominee shall be in prescribed written format and shall also be filled with Registrar along with MOA & AOA.

c. Provided also that the member of One Person Company may at any time change the name of such nominate person by giving notice in such manner as may be prescribed to intimate company the change, if any, in the memorandum and the company shall intimate the Registrar any such change within such time and in such manner as may be prescribed.

d. On the death of member, nominee have title to all the shares and entitle to same rights and divided to which sole member  of company was entitle or liable, on becoming member such nominee will nominate other person as nominee with his consent.

Relaxation given to OPC

Number of Directors: Although bill restricts number of director one in case of OPC, there is no constraint to recruit more than one with subject to maximum 15.

Appointment of Director:  There is no separate provision for appointment of first director in article of company, an individual being member shall be deemed to be its first director.

Board Meeting/ AGM:  If there is only one director, there is no such compulsion to conduct Board Meeting. In case of more than one director, at least one board meeting twice in the year and gap between two meetings would not be less than 90 days. Notice, Quorum, passing of resolution made applicable to OPC also.

Section 122(1) provides that the provision of section 98 and section 100 & 111(inclusive) are Not APPLICABLE to OPC, i.e. Provision related to General meeting, Extra-Ordinary General meeting, Notice convening to general meeting is not hold good for the company.

Alternative if business which is required to be transacted at GM & AGM by means of ordinary or special resolution it shall be sufficient if the resolution is communicated by sole member to company and note it down in minute’s book and signed and dated by the member, it shall  be consider as effective date.

Due date of filling Return: U/s 92(1) OPC shall required filing with Registrar of companies, a copy of financial statements, along with form 23AC, 23ACA, and 20B within 180 days from closure of financial year except form 60.

Signing of Financial Statement and Annual Return:  The Financial Statement Signed by only one director and also, annual return should be signed by Company secretary, else by the director of company.

Contract by One Person Company:

Where One Person Company 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:

The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board of Directors.

 

In view of the above mentioned features of the OPC, the concept of OPC in the Companies Bill indeed looks promising. However, the success of this concept would be correctly gauged only after its implementation. 

Corporate Social Responsibility not an option anymore

CSR is broadly -- some say vaguely -- defined in the law to mean funding programmes for education, poverty alleviation, protecting the environment or tackling disease, among others.

The New Companies Act, 2013  mandates that companies of a certain size spend 2% of their three-year average annual profit towards corporate social responsibility (CSR), is a landmark one as it makes India among the first nations to have social welfare spending as part of company statute by law.

A look at the provisions of the Act

Provisions of the Act:  Relevant Parts of the Act- the sections 134, 135, Schedule III and Schedule VII of the Companies Act, 2013 deal with CSR. The sections 134 and 135 are part of Chapter IX on Accounts of Companies.

ii. Mandatory Reporting- the Section 134, under subsection 3, clause (o),states that there shall be attached to (Financial) statements laid before a company in general meeting, a report by its Board of Directors, which shall include the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.

iii. Which companies are covered- the section 135 provides further details on the corporate social responsibility initiatives. Under its subsection (1) it defines the companies for whom formation of a Corporate Social Responsibility Committee of the Board is mandatory- every company having net worth of INR 500 crore (INR 5 billion) or more, or turnover of INR 1,000 crore (INR 10 billion) or more or a net profit of INR 5 crore (INR 50 million) or more during any financial year.

iv. Composition of CSR Committee- it will consist of 3 or more directors, out of which at least one director shall be an independent director. This composition needs to be disclosed in the mandatory reporting mentioned in sub point ii.

v. Role of the CSR Committee- formulate and recommend to the Board a CSR Policy, the amount of expenditure to be incurred and monitoring of the Policy from time to time.

ix. Which Activities may be included in CSR Policy- in Schedule VII of the Bill there are 9 specified and 1 provisional generic category of activities:

a. Eradicating extreme hunger and poverty

b. Promotion of education

c. Promoting gender equality and empowering women

d. Reducing child mortality and improving maternal health

e. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases

f. Ensuring environmental sustainability

g. Employment enhancing vocational skills

h. Social business projects

i. Contribution to the Prime Minister's National Relief Fund or any other Fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women

j. Such other matters as may be prescribed.

xi. What if the company fails to spend the referred amount on CSR- in such case the company will have to specify the reasons for not spending the amount in the Mandatory Reporting mentioned in sub point ii.

Around 8,000 companies would fall under the Bill's ambit and this mandate would translate into an estimated CSR spending of Rs 12,000-15,000 crore annually. This steps seems to be a welcome change so Companies now gear up for some charity and development work!!