Legal Provisions For A ‘One Person Company’

The recent Companies Bill 2012 specifies provisions for setting up companies with only one person as a member. Read on to learn more.

Q 1) What is a ‘One Person Company’? Can I start one?

- Anand Srinivas

Reply –

A One Person Company (OPC) is a new concept and is sought to be introduced under the Companies Bill, 2012, which has been passed by the Lok Sabha and is pending the approval of Rajya Sabha and thereafter, Presidential assent.

An OPC is defined as a company that has only one person as a member. The Companies Bill mandates that the words ‘One Person Company’ shall be mentioned in brackets below the name of such a company, wherever its name is printed, affixed or engraved. The concept provides an opportunity to an entrepreneur to enter the corporate world without adding any of his/her family members to the company for the namesake.

An OPC will be considered as a separate legal entity. This is as opposed to the present proprietorship concerns, which are not considered as separate legal entities vis-a-vis the proprietor.

However, the question that needs to be debated is whether this would encourage the unorganised sector (sole proprietors) to embrace the OPC concept. It is expected that where there is more than one person taking the plunge into entrepreneurship, they could choose the LLP route, whereas if a person does not want to share his/her idea/business with anyone, the person could probably choose the OPC route.

Some of the expected advantages of an OPC are:

a) It will be a separate legal entity.
b) No need to involve other persons for namesake, as under the present law, two persons are required to form a company.
c) Nomination facility available.
d) It would suffice if one director signs the audited financial statements. Besides, there is no need to prepare a cash flow statement. The annual return can be signed by the Director and not necessarily a Company Secretary.
e) There is no necessity for an Annual General Meeting (AGM) to be held. In fact, the specific provisions related to general meetings and extraordinary general meetings do not apply to an OPC.
f) Compliance is said to be complete if the resolutions are entered in the minutes book of the company.
g) The liability of the member is limited.
h) An OPC will open the avenues for more favourable banking facilities, particularly loans, to such proprietors.
i) The concept will also boost the flow of foreign funds in India as the requirement of a nominee shareholder would be done away with.

However, you cannot start an OPC until the Companies Bill, 2012 is enacted into a law.

Q 2) What is the GST? When is it likely to be implemented?

- Yuvika Trehan

Reply –

The Goods and Services Tax (GST) is an indirect tax that would replace existing levies such as excise duty, service tax and value added tax (VAT), octroi and other specified legislations. The states and the federal government will impose the tax on almost all goods and services produced in India or those that are imported. Exports will not attract GST.

Producers will receive credits for tax paid earlier, which will eliminate multiple taxation on the same product or service. Direct taxes, such as income tax, corporate tax and capital gains tax will not be affected.

Eliminating a multiplicity of existing indirect taxes will simplify the tax structure, broaden the tax base and create a common market across states and federally administered districts.

The GST can be implemented only through a Constitutional Amendment Bill, which means that it needs to be approved by not less than two-third of the members present and voting in each House of Parliament. The GST must also be ratified by the legislatures of at least one-half of the states.

In the Budget Speech of 2007-08, Finance Minister P Chidambaram had announced the implementation of GST from April 1, 2010. The second deadline for GST was April 2012. Now, there are hopes that the GST regime will come into effect by April 1, 2014.