Passage of the Companies Bill in Parliament will pave the way for a new concept of one person' company' (OPC). Under the Companies Act, 1956, it required at least two people to form a company. The new concept will provide an opportunity to Indian entrepreneurs to enter the corporate world without even adding a family member to the venture, which they, at times, do just for the sake of a second name.
"This will bring the unorganised sector of proprietorship into the organised version of a private limited company. The organised version of OPC will open the avenues for more favourable banking facilities, particularly loans to such proprietors," says Pavan Kumar Vijay, managing director of Corporate Professionals, a corporate financial advisory firm.
"Proprietors always have unlimited liability. If such a proprietor does business through an OPC, then liability of the member is limited. This will open all options for Indian entrepreneurs, with pros and cons, and leave it in the hands of such promoters to decide the best options. It will help many foreign companies, which just need to appoint nominees for the sake of a minimum two members, when they form a wholly-owned subsidiary (in India)," Vijay adds.
Various small and medium enterprises, doing business as sole proprietors, might enter into the corporate domain. The concept would boost the flow of foreign funds into India, as the requirement for a nominee shareholder would be done away with. However, the mandatory clause that a resident indian director should be on the board could be a bottleneck, experts say.
An OPC can be formed by subscribing the name of a person to the memorandum and complying with the requirements of the Act in respect of registration. As regards the name of an OPC, the Act provides 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 law comes with provisions that cover various situations arising in such a new format.
For example, any business, which is required to be transacted at an annual general meeting or any other general meeting of a company by means of an ordinary or special resolution, shall be done in the case of an OPC by passing a resolution, which shoud be communicated by the member to the company and entered in the minutes book required to be maintained under law.
It also provides that the memorandum of an OPC shall indicate the name another person as nominee, with his prior written consent in the prescribed form, who shall, in the event of the subscribers 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 the US, and many countries of Europe, Singapore, etc the entrepreneurs have options to decide the constitution of company as per their need and the option of an OPC 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.