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One person Company

A new concept introduced by the Companies act 2013, is expected to give big impetus to corporatisation worlds

The concept opens up spectacular possibilities for sole proprietors and entrepreneurs who can take the advantages of limited liability and corporatisation but were held back in doing so because of the requirements of finding a second director of finding a second director or second shareholder provisioned in Companies Act 1956.

Difference between sole proprietor and entrepreneur : In case of a One Person Company, your liability in case the business fails, is limited to only the business assets. In case of a proprietorship, the liability is unlimited and the creditors of your business can even take hold of your home and personal assets like your house.

One shareholder; one director: This is the fundamental concept of a One Person Company. A single shareholder holds 100 percent share holding with only one director.
Further the rules also specify that a person can be a shareholder in only one such a company at any given time. It simply means an individual cannot have two different one person companies in his name.

Nominee: This is a very important concept where the person forming the One Person Company has to nominate a Nominee with his written consent who, in the event of death or inability to contract of the owner of the One Person Company, shall come forward and take over the reins of the one person company.
      On the death of the sole member, such nominee shall be entitled to all shares and other rights and liabilities to which such sole member of the company was entitled or liable.

Taxation: Since nothing has been specified as such by the finance ministry, it is assumed that the rates of taxation applicable for a private limited company shall apply to a One Person Company. Which is 30 percentage adding education cess of net profit.

Party transactions: Where One Person Company enters into a contract with the sole owner 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 contained in a memorandum are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.

Conversion from one person company to Pvt Ltd : It is provided in the Act that when a one person Company reaches a paid up Capital of 50 lakh rupees or more or when the average turnover of the company is Rs 2 Crores or more for a period of three years, then the company shall be converted into a private limited company after making the necessary changes with all the requirements.

Freedom from compliance
Certain sections like Section 96, 98 and sections 100 to 111 are not applicable for a one person Company. Some of these are mentioned below:
  • No requirement to hold annual or extra ordinary general meetings.
  • No requirement of preparing cash Flow in the annual financial statements.
  • Annual returns can be signed by the Director himself instead of A Company Secretary.

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