Introduction.

The One Person Company is a very new concept introduced by the Companies Act 2013.
Section 2(62) of the Companies Act 2013 defines One Person Company. Though the
meaning of the term can be determine by the name itself that it consists of one member only.
OPC provides a whole new bracket of opportunities for those who look forward to start their
own ventures with a structure of organized business. Earlier the company meant association
of persons, where the liability was limited. This project focuses on the liability of the
members of the member of the One Person Company, as unlike other companies here the
member is one and also deals with the situation when there will be lifting of corporate veil.
Though the concept of OPC is new in India but it is very successful in U.K and several
European Countries since a very long time now. Limited liability is considered as the most
significant feature of Corporate Enterprise. The shareholders of a company have limited
liability to the amount of shares held by them. In case the company incurs large losses then
the shareholders can be required to pay only the unpaid amount on their shares. In case
unlimited companies, the whole liabilities are required to be meet by only one person. This
was mostly in the case of Sole proprietorship. The One Person Company is newly
introduced. So, it is pertinent to know the liabilities in case of these types of companies where
the member is only one. Company or a body corporate is a legal entity with perpetual
succession. It is a voluntary association of persons formed to carry out the same purpose. Its
existence is independent of the life of its members. But the One Person Company as
described by the Section 2(62) of the Companies Act 2013 means a company which has only
one person as a member.
A company is considered as separate legal entity, the liabilities are of the company and not of
its members consequently question may arise what it will be with the company having one
member?

Chapter-I deals with Introduction to Limited liability.



Statement of the problem
This project deals with the newly introduced concept One Person Company and the legal
and financial liability of the member of the One Person Company. Earlier the company
meant voluntary association of persons who came together for a common cause. The liability
of its shareholders is limited to the value of shares they have purchased. In case the company
incurs huge liabilities, the shareholders can only be called upon to pay the unpaid balance of
their shares. In this new concept One Person Company, the member is only one, so it is
pertinent to know the liability of the member in the OPC. The meaning of OPC, its salient
features, meaning of limited liability and the legal and financial liability of the OPC is
mainly focused.
Scope and Objectives
The researcher is focusing on the concept of OPC which is newly introduced in India by the
Companies Act 2013. The liability in case of Contractual obligations, tort etc. are also
focused. After that formation of OPC, exemptions of OPC and its impact in India is
mentioned. It is pertinent to know how the new concept OPC may work in India. Its a very
new concept in India but it has worked successfully in other countries. The researcher is
working in this paper because some may confuse it with sole proprietorship, but this is not so.
As according to earlier definition of Company we all know it meant association of persons
with common purpose, but in this case that is OPC it is not association of persons but the
liability is limited unlike sole proprietorship. This paper explains the reason of it being a
company, its liability, corporate personality and the situations when the Corporate Veil can
be lifted.
Research Questions
This research topic is concerned with
What will be the limited liability protection in case on One Person Company when all the
shares are held by only one member?
And
The piercing of corporate veil has raised many questions
Who shall be liable to the creditors the sole member or somebody else?


Chapterization
Chapter-I
One Person Company
Section 2(62) of the Companies Act,2013 defines as the name suggests, company which has
only one person as a member and where legal and financial liability is limited to the company
only and not to that person.(i.e. liability is limited). This paradigm shifts from the Companies
Act 1956, where minimum two members are required float private as well as public
company.
The evolution of one Person Company with the new Companies Act 2013 has facilitated
small entrepreneurs to set up companies to directly access target markets rather sharing their
profits with any middlemen. The One Person Company is for the first time introduced in
India which will allow a firm to be registered with just one member, limited regulatory costs,
limited liability and other requirements. The One Person Company is a revolutionary which
will give the entrepreneur all the benefits of a company, which means they will get credit,
bank loans, and access to market, limited liability and legal protection available to the
companies.
OPC would provide tremendous opportunities for millions of people, including those who are
working in areas like handloom, handicrafts and pottery
1
.

Background
The limitations of sole proprietorship and partnership forms of organization led to the growth
of corporate form of organization. The limited resources in the hands of individual persons
and their unlimited liability in the business discouraged them from expanding business and
avoid risky decisions. Joint stock company organization was first started in Italy in thirteenth
century. During seventeenth and eighteenth centuries, Joint Stock Company was formed in

1
F.Bernand Cataldo
England under Royal Charter or Acts of Parliament. In India first Companies Act was passed
in 1850 and the principle of limited liability was introduced in 1857. A comprehensive
Companies Act was passed in 1956. The Parliament and state legislations can also pass
legislations for the incorporation of companies, generally called Corporations.
Now, the new Companies Act 2013 is introduced which has replaced the old Act 1956. The
CA2013 makes all comprehensive provisions to govern all listed and unlisted companies in
the countries. The CA2013 is made effective w.e.f 12th September 2013, by way of
implementing 98sections.
This Act introduced the new concept of One Person Company unlike sole proprietorship
with limited liability. This concept was first recommended by the expert committee of
Dr.JJ.Irani in the year 2005. Though it is new in India but it existed successfully in some
other countries.
Salient features of One Person Company
1. One Person Company is defined in Sub- Section 62 of Section 2 of The Companies Act,
2013, which reads as follows:
One Person Company means a company which has only one member
The first and foremost salient feature of One Person Company is that there shall be only one
member.
2

2. Section 3 classifies OPC as a Private Company for all the legal purposes with only one
member. The one person company can be incorporated as a private company only.

3. The only exception provided by the Act to an OPC is that according to the rules only
NATURALLY-BORN Indian who is also a resident of India is eligible to incorporate an
OPC. Meaning thereby, the advantages of an OPC can only be obtained by those INDIANs
who are naturally born and also a resident of India.
3

4. It shall also be worth mentioning that a person cannot form more than 5 OPCs.

2
www.caclubindia.in
3
www.mondaq.com

Chapter-IV
Limited Liability
The term Limited liability means the liability of the shareholders are limited to the amount
of shares held by them. In case the company incurs huge losses then the shareholders can be
required to pay the unpaid value of the shares. The liability of members in a company form of
organization is limited to the nominal value of the shares they have acquired. If a person has
purchased a share of Rs. 100, his liability is limited to Rs.100 only.
Company as it is an association of persons who contribute money or moneys worth to a
common stock and employs it in some other trade or business and who share the profit and
loss arising there from. Mainly the privilege of limited liability led to the evolution of
Company.
Now days the evolution of One Person Company is found in the desire to combine limited
liability with complete dominion of sole proprietorship. A sole proprietor, operating a
moderate sized business, organizes a corporation to which he surrenders the business and
assets. In return he takes all the shares excepting the few necessary to comply with the
statutory provisions respecting incorporators and directors. The few shares he does not take
are allotted to his relatives or employees, in order to qualify them as incorporators or
directors in accordance with the requirements of the corporation statute. Thus, a corporation
is created "in legal form" the sole or principal shareholder retains in effect the exclusive
control and full dominion he enjoyed as a sole proprietor, and in addition he achieves the
desired privilege of limited liability.





A.Contractual Obligations
In case of One Person Company the property and all the shares are owned by only one
person, but it doesnt mean that Corporate Personality will be disregarded. The same
principles apply in case of Contractual obligations. There is difference between
corporate obligations and Personal obligations of the sole shareholders. A company in
law is a separate legal entity from its members. In other words it has an independent
corporate existence. Any of its member can enter into contracts with it in the same
manner as any other individual and he cant be held liable for the acts of the company
even if holds virtually the entire share capital. Same in the case the case of One
Person Company even if the member holds the entire share capital he cant be held
liable. The companys money and property belong to the company and not to the
shareholder.
Once a company is incorporated it must be treated like any other independent person.

B.Tort Liability
In case of contractual obligations individuals can choose its oblige but in case of tort
liability the individual cant choose its tortfeasor. Therefore the above reasoning is not
applicable to tort liability. It is conceivable that courts might make difference between
contractual obligation and tort liability. Court might refuse to hold limited liability in
case of individuals affected by the tort committed by the sole shareholder of the One
Man Company in execution of the corporate business. There might be limited
liability in case of contractual obligations but not in case of tort liability.

C. The Sole shareholder as a corporate creditor.
It is natural that the sole shareholder may lend money to the business and share as a
corporate creditor upon the subsequent insolvency of the venture. Indeed the sole
shareholder may become a secured corporate creditor and thus secures priority over
the unsecured corporate creditor.

D. Disregard of Corporate personaility.
The concept of corporate personality will exist till it is used for legitimate purposes. The
court will not invoke the corporate personality if any unfair means is used. It will not sanction
corporate personality in case there are any dishonest ends. Perversion is perceived when the
corporate personality is used to fraud, to evade the law or to escape any obligations.







Chapter-V
OPC and its Formation
An OPC is incorporated as a private limited company, where there is only one member and
prohibition in regard to invitation to the public for subscription of the securities of the
company.
An OPC can be form
Company limited by shares
Company limited by guarantee.
An OPC limited by shares shall comply with following requirements :
o Shall have minimum [paid up capital of INR 1 Lac
o Restricts the right to transfer its shares
o Prohibits any invitations to public to subscribe for the securities of the
company.
An OPC is required to give a legal identity by specifying a name under which the
activities of the business could be carried on. The words One Person Company
should be mentioned below the name of the company, wherever the name is affixed,
used or engraved.
The member of an OPC has to nominate a nominee with the nominees written
consent, and file it with the Registrar of Companies (RoC). This nominee in the event
of death or in event of any other incapacity shall become a member of an OPC. The
member of an OPC at any time can change the name of the nominee providing a
notice to the RoC in such manner as prescribed. On account of Death of a member,
the nominee is automatically entitled for all shares and liabilities of OPC.

Exemptions available to OPC
OPC has certain privileges which are not available to the Private limited companies. These
are as follows:-
a) Signatures on annual returns- Section 92 of the Companies Act 2013-
It is provided in the Section 92 of the
Companies Act provides that annual return in case of one person company shall be
signed by the Secretary of the company and in case there is no company then by the
director of the company.
b) Holding annual general meetings Section 122 of the Companies Act 2013
Section 122 of the Companies Act 2013 provides that the provisions of section 98,100
to 111 are not applicable to One Person Company. Therefore, provisions relating to
General Meetings, Extra Ordinary General Meeting and Notice Convening to General
Meeting are not applicable to One Person Company. However, for fulfilling the
purposes of S.114 of the Companies Act,2013, where any business is required to be
transacted at an Annual General Meeting, or other General Meeting of the company
by means of an ordinary or special resolution, it shall be sufficient if the resolution is
communicated by the member of the company and entered in the minutes book which
is required to be maintained U/s 118 and signed and dated by the member and such
date shall be deemed to be the date of meeting under the purposes of Companies
Act,2013.
c) Board Meetings and Directors Section149, 152 & 173 of the Act
One Person Company needs to have one director. It can have maximum of 15
directors which can also be increased by passing a special resolution as in case of any
other company.
For the purposes of holding board meetings, in case of a OPC which has only One
director, it shall be sufficient compliance if all resolutions required to be passed by such
a company at a board meeting are entered in a minute book signed and dated by the
member and such date shall be deemed to have the date of the board meeting for all the
purposes under Companies Act, 2013.
Signatures on Financial Statements - Section 134 and 137 of the Act. The OPC shall
file with the RoC a copy of financial statements duly adopted by its members along
with all the documents which are required to be attached to such financial statement,
within 180 days from the closure of the financial year along with cash flow
statements. The financial statement shall be signed by only one director and
the annual return shall be signed by the company secretary and the director, and in
case if there is no company secretary then only by the director.
Contracts by One Person Company Section 193 of the Act.
The new Companies Act, 2013 gives special attention to the contracts which will be
entered by One Person Company. If the company fails to comply with the provisions as to
providing the information to the RoC then it shall be liable for punishment of fine which
will be not less than twenty thousand rupees and extend to one lakh rupees and the
imprisonment for a term which may extend up to 6 months.





Chapter-V
Difference of OPC and Sole Proprietorship.
The concept of OPC allows a person to run the business separate from him with limited
liability and shares, but in case of sole proprietorship there is no distinction between the
owner and the business. The distinction between both the structures is as follows:-
Limited Liability - Fundamentally the basic difference between a sole proprietorship
and an OPC is the way and manner in which the liability is treated in an OPC. OPC is
different from sole proprietorship because it is a completely separate entity and that is
the distinction between the promoter and the company. The liability of the share
holder will be limited to the unpaid subscription money in his name. On the other
hand the liability in a sole proprietorship, the person/owner is alone liable for the
claims which will be made against the business.
Tax Bracket - Though the concept of an OPC has been incorporated in the Companies
Act, 2013 but the concept of same does not exist in tax laws as yet, as a result an OPC
can be put in the same bracket of taxation as other private companies. According to
Income Tax Act, 1961 a private limited company is under the bracket of 30% on total
income with an additional surcharge of 5% if the income exceeds 10 million with an
addition to 3% of education cess.
Succession - In an OPC there is a nominee designated by the member. The nominee
which will be a Natural Born citizen of India and who resides in India. The nominee
shall in the event of death of the member become a member of the company and will
be responsible for the running of the company. But in the case of sole proprietorship
this can only happen through an execution of WILL which may or may not be
challenged in the court of law.
Compliances - A One Person Company has to file annual returns etc just like a normal
company and would also need to get its accounts audited in the same manner. On the
other hand a sole proprietorship would only need to get audited under the provisions
of Section 44 AB of the Income Tax Act, 1961 once its turnover crosses the certain
threshold.
Chapter-VI
Impact of OPC in India
As the concept of OPC is very new in India, it will take time for OPC to work with
efficiency. But when the time will pass OPC will come up with a sparkling future and it will
be the most successful business concept. The reason behind this is that one person can form a
company without any shareholder if the member is willing to add shareholders; all he needs
to do is to modify the Memorandum of Association and file it before Roc. Small
entrepreneurs will grow in Indian entrepreneurship, be it weaver, traders, artisans, small to
mid level entrepreneurs, OPC is a bright future for them to grow and to get recognition
globally. Foreign Investors will be dealing with one member to establish a corporate
relationship and not with a score of shareholders/directors where there are more chances for
disparity in Ideas, concepts etc for a business to grow. Any foreign company who wishes to
establish in India through an Investment, through a merger or through a Joint venture will
have to just lock the deal with the member of an OPC, and the venture will be expected to
start sooner with more effective results. In upcoming years the impact of an OPC will be
remarkable and it is a promising future for Indian Entrepreneurship. Expectedly, there will be
good Foreign Investments, Joint Ventures, and Mergers etc. An OPC is doing well in
European Countries, In United States, and Australia the same is resulting in strengthening the
economy of the countries. In India when the expert committee of Dr. JJ Irani proposed the
concept of an OPC, it was solely aimed for the structured organized business, with a different
legal entity altogether and to organize the private sector of the entrepreneurship, which
indeed is expected to be done, along with a significant growth in Indian Economy benefiting
the country on the Global Level.






Chapter-VI
Conclusion
Thus, I would like to conclude by saying that limited liability of OPC shall encourage many
traders or sole proprietor to come up with new companies. There will be less chance of frauds
and misrepresentation as there will be one member only. It will be helpful economically also
for India as it many weavers, traders will come up with Company as they will be able to work
as entrepreneur.