“One Person Company” concept introduced in India

Recently Companies Act 2013 was enacted in India. One of the concepts that was introduced for the first time is OPC or One Person Company concept. Practitioners of the erstwhile Companies Act of 1956 never could imagine that a Company can be formed just by one person! However, siding with the developed countries’ corporate laws, this certainly is a welcome change. It is remaining to be seen as to how the concept will be received by the business as well professional community in India.

The Companies (Incorporation) Rules, 2014 provides as following:

  • A natural person who is an Indian citizen and resident in India shall be eligible to incorporate an OPC and to become a nominee for the sole member of the OPC.
  • Corporations, foreigners or a non resident individual cannot incorporate an OPC;
  • A person cannot incorporate more than one OPC or become a nominee in more than one OPC. However, such a person can be a member of one OPC and nominee of another OPC;
  • Where a member of an OPC becomes a member of another OPC by virtue of his nomination in that second OPC, he shall opt out of either one of the OPC within a period of 180 days;
  • A minor cannot become a member or nominee of an OPC or hold shares with beneficial interest; An OPC cannot carry out NBFC activities including investment in securities of anybody corporate.
  • Every OPC will mention “One Person Company“ in brackets below the name of such company wherever it is printed, affixed or engraved. Hence, the name should be mentioned as “ABC  (One Person Company)“  and not any other way.

It is perceived that the new development will not be attractive from the Indian income tax point. Indian tax law imposes a secondary tax on dividend (called distribution tax) on the Companies. If OPC has to pay the dividend tax, it looses its attractiveness as compared to a sole proprietorship.

It will be interesting to watch the evolution of the concept and see if the law will accommodate foreign investors and allow them to use OPC in future.