Private Limited Company is the most popular and widespread type of legal unit in India. In-order to register a private limited company, a minimum of two directors and two shareholders are needed. A natural person can be both – a shareholder and a director, while a corporate legal entity can only be a shareholder. Private Limited Company registration is supervised by the Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014. Distinctive characteristics of a private limited company include ability to generate equity funds, limited liability protection to shareholders and separate legal entity make it most desirable type of business that are maintained exclusively. Additionally, Foreign Corporate Entities or NRIs and Foreign nationals are permitted to be Shareholders and/or Directors of a company with Foreign Direct Investments making it a suitable choice for foreign promoters.
A minimum of two directors and shareholders are needed in order to register a private limited company. In India, Private Limited Company is the most popular type of legal entity. Registration of a Private Limited Company will be governed by The Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014. A natural person can be both director and a shareholder while a corporate legal entity can only be a shareholder. Ability to raise equity funds, limited liability protection to shareholders and perpetuity of existence are the unique privileges of a private limited company making it the most desirable type of business entity for small to medium sized, professionally managed corporations. Permission to be Shareholders and/or Directors of a company with Foreign Direct Investments are given for NRI’s, Foreign Nationals and Foreign Corporate Entities making it a suitable choice for foreign promoters.
In India, the concept of a One Person Company was introduced via Companies Act, 2013 to aid entrepreneurs with the potential of starting a venture by authorizing them to create a single person economic entity. One of the substantial benefits of a One Person Company is, it requires only one member while a minimum of two members are needed for incorporating and operating Limited Liability Partnership or a Public Limited Company. Just as with a Company, the One Person Company is a separate legal entity from its promoter, offering limited liability protection to its sole shareholder, making it easy to incorporate while enjoying continuity of business. Although a single Entrepreneur is entitled to operate a corporate entity with limited liability, a One Person Company does have its limitations. For example, a natural living person cannot be the nominee of more than a single One Person Company as it already includes a natural person at any point of time. Only after receiving prior written consent can the subscriber to the memorandum of a One Person Company nominate a person to be appointed to the OPC in the event of the subscriber’s departure or demise.
To enable entrepreneurs in the process of starting a venture by providing a means to create a single person economic entity, the concept of a One Person Company (OPC) was introduced via Companies Act in 2013. Permitting a single individual to create a company is a major advantage of OPC. In contrast a Limited Liability Partnership (LLP) or a Private Limited Company (PLC) must have at least 2 members to establish a company. The single shareholder of a One Person Company will have limited liability protection like PLC or LLP which ensures ease of incorporation and continuity of the business. There are certain limitations in an OPC, although it enables the Entrepreneur to have the protection of an incorporation with limited liability.
In an OPC, ownership can be transferred easily, and it allows single existence. It is the only type of entity which permits single promoter with an additional benefit of limited liability protection in India.
OPC remains in existence until it gets legally dissolved because it has perpetual succession. Death or departure of any partner will not affect the OPC as it is a separate legal person. Regardless of any modifications in ownership, OPC remains in continuation or enjoys uninterrupted existence.
The ownership of the company can be transferred with a simple transfer of shares by the process of singing and filing the share certificates and share transfer form. Also, by altering the directorship, shareholding and nominee director information, the ownership of an OPC can be transferred.
The individual in the OPC must solely own the security equity against loans. This is advantageous to Financial Institutions and Banks as it will not involve disputes in ownership which secures capital for an OPC.
The company can obtain, buy and sell, and enjoy properties in its name as an artificial person. Property can be tangible and intangible assets which are owned by a company like land, machinery, building property- commercial or residential, etc. While serving as the nominee director, the individual cannot claim for the ownership of these assets.
The Directors of the Company are supposed to meet and decide a date for the Shareholders’ General Meeting, in order to decide the process of conversion of Private Limited Company into One Person Company. A notice with a draft resolution which involves the conversion must be served to the Shareholders.
Notice of the EGM (Extraordinary General Meeting) should be given to concerned auditors, members and directors. 21 days prior to the date of EGM, the date of issue is supposed to be provided. The draft resolution should be given as a special resolution concurrently and it must involve informative statement along with notice and the agenda.
All the Creditors of the company are supposed to provide NOC (No Objection Certificate) prior to the EGM. Creditors approval copy is required to be settled prior to EGM.
For the conversion of Private Limited Company to One Person Company, the EGM can pass exclusive resolution with the modifications of AOA and MOA. As per the notice, the EGM is required to be operated at the assigned date, time and place.
Within 30 days from the approaching date, all the resolutions declared by the members as special resolutions must be registered with the ROC in Form No MGT-14 In accordance with the Companies Act, 2013, along with the attachments, which are needed. On the endorsement of the MGT-14 form, resolution of the ROC records must be stored.