One person company under Companies Act, 2013

One Person Company

 The Companies Act, 2013 introduces a new concept of “One person company”. This is the first time such a concept is being introduced in India. Basically it is giving legal corporate status of Proprietorship form of doing business. Salient features of this new concept are explained below:

 DEFINITION:

 Section 2(62) defines a “One Person Company” means a company which has only one person as a member.

 INCORPORATION:

 Section 3(1)(c ) – OPC can be formed only as a private company.

 In the subscription clause of the memorandum of association of an OPC, the member will state that he is subscribing to all the shares in the capital of the company.

 The Table F which is the model Articles of Association of a company limited by shares incorporates provisions of an OPC especially regarding membership, nominees, annual general meetings and board meetings.  The relevant clauses are clause 27, 48 and 76 respectively.

 Rule 3 of Companies (Incorporation) Rules provides that

 –      only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a OPC and to become a nominee for the sole member of the OPC

(so body corporates, foreigners cannot incorporate an OPC);

-      a person cannot incorporate more than one OPC or become a nominee in more than one OPC; (But he 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 within a period of 180 days;

-      A minor cannot become a member or nominee of OPC or holds shares with beneficial interest;

-      An OPC cannot be incorporated or converted into a company under section 8 of the Act, which is the erstwhile section 25 companies or not for profit companies;

-      An OPC cannot carry out NBFC activities including investment in securities of any body corporate;

-      An OPC cannot convert itself voluntarily into any kind of company for a period of two years from the date of its incorporation unless within that period its paid up share capital increases to more than Rs.50 lakhs OR average annual turnover during the relevant period exceeds Rs.2 crores;

  

Section 12(3) second proviso states that the words “One Person Company” shall be mentioned in brackets below the name of such company wherever it is printed, affixed or engraved.  So it should be mentioned as follows:

Sachin Tendulkar

(One Person Company)

Not Sachin Tendulkar OPC or Sachin Tendulkar One Person Company

it should be mentioned below the name as required in the section.

 CONVERSION OF OPC INTO PRIVATE/ PUBLIC COMPANIES

 Rule 6 of the Companies (Incorporation) Rules, provides that where the paid-up share capital of an OPC exceeds Rs.50 lakhs or its average annual turnover during the relevant period exceeds Rs.2 crores then within 6 months from the date on which its paid up share capital increased as above or the last day of the relevant period for the turnover purposes, it shall convert itself into either a private company or a public company. “Relevant period” means a period of three immediately preceding consecutive financial years.

 An OPC can however voluntarily convert itself into a private company or a public company by increasing its members but only after 2 years from the date of its incorporation.

 CONVERSION OF PRIVATE COMPANY INTO OPC;

 An existing private company other than a section 8 company (i.e. not for profit company) having paid up share capital of Rs.50 lakhs or less OR average annual turnover during the relevant period of Rs.2 crores or less can convert itself into an OPC by passing a special resolution in the general meeting;

 Before passing such special resolution, the private company should obtain No Objection to conversion in writing from members and creditors;

 The private company can then start the procedure for conversion by submitting the relevant documents to the ROC.

 A public limited company cannot obviously convert itself into an OPC.

 NOMINATION:

 The memorandum of OPC  shall indicate the name of the other person who has given his consent in the prescribed form to be so named and who shall, in the event of the member becoming incapacitated due to death or incapacity to contract, become the member of the company. The written consent of such other person shall also be filed alongwith the incorporation documents while forming OPC;

 The memorandum of the company shall state the name of the person who in the event of the death of the subscriber shall become the member of the company.

 The member has powers at any time to change the name of the nominee by giving notice in the prescribed form. The new nominee should also give his consent to his name so appearing and any change in the nominee shall require amendment in the memorandum of association.

 Rule 4 of the Companies (Incorporation) Rules deals with nomination process:

 The nominee can withdraw his nomination by giving his consent to the member and also the OPC. In that case, the member shall nominate another person within 15 days of the notice of withdrawal after obtaining his written consent and send intimation of such nomination to the company. The OPC is required to file the notice of withdrawal of consent and fresh nomination within a period of 30 days from the notice of withdrawal.

 ANNUAL RETURNS AND FINANCIAL STATEMENTS:

 Section 92 provides that the annual return of an OPC should be signed by the company secretary or where there is no company secretary by a director.  This is a very queer kind of provisions because it fails to reason why an OPC should appoint a Company Secretary in its rolls since the provisions regarding mandatory appointment of KMP is way beyond the life of an OPC as per the Act. It should have been better if the requirement was that the annual return be signed by a Company Secretary in Practice.

 Section 134(1)  states that the financial statement(s) of the OPC shall be signed by one Director on behalf of the OPC before they are given to the Auditors for their Report thereon. Section 2(40) excludes the cash flow statement from the definition of financial statement in case of OPC.

 The Board report of the OPC need not contain the detailed disclosures as are enumerated in section 134(3) but should contain explanations or comments on every qualification, reservation or adverse remark made by the auditor in his audit report.

 The Third Proviso to section 137(1) gives leeway to an OPC to file its financial statement along with other documents that are required to be filed/ attached with it, with the Registrar within 180 days from the closure of the financial year. Here since there is no concept of annual general meeting for OPC, it is 180 days from the closure of the financial year. So basically OPCs have six months to file its annual financial statements with the Registrar.

 GENERAL MEETINGS AND BOARD MEETINGS

 Section 96 provides that an OPC is not required to hold the mandatory annual general meeting.

 Section 98 regarding power of tribunal to call meetings of members is not applicable to OPC.

 Sections 100 to 111 is also not applicable to OPCs.

 Section 100 – convening of extra-ordinary general meetings;

Section 101 – notice of general meeting

Section 102 – explanatory statement

Section 103 – quorum for general meetings

Section 104 – chairman of meetings

Section 105 – proxies

Section 106 – restriction on voting rights

Section 107 – voting by show of hands

Section 108 – voting through electronic means

Section 109 – demand for poll

Section 110 – postal ballot

Section 111 – circulation of members’ resolutions

 Since the provisions of general meetings are being excluded for an OPC, the question remains how the matters that are generally decided upon at the general meetings in case of normal companies are dealt with in OPCs. This question has been answered in section 122 (3) as follows:

 122 (3) For the purposes of section 114, any business which is required to be transacted at an annual general meeting or other general meeting of a company by means of an ordinary or special resolution, it shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act.

 Even in case of Board meetings of OPCs, section 122(4) gives the answer:

 122(4) Notwithstanding anything in this Act, where there is only one director on the

Board of Director of a One Person Company, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such One Person Company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act.

 What this means is that where there is more than one Director in the Board of Directors of the OPC, then they should convene and hold Board meetings as are done by normal companies and the procedure and practices to be followed by normal companies in such cases should be followed by the said OPC.

 Section 173(5) provides that OPCs shall be required to convene only one meeting in each half of a calendar year provided however that the gap between two Board meetings is not less than 90 days.  This is a peculiar provision which says that the gap between two Board meetings of an OPC should be not less than 90 days between each meeting. What will happen if an urgent Board meeting is required to be convened before 90 days from the conclusion of the first Board meeting. I thought the wording should have read as “not more than 90 days”

 Again this provision is not applicable where the Board of Director of OPC comprises of only one Director. In that case of course the  provisions of section 122(4) applies.

 Section 174 is regarding quorum of meetings of Board of Directors. This section will not apply to an OPC which has only one Director in its Board of Directors.

 DIRECTORS:

 Section 149(1)(a) provides that minimum one director should be appointed in an OPC. There is no restriction to appointing more than one director in an OPC, but maximum no. of directors that can be appointed is 15 as per section 149(1)(b).

 Section 152(1) provides that the subscriber to the memorandum shall be deemed to be the first director of the company until director(s) are duly appointed by the member in accordance with the provisions of the section.

 RELATED PARTY TRANSACTIONS:

 Section 193 is important regarding related party contracts by OPC. It says:

 193. (1) Where One Person Company limited by shares or by guarantee enters into a

contract with the sole member 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 or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract:

 Provided that nothing in this sub-section shall apply to contracts entered into by the company in the ordinary course of its business.

 (2) The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board of

So related party contracts with the sole member who is also the Director of the company are required to be entered in the memorandum or minutes and also communicated to the Registrar within 15 days of the Board meeting where the contract is approved.

Dormant company under the Companies Act, 2013

The Companies Act, 2013 introduces a concept of a dormant company within its ambit. It is the first time that such a concept is thought of, i.e. company which is not active. There is no definition of what constitutes a dormant company under the definition clause. A definition appears in section 455 of the Act and here also the concept is defined in a very roundabout manner.

Section 455 states

(1) Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of a dormant company.

So dormant company can be a company formed for a future project or to hold an asset or intellectual property without there being any significant accounting transaction OR an inactive company. Now inactive company has been defined in section 455 as under:

(i) “inactive company” means a company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

So we get the definition of an inactive company from this definition which means that any company which has not been doing any business for the last two years OR (and here's the doosra!!) they have not filed any financial statements and annual returns for the last two years. So it means any active company doing regular business and regular accounting transactions, but has failed to file its mandatory annual documents, then it can also be construed to become a dormant company!!

Significant accounting transaction is also defined in order to clear out any ambiguity, it means

(ii) “significant accounting transaction” means any transaction other than—
(a) payment of fees by a company to the Registrar;
(b) payments made by it to fulfil the requirements of this Act or any other law;
(c) allotment of shares to fulfil the requirements of this Act; and
(d) payments for maintenance of its office and records.

So a company can apply for a "dormant company" to itself by making the necessary application in this behalf. And the Registrar shall maintain a Register of Dormant companies in its Records or Portal.

In case a company has not filed its annual mandatory documents for the last two years, then the Registrar can take it to the Dormant company status. It is not clear what happens when the company is taken to the dormant company status in such a scenario.

However a dormant company is still required to have minimum directors, hold minimum two Board meetings and file minimum one annual financial document with the Registrar.

A dormant company can apply to revert back to Active status company.

Now we come to the procedures for which we turn to the Companies (Miscellaneous) Rules, 2014

1) Application for obtaining status of dormant company is required to be made in form MSC-1 along with the fees. The fees ranges from Rs.2000/- for a company with a share capital upto Rs.25 lakhs to Rs.20,000/- for a company which has share capital more than Rs.10 crores;
2) Application for obtaining status of dormant company can be made only after obtaining special resolution approval of the shareholders or issuing notice to all the shareholders and obtaining consent of at least 3/4th of the shareholders in value terms;
3) Conditions : No inspection, inquiry, or investigation has been ordered or taken up against the company OR no prosecution has been initiated against the company and pending under any court
4) The company does not have any public deposits or interest thereon outstanding for payment
5) There is no outstanding loan, secured or unsecured. If there are unsecured loans then consent of the lender should be obtained and enclosed along with the form;
6) There should be no dispute or difference amongst the management or promoters of the company and a certificate to that effect is enclosed;
7) The company does not have any outstanding tax dues either to central or state government or local authorities;
8) The company has not defaulted in payment of its workmen's dues;
9) It is not a listed company;

The Registrar shall after considering the application issue a "Dormant company" status to the company and enter its name in the Register maintained for the purpose.

The company shall continue to have minimum number of directors (i.e. 3 in case of a public company and 2 in case of a private company);

Rotation of auditors shall not apply to a dormant company.

A dormant company shall file an annual "Return of Dormant Company" in form MSC-3 which indicates the financial position of the company and which shall be duly audited by a chartered accountant in practice. This should be filed within 30 days from the end of each financial year. i.e. on or before 30th April every year.

However, there is a proviso to Rule 7 of Companies (Miscellaneous) Rules, 2014 which says that a dormant company shall continue to file its return of allotment or change in directorships if such events occur. Really, if such events are going to occur in a dormant company, then should the company be called a dormant company or an active status company. It is not clear and there is ambiguity in this matter. Change in directorships could occur upon the death or incapacity of a director so that is understood in that context.

Section 173(5) stipulates that a dormant company should hold two Board meetings in a financial year i.e one each in each half of the financial year and the gap between two Board meetings should not be less than 90 days. This stipulation is not clear because once a company is a dormant company then where is the need to hold a Board meeting, except perhaps to approve the annual financial statements. I guess two Board meetings in a financial year has been stipulated as a matter of abundant caution.

The dormant company can revert to an active status company by making another application under section 455(5) of the Act in form MSC-4 along with the requisite fees. This application should be accompanied by the return in form MSC-3.

Proviso to Rule 8 of the Companies (Miscellaneous) Rules, 2014 says that a dormant company cannot remain as a dormant company for more than 5 consecutive financial years. If it remains so, then the Registrar shall commence the process of striking off the name of the company from the Records, i.e. the company will be removed. So maximum tenure for a dormant company is 5 consecutive financial years.

Rule 8(4) ibid provides that where the Registrar has a doubt that a dormant company has been indulging in business activities and in fact it is not dormant then he can take necessary action to revert its status to an active company.

So the entire concept of dormant company while it is not clearly defined in the Act or Rules, means that any company which is not doing business for two financial years and is not intending to do any business in the near future for upto 5 years can make an application to place its status as a dormant company under the Records. What this will ensure that the legal status of the company is intact and the name is available to the company for any future business programs. However as mentioned above, it cannot remain as a dormant company in perpetuity. It should make a decision to revert to an active status within 5 years or the Registrar will be empowered to strike off the name of the company from its records.

Many a times, promoters incorporate companies but either there is dispute between the promoters or a major project fails through or it is formed for holding an intellectual property title or an asset, then this concept of dormant company comes into use. All the company has to do is to file one annual financial document duly certified by a CA and keep the Directors in tact in the company.

Unfinished Potrait by Agatha Christhie

When you normally pick up an Agatha Christhie novel you usually expect a rural England mystery with liberal doses of suspense and crime in it. But this one writing under the pseudonym Mary Westmacott is a kind of semi autobiographical novel which almost mirrors her personal life. The writing is absolutely brilliant and it kind of touches a chord in your heart when you go through the travails that she endured. It is not exactly a kind of a sympathetic novel and it could have ended as a tear jerker but her powerful writing is what kept it alive. Pure genius. 

Independent Directors' Repository

Vide PIB release dated 12th August, 2014, a portal exclusively devoted to independent directors has been created at http://independentdirector.in

Vide section 149(4) of the Companies act, 2013, every listed company shall have at least one third of its Board of Directors as independent director.

Other categories of companies which are required to have at least two independent directors on its Board are

(i) the Public Companies having paid up share capital of ten crore rupees or more; or
(ii) the Public Companies having turnover of one hundred crore rupees or more; or
(iii) the Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees:

Now persons who are interested in becoming independent directors can register themselves at the above site. But they will be required to have a Director Identification Number before applying themselves.

Salient features of the concept of independent director (ID) under the Act are as follows:

(1) An ID has to give his consent for being appointed as a director of the company.
(2) At least one ID will be on the Corporate Social Responsibility Committee wherever such a Committee is required to be appointed;
(3) An ID cannot be the Managing Director, Whole-time Director or Nominee Director of the company.
(4) An ID is required to give a declaration of independence at the first meeting of the Board where he is appointed as also at the first meeting of the Board in every financial year;
(5) The ID is required to abide by the Code of Conduct specified in Schedule IV of the Companies act, 2013;
(6) The ID is not entitled to receive any stock options from the company;
(7) The ID may be remunerated by way of sitting fees, reimbursement of expenses involved in participation in Board and other meetings and profit related commission, if the members approve of it;
(8) The ID shall be eligible for appointment for two terms of 5 years each in succession, but can be considered for appointment after a grace period of three years. Term shall mean any term less than but not more than 5 years at a stretch;
(9) During the grace period of three years, he should not be associated with the company in any capacity;
(10) An ID shall be held liable, only in respect of such acts of omission or commission by a company which has occurred with his knowledge, attributable through Board process and with his consent or connivance or where he has not acted diligently;
(11) An ID shall not retire by rotation;
(12) No person shall be appointed as an alternate director for an independent director unless he fulfils the criteria and condition for appointment as independent director;

QUALIFICATIONS FOR BEING AN INDEPENDENT DIRECTOR ARE AS FOLLOWS:

An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director,—
(a) who, in the opinion of the Board, is a person of integrity and possesses relevant expertise and experience;
(b) (i) who is or was not a promoter of the company or its holding, subsidiary or associate company;
(ii) who is not related to promoters or directors in the company, its holding, subsidiary or associate company;
(c) who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year;
(d) none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;
(e) who, neither himself nor any of his relatives—
(i) holds or has held the position of a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed;
(ii) is or has been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of—
(A) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or
(B) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of such firm;
(iii) holds together with his relatives two per cent. or more of the total voting power of the company; or
(iv) is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five per cent. or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate
company or that holds two per cent. or more of the total voting power of the company; or
(f) who possesses such other qualifications as may be prescribed.















 


 

Insider Trading order by SEBI

SEBI has passed an insider trading order in the matter of Mr. X of Wipro Ltd.

As per Regulation 13(4) of the Prohibition of Insider Trading Regulations 1992

(4) Any person who is a director or officer of a listed company, shall disclose to the company and the stock exchange where the securities are listed in Form D, the total number of shares or voting rights held and change in shareholding or voting rights, if there has been a change in such holdings of such person and his dependents (as defined by the company) from the last disclosure made under sub-regulation (2) or under this sub regulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower.

It was concluded that Mr. X was an Officer within the purview of the Regulations and therefore having traded shares exceeding Rs.5 lakhs during November - December 2012 and not having given the necessary intimation in Form D he was held guilty under the PIT Regulations 1992 and fined Rs.5 lakh.

A copy of the order can be found here

Definition of Officer in the relevant regulations can be found here:

Regulation 2 (g) of PIT Regulations, 1992 - "Officer of a company' means any person as defined in Clause (30) of Section 2 of the Companies Act, 1956 (1 of 1956) including an auditor of the company".
Section 2 (30), Companies Act, 1956- Definition of ‘Officer’ – “Officer includes any director, manager or secretary or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act”.

Interesting to note that the person is the geographical head of a particular territory and he in turn reports to the CEO of the organisation. Therefore SEBI holds him as an Officer since he is holding an important position in the organisation .

 

Death is now my neighbour by Colin Dexter

Just finished reading "Death is Now my Neighbour" by Colin Dexter, a Inspector Morse murder mystery. Morse and his assistant Lewis are on the trail of a murder of a woman and their prime suspect is her next door neighbour. Investigation progresses when another murder takes place in the same neighbourhood. Also suspects are two individuals who are contesting for the position of a Master at a Local college, which is supposedly a prestigious post for both of them. The plot unravels slowly and in between Morse has had to be confined to hospital for his usual health problem. Colin Dexter is a fascinating writer and i particularly liked the way in he introduced each chapter with a quotation from the classics or mundane which might or might not have been relevant to the case.  

Free ATM transactions in banks.

Free ATM transactions from other bank ATMs are down to 3 per month, from 5 per month earlier. However individual banks may if they want keep it at 5 free transactions per month. Any transaction above 3 in a month would attract a levy of Rs.20/- plus service tax. This is contained in a RBI circular dated 14th August, 2014 which can be found here

But this limit of 3 free transactions per month will apply only in the 6 metro cities of Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad. In all other cities and towns, the limit of 5 free ATM transactions still apply.

Reduction will not apply to small/ no frills/ basic savings account which continues to get free services as before.

Own bank ATM transactions will continue to be free for five transactions per month.

In order to beat this levy, makes sense to use own bank ATM transactions for upto 5 times a month and other bank ATMs for upto 3 times in a month. I am sure no body would withdraw more than 8 times a month!!