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The newly enacted Companies Act, 2013 evolved a new concept of „One Person Company‟ in India. In true sense, its origin does not owe to Indian legal system rather it was already in existence in United States, United Kingdom and several European countries since long back. Although still in its emerging stages, it is still striving to achieve its aim of benefitting the Indian economy. The recent development in the Indian legal system is indeed a revolution in its kind which is a step forward to facilitate more business friendly corporate regulations in the country.
With the economy shifting its focus from the agricultural sector to making growth in other sectors like banking, insurance, industries, construction, foreign investment power, real estate, etc., One Person Company's are expected to be a boon to such businesses. Although the delay in its entry into Indian company law is criticised, it is seen as an extremely welcome move, more so in an economy in which family businesses and sole proprietorship (One Man Company) play a major role.
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It brought in the much needed relief to sole entrepreneurs who wished to enter the corporate field. The concept of “One Person Company” was first introduced in Dr J.J Irani's Expert Committee Report on Company Law, which tried to take a comprehensive view in developing a perspective on changes necessary in the Companies Act, 1956 in context of the present economic and business environment. Its primary aim was making India globally competitive in attracting investments from abroad, by suggesting systems in the Indian corporate environment which are transparent, simple and globally acceptable.
The meaning of the term “One Person Company” can be determined by the name itself that it consists of one member only. One Person Company provides a whole new bracket of opportunities for those who look forward to start their own ventures with a structure of organized business. One Person Company gives the young businessmen all the benefits of a private limited company which categorically means they will have access to credits, bank loans, limited liability, legal protection for business, access to market etc. all in the name of a separate legal entity. The Companies Act, 2013 defines the „One Person Company‟ under Section 2(62). The statutory definition of One Person Company is in their literal term which means a company which has only one person as its member. Historically, United Kingdom is the first one, which paved the way to the one man company through a precedent set in its famous case Salomon v. Salomon & Co. One Person Company will come under the meaning of private company as per the provisions of Section 3 2(68). So the provisions applicable to the private company will be applicable to the One Person Company. Also Section 3 of the Bill clarifies that One Person Company will be treated as private purpose for all legal purpose.
Like private companies which have to use the „Pvt.‟ or Private in their name, the One Person Company will have to include „One Person Company‟ within bracket below the name of the company, wherever its name is affixed, printed or engraved. So, One Person Company‟s will be an incorporated limited liability company. The legislation is clear on the point that One Person Company comes under the meaning of private company, with only one member.
Sole Proprietorship in simple words is a one-man company. It is the type of entity that is fully owned and managed by one person (not a legal person/entity) known as the sole proprietor. A sole proprietorship is an unregistered business with a sole owner who pays personal income tax on profits earned from the business. A sole proprietorship is the simplest form of business organisations with very less government regulation, forming sole proprietorships is popular among individuals, self-contractors, consultants, small business owners etc. and the perfect choice to run a small or medium scale business. The business and the man are the same, i.e., the owner of the business is also known as sole proprietor. It is therefore very different from any other corporations and limited partnerships, as there is no need to create separate legal entity. The proprietor of a sole proprietorship has unlimited liability incurred by the entity. For example, the creditors of the sole proprietorship are also the creditors of the proprietor. However, One Man Company has an added advantage too, that is all profits flow directly to the proprietor.
A brief difference between One Person Company and One Man Company (Sole Proprietorship) is herein below;
Starting a One Man Company is definitely much easier than forming a One Person Company. To set up a One Man Company, trade mark has to be registered, registration under the GST Act and 4 also if a shop or office type of an establishment is required, registration should be done under the Shop & Establishments Act. Registration under the Shop & Establishments Act is different from state to state. The proprietor of the company requires a PAN card and a current account in a bank under the name of the company or the proprietor. Additionally, if it the name of the business is of export or import, then an Importer and Exporter Code is required from the Director General of Foreign Trade. Whereas starting a One Person Company is slightly more difficult even though the Ministry of Corporate Affairs (MCA) has made the process quite streamlined.
The One Person Company has an identity which is independent than the shareholder and directors. This implies it can hold assets including property under the name of the company. Moreover, the director or shareholder of the company has limited liability under the One Person Company route. The shareholder is only liable to pay if the share amount is unpaid. The personal assets of the director or shareholder will not be encumbered by any claims against the company. One Man Company does not have any independent identity. Proprietor‟s liability is unlimited i.e. all the assets of the proprietor will be attached to his personal belongings and there is no limitation on the liability. This means the proprietor will have to make a good profit on the outstanding amounts if he has to sell off his personal assets.
One Person Company has to comply with more regulations and guidelines than a One Man Company. One Person Company has to file its annual returns and gets its account audited just like a 5 private company. One Person Company has to maintain all the records of resolutions and intimate details of all its contracts. One Man Company requires basic compliance and the owner can file income tax returns for himself and his business just like a regular citizen. The proprietor only has to get the accounts audited under section 44B of the Income Tax Act if revenues or sales exceed the specified thresholds. 4. Based on Taxation One Person Company is charged at the standard tax rate of 30% which is applicable to private companies. It has to pay the Minimum Alternate Tax (MAT) of 18.5% if the standard tax applicable at 30% is less than 18.5% of the book profits. One Man Company, on the other hand, is taxed at the same rate as the proprietor at the standard tax rates applicable to individuals. However, it has the option to declare profits at a flat rate of 8% of turnover if the total sales are less than Rs. 1 crore.
One Person Company has to convert the company to a private or public limited company when the average sales or turnover for 3 years exceeds Rs. 2 crores or its paid-up share capital crosses Rs. 50 lakhs. One Man Company has no such restriction and it can continue to be one even if its turnover crosses Rs. 2 crores or even more. 6. Based on Succession One Person Company needs a nominee for the business, the name of the nominee has to mention at the time of formation of the company. This person shall become the member of the company in the event of passing away of the director and will be responsible for running the business. There are no such criteria for a One Man Company. It ceases with the passing away of the proprietor of the business.
The combat between One Man Company and One-Person Company is similar like the two sides of the same coin. The sole proprietorship form of business and the OPC has its own advantages and disadvantages. OPC is like a corporation headed by a single person as compared to Sole Proprietorship. When it comes to registration process of the business there is no explicit way to register a Sole Proprietorship and on the contrary, there is less compliance required to be followed for registering a One Person Company. One Person Company is different from One Man Company in terms of law and workings.
One Person Company and One Man Company sounds similar to words. One Person Company is treated as a private company only having a separate legal entity and limited liability. Every one person company should atleast conduct one meeting of the Board of Directors in every six months and the gap between the two meetings should not be less than ninety days. A sole proprietorship or a one man company is not a legal entity like a partnership or a corporation. The advantage to sole proprietors‟ kind of entrepreneurs need not enter into board meetings and annual meetings. Income tax returns are signed under their own name. The working hours are flexible. Profit and losses are taxed on the individual‟s personal income tax return. It simply refers to a person who owns the business and is personally responsible for its debts.
Company Law: “One Person Company” Is Different From “One-Man Company”. (2024, Feb 17). Retrieved from https://studymoose.com/company-law-one-person-company-is-different-from-one-man-company-essay
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