‘One Person Company’ and ‘Small Company’ under Companies Act, 2013

The Companies Act, 2013 (“Act”), which received the assent of the President of India last year, has introduced two important concepts in (Indian) Company Law Jurisprudence – Small Company and One Person Company (“OPC”). As can be understood from the reply of Sachin Pilot, Minister of State (I/C) Corporate Affairs, to Starred Question no. 507 (2^nd May, 2013, Lok Sabha) and Unstarred Question no. 90 (5^th Dec., 2013, Lok Sabha), the concept of ‘small company’, along with ‘one person company’, have been introduced to allow new entrepreneurs to take advantage of corporate form of business. In the Companies Act, 1956 (“1956 Act”), there were no such concept(s) and those, intending to incorporate a business entity under the 1956 Act, had the option to incorporate companies in other forms.

Both Small Company and OPC are special form of private companies. While existence of the former company is determined in accordance with the value of share capital or turnover, existence of the latter company is determined in accordance with the number of members. There can also be a possibility where both the forms of companies may overlap. For instance, consider a situation where an OPC also satisfies the definition of a Small Company. These companies are different from other companies because of the simplified procedure available for them, both in terms of administration and responsibilities.

The 21^st Report [Companies Bill, 2009 (“2009 Bill”)] of the Standing Committee on Finance noticed that the 2009 Bill contained scattered provisions for providing exemptions to OPC and Small Companies [see: clause 421, 2009 Bill – it was later removed]. While Ministry of Corporate Affairs (“MCA”) was of the opinion that further exemptions, if any, could be provided vide notifications, the Standing Committee opined that such exemptions should be provided in the bill itself. In fact, Standing Committee recommended that such exemptions should be provided by way of a schedule or be appended to the main Act. Once again in its 57^th Report [Companies Bill, 2011 (“2011 Bill”), the Standing Committee reiterated that exemptions available to different classes of companies should be clearly specified.