Skip to content Skip to left sidebar Skip to right sidebar Skip to footer
Choose language:

Company Law

One Person Company (OPC)

As per section 2(62) of the Companies Act, 2013, “One Person Company” means a company which has only one person as a member. One Person Company of sole-proprietor and company form of business has been provided with concessional /relaxed requirements under the Companies Act, 2013. With the implementation of the Companies Act, 2013, a single national
person can constitute a Company, under the One Person Company (OPC) concept.

Salient features of OPC

• Desire for personal freedom that allows the Professional skilled person to adopt the business of his choice.
• Personality driven passion and implementation of a business plan.
• The desire of the entrepreneurial person to take extra risk and willingness to take additional responsibility.
• Personal commitment to the business which is a sole idea of the person and close to his heart.
• It is run by individuals yet OPCs are a separate legal entity similar to that of any registered corporate.
• A One Person Company is incorporated as a private limited company.
• It must have only one member at any point of time and may have only one director.
• The member and nominee should be natural persons, Indian Citizens and resident in India. The term “resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.
• One person cannot incorporate more than one OPC or become nominee in more than one OPC.
• If a member of OPC becomes a member in another OPC by virtue
of his being nominee in that OPC then within 180 days he shall have to meet the eligibility criteria of being Member in one OPC.OPC to lose its status if paid up capital exceeds Rs. 50 lakhs or average annual turnover is more than 2 crores in three immediate preceding consecutive years.
• No minor shall become member or nominee of the One Person Company or hold share with beneficial interest.
• Such Company cannot be incorporated or converted into a company under section 8 of the Companies Act, 2013.
• Such Company cannot carry out Non Banking Financial Investment activities including investment in securities of any body corporate.
• No such company can convert voluntarily into any kind of company unless 2 years have expired from the date of incorporation, except in cases where capital or turnover threshold limits are reached.
• An existing private company other than a company registered under section 8 of the Act which has paid up share capital of Rs. 50 Lakhs or less or average annual turnover during the relevant period is Rs. 2 Crores or less may convert itself into one person company by passing a special resolution in the general meeting. Privileges available to OPC.


Some of the privileges and benefits identified with OPCs are:


• OPCs would provide the start-up entrepreneurs with new business idea.
• OPC provides an outlet for the entrepreneurial impulses among the professionals.
• The advantages of limited liability. The most significant reason for shareholders to incorporate the ‘single-person company’ is certainly the desire for the limited liability.
• OPCs are not proprietorship concerns; hence, they give a dual entity to the company as well as the individual, guarding the
individual against any pitfalls of liabilities. This is the fundamental difference between OPC and sole proprietorship.
• Unlike a private limited or public limited company (listed or unlisted), OPCs need not bother too much about compliances.
• Businesses currently run under the proprietorship model could get converted into OPCs without any difficulty.
• OPCs require minimal capital to begin with. Being a recognized corporate, could well raise capital from others like venture capital financial institutions etc., thus graduating to a private limited company.
• Mandatory rotation of auditor after expiry of maximum term is not applicable. 8 One Person Company (OPC)
• The annual return of a One Person Company shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
• The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meeting, shall not apply to a One Person Company.

Corporate Social Responsibility(CSR)

Corporate social responsibility (CSR) is a self-policing corporate strategy that enables an organisation to be socially accountable to its customers, employees, and stakeholders. Companies can be aware of their impact on the economic, social, and environmental aspects of society by engaging in corporate social responsibility, often known as corporate citizenship.”CSR is an integrated set of policies, programmes, education, and practices that permeate a corporation’s activities and the communities where it operates,” according to the CSR .

Benefits of Corporate Social Responsibility

CSR benefits a firm just as much as it benefits the community. CSR initiatives can strengthen the relationship between workers and businesses, increase morale, and help both parties feel more like part of the world. Here are several more reasons firms embrace corporate social responsibility, in addition to the benefits to the environment.

Brand Recognition

According to research in the Journal of Consumer Psychology, consumers are more likely to have a positive opinion of a business that has taken steps to aid its clients than they are of businesses that have proven they can produce high-quality goods. Consumers are growing more conscious of the effects businesses may have on their communities, and many often base their purchasing decisions on a company’s CSR efforts. A corporation is more likely to have a positive brand reputation as it increases its CSR efforts.

Investor Relations

Companies that are leaders in environmental, social, or governance issues have an 11% valuation premium over their rivals, according to a Boston Consulting Group study. Implementing CSR strategies tends to have a favourable impact on how investors feel about an organisation and how they evaluate the value of the company, which can give businesses a competitive edge and help them outperform the market.

Employee Engagement

Researchers from Texas A&M, Temple, and the University of Minnesota discovered in yet another study that non-financial job perks that support employee retention are CSR-related values that link businesses and employees. Those who work for a firm they believe in are more likely to stay with it. As a result, there will be less churn, unsatisfied personnel, and overall hiring costs.

Risk Mitigation

Take into account unfavourable actions like prejudice towards certain employee groups, exploitation of the environment, or improper spending of corporate assets. This kind of action is more likely to result in lawsuits, litigation, or other legal proceedings, which could have a negative financial impact on the company and make headline news. Companies can reduce risk by following CSR guidelines, avoiding problematic circumstances, and participating in beneficial initiatives.

Take into account unfavourable actions like prejudice towards certain employee groups, exploitation of the environment, or improper spending of corporate assets. This kind of action is more likely to result in lawsuits, litigation, or other legal proceedings, which could have a negative financial impact on the company and make headline news. Companies can reduce risk by following CSR guidelines, avoiding problematic circumstances, and participating in beneficial initiatives.

Types of Corporate Social Responsibility

In general, there are four main types of corporate social responsibility. A company may choose to engage in any of these separately, and a lack of involvement in one area does not necessarily exclude a company from being socially responsible.

Environmental Responsibility

Environmental responsibility is the pillar of corporate social responsibility rooted in preserving Mother Nature. Through optimal operations and support of related causes, a company can ensure it leaves natural resources better than before its operations. Companies often pursue environmental stewardship through:

  • Reducing pollution, waste, natural resource consumption, and emissions through its manufacturing process.
  • Recycling goods and materials throughout its processes, including promoting re-use practices with its customers,
  • Offsetting negative impacts by replenishing natural resources or supporting causes that can help neutralize the company’s impact for example, a manufacturer that deforests trees may commit to planting the same amount or more.
  • Distributing goods consciously involves choosing methods that have the least impact on emissions and pollution.
  • Creating product lines that enhance these values. For example, a company that offers a gas lawnmower may design an electric lawnmower.

Ethical Responsibility

Ethical responsibility is the pillar of corporate social responsibility, rooted in acting in a fair and ethical manner. Companies often set their own standards, though external forces or demands by clients may shape ethical goals. Instances of ethical responsibility include:

  • Fair treatment across all types of customers, regardless of age, race, culture, or sexual orientation.
  • Positive treatment of all employees, including favorable pay and benefits in excess of mandated minimums. This includes fair employment consideration for all individuals, regardless of personal differences.
  • Expansion of vendor use to utilize different suppliers of different races, genders, veteran statuses, or economic statuses
  • Honest disclosure of operating concerns to investors in a timely and respectful manner Though not always mandated, a company may choose to manage its relationship with external stakeholders beyond what is legally required.

Philanthropic Responsibility

Philanthropic responsibility is the pillar of corporate social responsibility that challenges how a company acts and how it contributes to society. In its simplest form, philanthropic responsibility refers to how a company spends its resources to make the world a better place. This includes:

  • Whether a company donates profit to charities or causes it believes in
  • Whether a company only enters into transactions with suppliers or vendors that align with the company philanthropically
  • Whether a company supports employee philanthropic endeavors through time off or matching contributions,
  • Whether a company sponsors fundraising events or has a presence in the community for related events,

Financial Responsibility

Financial responsibility is the pillar of corporate social responsibility that ties together the three areas above. A company makes plans to be more environmentally, ethically, and philanthropically focused; however, the company must back these plans through financial investments in programs, donations, or product research. This includes spending on:

  • Research and development for new products that encourage sustainability
  • Recruiting different types of talent is necessary to ensure a diverse workforce.
  • Initiatives that train employees on DEI, social awareness, or environmental concerns
  • Processes that might be more expensive but yield greater CSR results
  • Ensuring transparent and timely financial reporting, including external audits.


Proxy under Company Law Act 2013

Meaning

”Proxy” means an instrument in writing signed by a Member, authorizing another person, whether a Member or not, to attend and vote on his behalf at a Meeting and also where the context so requires, the person so appointed by a Member.

Black’s Law Dictionary [9th Edition, Page 1346] defines the term “proxy” as

“1.One who is authorized to act as a substitute for another; esp., in corporate law, a person who is authorized to vote another’s stock shares.

2. The grant of authority by which a person is so authorized.

3. The document granting this authority.”

Proxy Applicable Provisions: Section 105 of Companies Act, 2013 Rule 19 of Companies (Management and Administration) Rules, 2014 defined “A person who can attend and vote in general meeting on behalf of the member of the company”.

Appointment:

CG may notify the class or classes of company /companies that shall not have right to appoint Form MGT 11 to be filed by the member. Further, it needs to be in writing and signed by the member and any other format is not admissible. Form shall be deposited within 48 hours or it may require any longer period prescribed in Article before commencement of the meeting at Registered Office. A person can become proxy for maximum 50 members and their holding is in aggregate of 10% of Share Capital carrying voting rights. In case of Section 8 company, only the member of such section 8 company is entitled to become proxy for another member. Company, at its own expense cannot invite to its member for appointing proxy. If invited, fine up to Rs. 50,000 will be imposed to every officers of the company who issues the invitation. Provided the officer is not liable by reason if proxy form and list of persons provided who are willing to appointed as proxy on the direction of members.

Benefits of Proxy

Management ensures that ownership interests are fully represented by encouraging shareholders that are unable to attend annual meetings to vote by proxy. Before the annual meeting, each shareholder is issued a proxy card, allowing them to state their votes in writing or designate a third party to vote on their behalf. proxy voting allows shareholders to vote on the composition of the company’s board, the compensation of its officers, and the company’s accounting firm. It also allows voting on shareholder proposals. During corporate elections, the board of elections will recommend their preferred candidates or choices, but the final decision is up to each voter.

Proxy Statements

Before the annual shareholder meeting, all shareholders receive a packet of information containing the proxy Statement. The proxy documents provide shareholders with the information necessary to make informed votes on issues important to the company’s performance. A Proxy statement offers shareholders and prospective investors insight into a company’s  governance and management operations

Rights of the proxy:

  1. Attending meeting.

2. Voting on poll.

Disabilities of proxy:

A person appointed as proxy shall not have the right to give views on the agenda for which meeting is conducted at the meeting. A proxy cannot vote on a show of hands. A proxy is not counted for the purpose of quorum He cannot vote by show of hands Disclosure in Notice of GM: In every notice of general meeting the company shall state that a member who is entitled to attend and vote can appoint proxy on his behalf and that proxy need not to be a member (except in the case of Section 8 company). If there is any default made in compliance with this provision, penalty of Rs.5000 will be imposed.

Inspection:

Any member is entitled to inspect proxy forms within 24 hours prior to the general meeting to the conclusion of such general meeting. Notice for inspection required to be given by the member at least 3 days before the commencement of meeting. Additional Points: If member attends the meeting, after appointment of proxy, the rights of proxy shall be revoked.

Conclusion:

A proxy is an agent legally authorized to act on behalf of another party or a format that allows an investor to vote without being physically present at the meeting. Shareholders not attending a company’s  annul general meeting (AGM) may vote their shares by proxy by allowing someone else to cast votes on their behalf, or they may vote by mail. Management ensures ownership interests are fully represented by encouraging shareholders who are unable to attend annual meetings to vote by proxy. Proxy’s appointment is valid for both, the original and the adjourned GM, and he should carry a valid identity proof while attending such GMs. A proxy’s authority can be revoked in writing anytime before the GM. In case a member who had appointed a proxy also attends the GM, the proxy’s authority automatically stands revoked.

Prospectus

In general parlance prospectus refers to an information booklet or offer document on the basis of which an investor invests in the securities of an issuer company. It has been defined under section 2(70) so as to mean any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.

Matters to be stated in prospectus[Section 26]
(1) Dated: Every prospectus must be dated. The date appearing on the prospectus is deemed to be date of publishing prospectus
(2) Registered: The prospectus must be registered with ROC on or before issue of prospectus to public
(3) Issued: The prospectus must be issued to public within 90 days of registration with ROC. Any issue of securities under the prospectus which is issued beyond 90 days shall be deemed to be an issue without a prospectus.
(4) Contents of the prospectus: Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of
a public company, shall be dated and signed and shall state such information and set out such reports on financial information as may be specified by the Securities and Exchange Board in consultation with the Central Government:
General Information ,Financial Information & Statutory Information

Red Herring Prospectus

The Red Herring Prospectus does not include the full particulars of the price of the securities. A company planning to make an offer of securities can issue a red herring prospectus before the issue of the prospectus. The companies file the red herring prospectus with the RoC at least 3 days before the opening the offer. The obligations of this are similar to that of any of the prospectus. The variations in the red herring prospectus from the other prospectus are highlighted. While closing an offer, the companies file the prospectus with the RoC and SEBI . It contains the information of the total capital raised whether, by share capital or debt, the closing price of the offer and the other details left out in the red herring prospectus.

Abridged Prospectus

Abridged Prospectus is a memorandum which has salient features of the prospectus. There shall be no form of application for issuing any securities unless it has the abridged prospectus. It has four exceptions like:

  • When the company does not offer the securities to the public
  • The offer is to the members or debenture holders of the company with or without the right to renounce
  • The company makes an offer concerning the bonafide invitation to a person. This is to enter into an underwriting agreement concerning the securities
  • The shares or the debentures offered should be uniform and similar to the shares and debentures that are already issued

If a person requests a copy of the prospectus, he will be given before the closing of the offer and subscription list. If the company does not comply with any of these provisions, then they will be liable to pay an amount of Rs.50,000 for each default.

Shelf Prospectus

A shelf prospectus is a type of prospectus issued by companies making multiple issues of bonds for raising funds. A prospectus is a notice, advertisement or any other document inviting the public to subscribe for securities. It is compulsory for ;Public limited companies to issue a prospectus before issuing securities. A shelf prospectus can be issued by any public limited company raising funds through multiple issues of bonds. Companies which issue a shelf prospectus should file an Information Memorandum in Form PAS-2.

The advantage of a shelf prospectus is that a new prospectus need not be issued every time the company issues securities. A maximum of four issues of securities can be made using a shelf prospectus. A shelf prospectus should be used within a maximum of one year.

A shelf prospectus can be filed only by companies issuing non-convertible debt bonds (these are bonds which cannot later be converted into  share capital). The procedure for raising funds using a shelf prospectus is the same as for raising debt funds. The only additional requirement is to file an Information Memorandum.

A substantial amount of public money is involved when a company goes in for a public issue of bonds. Therefore, any public issue is governed by the rules and regulations developed by the Securities and Exchange Board of India (SEBI).

Applicability

The following kinds of companies are eligible to issue a shelf prospectus:

  • Public Financial Institutions (PFIs) (PFIs are companies whose paid-up share capital is held by the Central Government to the extent of more than 51 per cent. Examples are the Life Insurance Corporation of India, Infrastructure Development Finance Company Limited, Industrial Credit and Investment Corporation of India Limited, Industrial Finance Corporation of India, and Industrial Development Bank of India.)
  • Public sector banks
  • Non-Banking Financial Companies.
  • Listed companies [A listed company has its securities listed with the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) or Calcutta Stock Exchange (CSE)]

Conditions

These are the conditions that should be followed by a company opting to issue a shelf prospectus:

  • The company’s net-worth should be more than Rs.500 crores.
  • The company should have had distributable profit during the preceding three years.
  • An arrangement should be made for dematerialisation of securities. The arrangement must be made with a depository registered with the SEBI.
  • A merchant banker should be appointed for the issue. The merchant banker must be registered with the SEBI.
  • In case debentures are issued, a debenture trustee should be appointed.
  • Credit rating should be obtained. The securities issued should have a credit rating of AA- or more (Credit ratings are accepted only from credit rating agencies registered with the SEBI).
  • The company’s directors or promoters should not have been faced with any regulatory action.
  • The company should not have defaulted in repayment of deposits during the preceding three years.
  • The company should have honoured its listing agreement during the preceding three years.

Remedies for Untrue Statement or Mis-statement

If a company issues a prospectus, then it is responsible for the statement in it.The Companies Act, 2013 provides remedies for civil liability and criminal liability.

Civil Liability for Mis-statement

If a subscribed person of the securities suffers any loss or damage because of a misleading statement in the prospectus, then the company is liable to pay for the compensation to every subscribed person of the securities. Every director and promoter of the company is liable to pay for the compensation. The person who authorises the issue of prospectus and the expert who issues the statement is also responsible for paying the compensation. The directors of a company are not liable to the punishment if they have withdrawn from the post before the issuance of the prospectus or if the prospectus was issued without his knowledge and he proves it by public notice. The expert can also escape the liability by proving that after giving consent to the copy, he withdrew before it was delivered to the RoC.

Criminal Liability for Mis-statement

The persons responsible for the issue of such a prospectus that has untrue statements will be liable under Section 447. This section provides that any person who is guilty of fraud will receive imprisonment for 6 months which may extend to 10 years. They shall also pay a fine of an amount not less than that involved in the fraud; this may extend up to three times. If the fraud involves the interest of the public, then the imprisonment period will not be less than 3 years. If the person authorised the issue without prior knowledge and if he proves it, then he is not liable to imprisonment

Conclusion:

A prospectus is an essential disclosure document that a company has to issue at the time of issuing investment securities to the public. These formal documents provide detailed information to prospective investors about mutual funds, bonds, stocks, and other investment offerings to the public. A prospectus is an advertisement or an invitation from a company to the general public to subscribe or purchase shares or debentures issued by the company. This invitation to purchase shares is also known as the initial public offering (IPO), through which a public company can raise the funds it requires.

Promoter

A promotr is a person who does the necessary preliminary work incident alto the formation of a company.It is a compendious term used fora person who undertakes,does and goes , keeping in view the object, to bring into existence an incorporated company. Chronologically, the first persons who control a company’s affairs are its promoters

Section 2(69) of the Companies Act, 2013 defines the term ‘promoter’ as under:-
“Promoter” means a person—
(a) who has been named as such in a prospectus or is identified by the company in the annual return
referred to in section 92; or
(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder,
director or otherwise; or
(c) in accordance with whose advice, directions or instructions the Board of Directors of the company is
accustomed to act.

It was held in Twycross v. Grant, (1877) 2. C.P.D. 469 that promoter is “one who undertakes to form a company with reference to a given project and to set it going, and who takes the necessary steps to accomplish that purpose”.

Functions

1. The promoter of a company decides its name and ascertains that it will cbe accepted by the Registrar of Companies.

2. He settles the details of the company’s Memorandum and Articles, the nominations of directors,solicitors,bankers,auditors and secretary and the registered office of the company.

3. He arranges for the printing of the Memorandum and Articles, the registration of the company ,the issue of prospect us ,where a publishable is necessary.

Categories of Company Promoter

A promoter is the one who decides an idea for creating a particular business at a given place and carries out a range of formalities required for starting a business. A promoter is the one who decides an idea for setting up a particular business at a given place and carries out a range of formalities required for the setting up of a business. A promoter may perhaps be an individual, a firm, and an association of persons or a company.

The promoters may perhaps be professional, occasional, financial or managing promoters. A professional promoter gives away the company to the shareholders when the company starts. Regrettably, such promoters are very inadequate in the developing countries.

They have played a significant role in many countries and aided the business community to a great extent. In U.K. the issue houses, in U.S. investment banks and in Germany.

  • Joint Stock Banks have enacted the role of promoters very appreciably and effectively.
  • Occasional promoters are those whose most important interest is the floating of companies. They are not in promotion work on standard basis but take up promotion of some companies and then go to their former profession. For example, engineers, lawyers etc. may perhaps float some companies.
  • Financial promoters perform the task of promoting the financial institutions. They usually take up this work when financial environment is constructive at the time. Managing promoters played an important role in promoting new companies and then got their managing agency rights.

A promoter is neither an agent nor a trustee of the company as it is a non-entity before incorporation. Some legal cases have attempted to spell out the standing of promoters.

Fiduciary position

1. Not to make any profit at the expense of the company -the promoter must not make, either directly or indirectly, any profit at the expense of the company which is being promoted. If any secret profit is made in violation of this rule,the company may, on discovering it, compel him to account for and surrender such profit.

2. To give benefit of negotiations to the company – the promoter must, when once he has begun to act in the promotion of a company, give to the company the benefit of any negotiations or contracts into which he enters in respect of the company. Thus where he purchases some property for the company,he cannot rightfully sell that property to the company at a price higher than he have for it. If he does so, the company may, on discovering it,rescind the contract and recover the purchase money.

3. To make a full disclosure of interest or profit -if the promoter fails to make a full disclosure of all the relevant facts, including any profit and his personal interest I a transaction with the company,the company may sue him for damages for breach of his fiduciary duty and recover from him any secret profit made even though rescission is not asked or is impossible.

4. Not to make unfair use of position -the promoter must not make an unfair or take care to avoid any unreasonable use of his position and must take care to avoid anything which has the appearance of undue influence or fraud Further, a promoter cannot relive himself of his liability by making provisions to that effect in the Articles of the company.

5. Duty of promoter as regards prospectus -the promoter must see, connection with the prospectus, if any is issued, that the prospectus –

(a) contains the necessary particulars

(b) does not contain any untrue or misleading statements or does not omit any

Liabilities

Remuneration:

A promoter has no right to get compensation from the company for his services inpromotingthecompanyunlessthereisacontacttothateffect.Inpractice,a promoter takes remuneration for his services in one of the following ways-

1. he my sell his own property at a profit to the company for cash or fully- paid shares provided he makes a disclosure to this effect

2. He may be given an option to buy a certain number of shares in the company at par.

3. He may take a commission on the shares sold

4. He may be paid a lump sum by the company.

Conclusion

A promoter is the one who decides an idea for creating a particular business at a given place and carries out a range of formalities required for starting a business. A promoter is the one who decides an idea for setting up a particular business at a given place and carries out a range of formalities required for the setting up of a business. A promoter may perhaps be an individual, a firm, and an association of persons or a company.