A

Company Law
Project on

SINGLE MEMBER COMPANIES &

LIMITED LIABILITY
PARTNERSHIP

Submitted By:
Anju Panicker
Roll No: 383
VIII Semester
NUALS
ONE PERSON COMPANY

The principal forms of business organisations permitted in India are sole

proprietorship firms (in which only one person runs the business), partnerships
(between two or more people) and companies (both private and public where it is
possible for many individuals to own the business by subscribing to its shares).
Existing Indian law currently requires at least two shareholders. That is why even for
wholly-owned subsidiaries, an individual shareholder has to hold one share as a
nominee. Most small companies are actually owned and managed by a single
individual, but currently are required to bring in another shareholder. This increases
compliance requirements, for example, shareholder meetings require the presence of
both the shareholders.

The Draft Companies Bill, 2009, (Bill No. 59 of 2009), as introduced in Lok Sabha on
3rd august 2009, introduces the OPC concept for the first time in India. With its
implementation, a single person will constitute a Company, under the One Person
Company (OPC) concept. OPC will help small single entrepreneurs, who are
currently operating under a proprietorship model, move to the corporate structure with
benefits of limited liability but with minimal compliance.

One Person Company is defined under section 2(1) (zzk) as:

““One Person Company” means a company which has only one person as a member”.

The new Company Bill, which proposes to do away with redundant provisions of the
existing Companies Act, 1956, envisages a new entity in the form of one person
company (OPC), while empowering the Government to provide a simpler compliance
regime for small companies. The proposed introduction of one-person company into
the legal system is a move that would encourage corporatisation of business and
entrepreneurship. At present, an entrepreneur in India has to find another person to
implement his skills through incorporation of a company while in the UK, Australia,
Singapore, Pakistan, etc; a single person can form a company.
In short, a one person company or a single member company is a company in which a
single person owns the whole, or practically the whole, of the share capital is termed
as 'one-man Company. There may be other acquaintances, but they may be his
relatives, friends or nominees. This central person is designated as the managing
director of the company and fully controls the company. It has all the benefits of the
corporate status and limited liability of the company. Though only one person
controls the whole functioning in a company and also enjoys the legal status.

In India, the JJ Irani Expert Committee recommended the formation of one-person

company (OPC). It has suggested that such an entity may be provided with a simpler
legal regime through exemptions so that the single entrepreneur is not compelled to
fritter away time, energy and resources on procedural matters.

The major recommendations made by the committee in this regard are:

 OPC may be registered as a private company with one member and may also
have at least one director.
 Adequate safeguards in case of death/disability of the sole person should be
provided through appointment of another individual as nominee director. On
the demise of the original director, the nominee director will manage the
affairs of the company till the date of transmission of shares to legal heirs of
the demised member.
 ‘OPC’ is to be suffixed with the name of one-person companies to distinguish
them from other companies [section 5(1)].

MAJOR FEATURES
The important feature for a start-up that registers as an OPC is that it de-risks the
business by transferring the promoter’s liability to the company. So, the key
difference between OPC and sole proprietorship is the way liabilities are treated.

For one, the OPC would have very little paper work - the Articles of Association
would be simple and short, and if the same person doubling as director, there would
be no need for board or shareholders’ meetings. Some OPC regimes in other
jurisdictions have a mandatory requirement of two directors, and therefore board
meetings are necessary, though not physically as the Bill will recognise the validity of
such meetings being held by video or teleconferencing.

Quorum requirements, proxies, maintaining of various registers of members, filing of

multiple e-forms fade away, leaving the single operator free from the fetters of
corporate governance, except that he has to maintain his books of accounts, prepare
and file annual audited balance sheet and profit and loss accounts, without the Board’s
report.

The memorandum of a One Person Company shall indicate the name of the person
who shall, in the event of the subscriber’s death, disability or otherwise, become the
member of the company.

The One Person Companies are also not required to hold any Annual General Meeting
under the new Companies Draft Bill, 2009. This facility is not extended towards any
other type of companies.

Section 3(1) (c) deals with the formation of One Person Company. It states that one
person, where the company to be formed is to be a One Person Company, by
subscribing his name to a memorandum in the manner prescribed and complying with
the requirements of the Act in respect of registration. The section provides that the
memorandum of a One Person Company shall indicate the name of the person who
shall, in the event of the subscriber’s death, disability or otherwise, become the
member of the company. It further provides that it shall be the duty of the member of
a One Person Company to intimate the Registrar the change, if any, in the name of the
person referred to in the preceding proviso and indicated in the memorandum within
such time and in such form as may be prescribed, and any such change shall not be
deemed to be an alteration of the memorandum.

Section 13(1) a, b, c deals with alteration of articles including the conversion of

Private Companies, Public Companies to One Person Companies and vice-versa.
One very important feature of the OPC concept is the conduction of Annual General
Meeting. Section 85(1) of the Draft Bill excludes One Person Company from holding
Annual General Meeting at least once in a year.
Section 171 deals with contracts by One Person Companies. It states:
(1) Where a One Person Company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also 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 the entering into the contract:
It 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 fifteen days of the date of approval by the Board of
Directors with such fee as may be prescribed, or with such additional fee as may
be prescribed within the time specified, under section 364.
(3) Where the company fails to inform the Registrar under sub-section (2) before
the expiry of the period specified under section 364 with additional fee, the
company shall be punishable with fine which shall not be less than twenty-five
thousand rupees but which may extend to one lakh rupees and every officer who is
in default shall be punishable with imprisonment for a term which may extend to
six months or with fine which shall not be less than twenty-five thousand rupees
but which may extend to one lakh rupees, or with both.

OPC IN UK
Unlike in India, the concept of OPC can be seen in UK from the time of the landmark
decision Salomon v. Salomon in 1897. In that case, Salomon’s was in the nature of a
single person company with his wife and sons as shareholders. The new Companies
Act of 1985 in UK legally recognised the concept and laid down major rules and
guidelines. The provisions of the UK law are similar to that of the Indian provisions
which are to be implemented after the enactment of the Companies Bill, 2009.

CONCLUSION
OPCs are imperative because they would give entrepreneurial capabilities of people
an outlet for participation in economic activity and such economic activity may take
place through the creation of an economic person in the form of a company. However,
there has been criticism in certain quarters against the formation of such a company as
it may give room for evasion of public funds and tax liability by an individual. Also,
the regime has yet to be conceptualised and it is not clear whether the OPC structure
will be available to foreign investors through the automatic or approval route, or
whether a migration regime will be permitted for joint stock companies and
partnerships. Would an existing limited liability company be treated as a “person” for
this purpose? If so, should not there be a limit capacity in terms of the corporations’
net worth or capital structure?

How will the regulator ensure that the OPCs are not set up as fly by night ventures
with the sole intent of liability evasion? More importantly, how strongly is the
doctrine of lifting the corporate veil being enforced against OPCs because therein lies
the acid test of the OPC dividing line Salomon and Salomon the individual.
LIMITED LIABILITY PARTNERSHIP
INTRODUCTION
With the growth of the Indian economy, the role played by its entrepreneurs as well as
its technical and professional manpower has been acknowledged internationally. It is
felt opportune that entrepreneurship, knowledge and risk capital combine to provide a
further impetus to India’s economic growth. In this background, a need has been felt
for a new corporate form that would provide an alternative to the traditional
partnership, with unlimited personal liability on the one hand, and, the statute-based
governance structure of the limited liability company on the other, in order to enable
professional expertise and entrepreneurial initiative to combine, organize and operate
in flexible, innovative and efficient manner.

LIMITED LIABILITY PARTNERSHIP

The Limited Liability Partnership Act 2008 was published in the official Gazette of
India on January 9, 2009 and has been notified with effect from 31 March 2009. The
rules have been notified in the official gazette on April 1, 2009. The first LLP was
incorporated in the first week of April 2009.

A limited liability partnership is a legal entity and a body corporate. That means it has
a legal personality separate from that of its members. Like a limited company, a
limited liability partnership can do all the things an individual or company can do. It
can make contracts, sue or be sued, hold property or become insolvent. By and large,
partnership law does not apply to a limited liability partnership, but the arrangements
between the partners may closely follow a traditional partnership agreement. A
limited liability partnership is not the same as a limited partnership, regulated by the
Limited Partnerships Act 1907. It is an alternative corporate business entity that
provides the benefits of limited liability of a company but allows its members the
flexibility of organizing their internal management on the basis of a mutually-arrived
agreement, as is the case in a partnership firm. LLP combines the advantages of ease
of running a Partnership and separate legal entity status and limited liability aspect of
a Company.
The desirability of LLP form has been expressed in the context of small enterprises by
 Bhat Committee (1972);
 Naik Committee (1992);
 Expert Committee on Development of Small Sector Enterprises headed by Sh.
Abid Hussain in 1997; and
 Study Group on Development of Small Sector Enterprises (SSEs) headed by
Dr. S P Gupta (2001).
Following Committees set up by M/o Company Affairs have also recommended for
legislation on LLPs-
 Committee on Regulation of Private Companies and Partnerships headed by
Sh. Naresh Chandra (2003)
 The Committee on New Company Law (Dr. J.J. Irani Committee) (2005)

MAJOR FEATURES
 The LLP shall be a body corporate and a legal entity separate from its
partners. Any two or more persons, associated for carrying on a lawful
business with a view to profit, may by subscribing their names to an
incorporation document and filing the same with the Registrar, form a Limited
Liability Partnership. The LLP will have perpetual succession.
 The mutual rights and duties of partners of an LLP inter se and those of the
LLP and its partners shall be governed by an agreement between partners or
between the LLP and the partners subject to the provisions of the LLP Act
2008 . The act provides flexibility to devise the agreement as per their choice.
In the absence of any such agreement, the mutual rights and duties shall be
governed by the provisions of proposed the LLP Act.
 The LLP will be a separate legal entity, liable to the full extent of its assets,
with the liability of the partners being limited to their agreed contribution in
the LLP which may be of tangible or intangible nature or both tangible and
intangible in nature. No partner would be liable on account of the independent
or un-authorized actions of other partners or their misconduct. The liabilities
of the LLP and partners who are found to have acted with intent to defraud
 creditors or for any fraudulent purpose shall be unlimited for all or any of the
debts or other liabilities of the LLP.
 The name of the LLP shall end with “LLP” or “Limited Liaability
Partnership” inorder to distinguish it from other forms of business.
 LLP must have two ‘designated partners’ who must be individuals. If a body
corporate is a partner of LLP, it can nominate a person as 'designated partner'.
He has to give consent to act as designated partner. He has to obtain DPIN
[Designated Partner Identification Number] from Central Government. The
designated partner is liable for all compliances as required under the Act and
is liable to penalty for contravention of those provisions. Personal liability
shall arise if the number of partner’s falls below two, However there exists no
upper limit on the same. In India for all purposes of taxation, an LLP is treated
like any other partnership firm. For statutory compliances provisions at least
one resident designated partner (DP) in every LLP is available in India for at
least six months for regulatory compliance requirements. The LLPs would
have freedom to appoint more than one resident as DP. LLP as an entity would
always remain liable for regulatory or other compliances.
 The LLP shall be under an obligation to maintain annual accounts reflecting
true and fair view of its state of affairs. A statement of accounts and solvency
shall be filed by every LLP with the Registrar every year. The accounts of
LLPs shall also be audited, subject to any class of LLPs being exempted from
this requirement by the Central Government.
 The Central Government have powers to investigate the affairs of an LLP, if
required, by appointment of competent Inspector for the purpose.
 The compromise or arrangement including merger and amalgamation of LLPs
shall be in accordance with the provisions of the LLP Act 2008.
 A firm, private company or an unlisted public company is allowed to be
converted into LLP in accordance with the provisions of the Act. Upon such
conversion, on and from the date of certificate of registration issued by the
Registrar in this regard, the effects of the conversion shall be such as are
specified in the LLP Act. On and from the date of registration specified in the
certificate of registration, all tangible (moveable or immoveable) and
intangible property vested in the firm or the company, all assets, interests,
 rights, privileges, liabilities, obligations relating to the firm or the company,
and the whole of the undertaking of the firm or the company, shall be
transferred to and shall vest in the LLP without further assurance, act or deed
and the firm or the company, shall be deemed to be dissolved and removed
from the records of the Registrar of Firms or Registrar of Companies, as the
case may be.
 The LLP Act 2008 confers powers on the Central Government to apply
provisions of the Companies Act, 1956 as appropriate, by notification with
such changes or modifications as deemed necessary. However, such
notifications shall be laid in draft before each House of Parliament for a total
period of 30 days and shall be subject to any modification as may be approved
by both Houses.
 The winding up of an LLP may be either voluntary, or by a tribunal. A LLP
may be wound up voluntarily if the LLP passes a resolution with approval of
at least three fourth (in number) of total number of partners, requiring the LLP
to be wound up voluntarily. A copy of resolution shall be filed with the
Registrar within 30 days of passing up such resolution in Form as prescribed
in Appendix II.

ADMINISTRATION
Ministry of Corporate Affairs, Government of India is the administrating ministry.
Registrar of Companies (RoC) of respective State is the administrative authority
where all documents are to be filed, the Central Government can make applicable any
provision of Companies Act to LLP with suitable modifications by issuing a
notification. However, provisions of Indian Partnership Act will not apply to LLP.

ADVANTAGES AND DISADVANTAGES OF LIMITED LIABILITY

PARTNERSHIP
By combining aspects of partnerships and corporations, limited liability partnerships
offer several advantages and disadvantages from both.

1. Limited Liability- Limited liability partnerships, not surprisingly, offer

limited liability for partners. That means each partner is responsible only for
 the amount of money he has given or promised to the partnership, and each
partner is not “personally liable.” By limiting liability to partnership liability,
the only money a person suing the partnership could win is partnership money
-not a partner's personal savings. This makes limited liability partnerships
more secure and less financially risky than a partnership.

No Double Taxation - Unlike corporations, limited liability partnerships are taxed

directly through the partnership. This avoids corporate double taxation, where
income from a corporation and distributed profits are both taxed.
2. Management - The ability to directly manage a partnership is a significant
advantage of a limited liability partnership. In a corporation, shareholders hold
stock in the company and elect a board of directors, who then make executive
decisions for the company. Corporations also may have company directors
doing more mundane, daily business. Limited liability partnerships avoid the
unnecessary extra steps by allowing each partner to directly own or control a
portion of the partnership.
3. Some Personal Liability - While some states restrict liability of partners in a
limited liability partnership, some do not. For example, some states limit
liability only for negligent civil wrongdoings ("torts") but allow personal
liability for intentional torts or criminal actions. Other states restrict liability,
even for intentional torts--but there may be some situations where personal
liability may arise.
4. Some Restrictions - Some states restrict the types of professions that may
form a limited liability partnership. Traditionally, professional fields of study,
such as attorneys, architects and accountants, are included. Some states limit
limited liability to these traditional fields.
5. Liable for Partner’s Action - The partnership will be liable for actions taken
by a partner in furtherance of the partnership. This means that financially,
being a member of a limited liability partnership may be less secure than
merely being a shareholder of a corporation.

COMPARISON BETWEEN COMPANY, PARTNERSHIP AND LIMITED

LIABILITY PARTNERSHIP MODE OF BUSINESS
Features Company Partnership firm LLP

Compulsory registration
required with the ROC.Not compulsory.
Certificate ofUnregistered PartnershipCompulsory
Incorporation isFirm will not have theregistration required
Registration conclusive evidence. ability to sue. with the ROC

Name of a public
company to end with the
word “limited” and a Name to end with
private company with the “LLP”” Limited
Name words “private limited” No guidelines. Liability Partnership”

Private company should

have a minimum paid up
capital of Rs. 1 lakh and
Capital Rs.5 lakhs for a public
contribution company Not specified Not specified

Legal entity Is a separate legal

status Is a separate legal entity Not a separate legal entity entity

Unlimited, can extend toLimited to the extent

Limited to the extent ofthe personal assets of theof the contribution to
Liability unpaid capital. partners the LLP.

Minimum of 2. In a
No. of private company,
shareholders / maximum of 50 Minimum of 2. No
Partners shareholders 2- 20 partners maximum.

Foreign
Nationals as
shareholder / Foreign nationals can beForeign nationals cannotForeign nationals can
Partner shareholders. form partnership firm. be partners.

The income is taxed atThe income is taxed at

Taxability 30% + surcharge+cess 30% + surcharge+cess Not yet notified.
 Quarterly Board of
Directors meeting, annual
shareholding meeting is
Meetings mandatory Not required Not required.

Annual statement of
accounts and
Annual Accounts andNo returns to be filedsolvency & Annual
Annual Annual Return to be filedwith the Registrar ofReturn has to be filed
Return with ROC Firms with ROC

Required, if the
contribution is above
Compulsory, irrespective Rs.25 lakhs or if
of share capital and annual turnover is
Audit turnover Compulsory above Rs. 40 lakhs.

High creditworthiness, Perception is higher

due to stringentCreditworthiness dependscompared to that of a
How do the compliances andon goodwill and creditpartnership but lesser
bankers view disclosures required worthiness of the partners than a company.

Less procedural
compared to
Very procedural. company. Voluntary
Voluntary or by Order ofBy agreement of theor by Order of
National Company Lawpartners, insolvency or byNational Company
Dissolution Tribunal Court Order Law Tribunal

Protection provided to
employees and
partners who provide
useful information
Whistle during the
blowing No such provision No such provision investigation process.
LIMITED LIABILITY PARTNERSHIP IN UK
In the United Kingdom LLPs are governed by the Limited Liability Partnerships Act
2000. A UK Limited Liability Partnership is a Corporate body - that is to say, it has a
continuing legal existence independent of its Members, as compared to a Partnership
which may have a legal existence dependent upon its membership.

A UK LLP’s members have a collective (joint) responsibility, to the extent that they
may agree in an LLP agreement, but no individual (several) responsibility for each
other’s actions. As with a limited company or a corporation members in an LLP
cannot, in the absence of fraud or wrongful trading, lose more than they invest. There
has been discussion over whether limited partnerships operating under English law
should be made separate legal entities in the same way as limited liability partnerships
are. The Law Commission report on partnership law suggests that creation of separate
legal personality should be left as an option for the partners to decide upon when a
partnership is formed.

In relation to tax, however, a UK LLP is similar to a partnership; it is tax transparent

or pass-through, that is to say it pays no UK tax but its members do in relation to the
income or gains they receive through the LLP. It is a unique entity in its synthesis of
collective and individual rights and responsibilities and its infinite flexibility - there is
in fact no requirement for the LLP agreement even to be in writing because simple
partnership-based regulations apply by way of default provisions.

CONCLUSION
Generally limited liability partnership is not applicable for all activities such as non-
profit-making activities. Before the concept being introduced in India it has been
accepted in countries like U.S.A, U.K, Australia, and Germany. It is a form of
business entity, which allows individual partners to be restricted from joint liability of
partners in a partnership firm. The Liability of the partners incurred in the normal
course of business is that of LLP and it does not extend to the personal assets of the
partners. This is a great relief to the partners, particularly professionals like Company
Secretaries, Chartered Accountants, Cost Accountants, Advocates and other
professionals. These professionals may also form multi-disciplinary LLPs to meet the
changing economic environment. The introduction of LLPs in India is a good
beginning towards a long journey. The hybrid structure of LLP will facilitate
entrepreneurs, service providers and professionals to organize and operate in an
innovative and efficient manner for effectively competing in the global market.