MEMBER AND NOMINEE OF ONE PERSON COMPANY

Clause (62) of the Companies Act 2013 defines “One Person Company” means a company which has only one person as a member. According to clause (68) of this section as well as Clause (c) of Sub- section (1) of Section 3; one person company is a private company.

Rule 3 of the Companies (Incorporation) Rules, 2014 say only a natural person shall be eligible to incorporate one person company. Such one person shall be Indian citizen and a resident of India. A non – resident Indian or a Foreign Citizen resident in India may not incorporate a one person company. Same rules are applicable to nominee of the sole member of a one person company.

The citizenship shall be determined under the Citizenship Act, 1955. Please note that according to Section 9 of the Citizenship Act, 1955 any person who acquire citizenship of any other another country shall cease to be Indian Citizen. Section 8 deals with renunciation of citizenship by an Indian citizen. Same time overseas Citizenship of India also exist under Section 7A of the Act which is not a full citizenship of India. Accordingly, a person holding any other passport along with Indian passport shall be deemed to be ceased his Indian Citizenship irrespective of date of Indian passport. This is present legal status in India even if such another country accepts dual citizenship.

[There are some public offices where dual citizen have occupied position, but they are separate matters like one reserve bank governor or a member of legislative assembly in Goa. I invite reader’s discretion and professional skills. Please share court law and other interpretation.]

The term “resident in India” means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one calendar year.

I have one question here: whether ceasing of Indian or resident effect membership of member? The answer seems negative because the Rules are silent on this. There seems to be only two ways to cease a membership of sole member: death or incapacity to contract. Another way may be transfer of share and in that way membership. Hence, in my view, condition of Indian citizenship and resident – status is required only at the time of incorporation or nomination as nominee of sole member.

No person shall be eligible to incorporate more than a one person company. Combined reading of sub – rule (2) and (3) suggest that a person shall remain a member of a single one person company. Where a person become a member of another one person company by virtue of his being a nominee in a One Person Company, such person shall leave membership of any one “One Person Company”.

[Why there is no bar of being a nominee of a One Person Company, while already a member of a one person company?]

No minor can become a member or nominee of a one person company or can hold shares in a one person company.

NOMINATION [Rule 4]:

The subscriber to the memorandum of a One Person Company shall nominate a person as his nominee. The Subscriber shall obtain prior written consent from such nominee. In event of death or incapacity to contract of member shall become member of the one person company.

Provision of nominee under this section is not succession under the personal law. Unlike succession, nominee under this section require to give consent and create a contractual position between sole member of company, company and nominee of sole member. Things may be evolved in various manners. This may be a contract against consideration, gift under love and affection, succession in accordance with personal law of parties or may be an open will of be effective after death or incapacity. The considered use of term “nominee” instead of “successor” makes it clear that the companies act, 2013 does not create another law for succession.

The Prior written consent of nominee shall be obtained in Form INC – 3. The nomination shall be filed in Form INC – 2 along with the written consent obtained from the nominee.

The Nominee may withdraw his consent by giving a notice in writing to the sole member and the One Person Company. The Sole member shall nominate another nominee within fifteen days.  The Notice of withdrawal of consent by original nominee and Consent for appointment of new nominee shall be filed in Form INC – 3.

The sole member may change his nominee for any reason and nominate another person with prior written consent in Form INC – 3. Such change may also be death or incapacity to contract of nominee.

The company shall, on the receipt of such intimation, file with the Registrar, a notice of such change in Form INC – 4 with the written consent of the new nominee in Form INC – 3within thirty days of receipt of intimation of the change.

Death or Incapacity to contract of Sole Member:

Where sole member of a one person company cease to be a member in event of death or incapacity to contract; his nominee shall became member of the company. The new member shall nominate within fifteen days of becoming member, a person as his nominee.  The company shall file with the Registrar an intimation of such cessation and nomination in Form INC – 4 within thirty days of the change in membership and with the prior written consent of the person so nominated in Form INC – 3.

PENALTY [Rule 5]:

If One Person Company or any officer of such company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

Please note: I welcome your comments and feedback. This blog post is not a professional advice. Readers may share this post on social media by using buttons given here.