Monday, 28 November 2016

One Person Company and the Principle of Separate Corporate Personality.

One Person Company (OPC) came up in the Companies Act, 2013. Section 2(62) of the Act defines One Person Company as ‘a company which has only one person as a member.’ This implies the entire share capital is held by one person, and he is the only director of the company.The question that persists w.r.t. such a company is that whether an OPC is same as a sole proprietorship concern and whether the principle of separate corporate personality is applicable on such a company.

When the Court of Law is of the view that the company is just a bubble or has been created to evade the revenue department or otherwise to create fraud, the court may disregard the separate corporate personality principle of the company and lift the corporate veil flowing between the company and its owners. So does that imply that the corporate veil would get automatically lifted when a question of liability arises despite that the OPC is a limited liability company. It appears that the answer to this question must be in negative. The corporate veil is lifted by courts where there is evidence showing the company was used to commit fraud or wrong that injured the party seeking to pierce the veil, or to prevent “fraud or improper conduct”. Corporate veil is also lifted where the company is used as a device or fa├žade to conceal the true facts, thereby avoiding or concealing any liability of individual in control of the company.

To conclude there is a limited principle of English Law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality.

And as far as the property of the OPC is concerned, i.e. whether the OPC’s property is Sole shareholder’s property it has been generally opined that although a sole shareholder’s shareholding might provide the key whereby to unlock the company’s assets, the principle of corporate personality precluded treating those assets as substantially the same as the shareholding. Further, even if the Court is persuaded to lift the “corporate veil”, it is not the negation of the Separate Corporate Personality principle, it is a limited jurisdiction, very uncommonly exercised; and even if the court is persuaded to treat the assets of the company for some default or breach of its owner those assets remain in the separate beneficial ownership of the company.

Thus an OPC is an “company” incorporated under the Companies Act; and although its entire share capital is held by one person, that does not detract from the legal status of the OPC as an incorporated body having a distinct corporate entity and corporate personality. It is a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated companyunder this Act and having perpetual succession with power to acquire, hold and dispose of property, both movable and immovable, tangible and intangible, to contract and to sue and be sued, by the said name. Accordingly, the company’s assets are the company’s assets and not the assets of the person who owns all the shares of the company.

 Ms. Divya Gupta
Assistant Professor
Dept. of Management Studies

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