Choosing the perfect nominee in One Person Company

One Person Company (OPC) have gained popularity as a favorable option for entrepreneurs in the dynamic business landscape of India. It provides a limited liability and various benefits and this unique business structure allows individuals to independently establish and manage a company. It is crucial to understand the importance of having a nominee in One Person Company.

The nominee works towards continued success and growth of an OPC and serves as a custodian of the One Person Company registration. In this article, the concept of a nominee in an Indian OPC and its importance in ensuring the smooth functioning and continuity of the business is emphasized.

What is a One Person Company?

A type of company that can be formed with just one person as its member is called an OPC.  It allows entrepreneurs to operate similar to a Private Limited Company but as a separate legal entity, providing limited liability protection. This structure offers several advantages to the business owner by combining the benefits of a sole proprietorship and a company.

What is nominee to One Person Company?

The sole director and shareholder, during the incorporation process of an OPC, must nominate a person who will act as their successor in the event of their incapacity or demise.  The “nominee,” such a nominated individual, plays a vital role in ensuring the continuity and stability of the OPC.

In the event of the sole director’s death or incapacitation, this nominee plays a crucial role and steps in to take charge of the company. The provision for a nominee in an OPC is a specific requirement outlined in the Companies Act 2013, and is distinct from succession under personal law.

What is the significance of a nominee in One Person Company?

An OPC requires a nominee’s appointment, following the Companies Act of 2013 provisions. The nominee is designated to take over the company’s affairs if the sole member becomes incapacitated or dies, thereby playing a crucial role. The business’s continuity is maintained and the stakeholders’ interests are protected.

The OPC ensures a smooth transition of control and management in case the sole director cannot fulfill their responsibilities by designating a nominee.

Who can become a nominee in One Person Company?

It is mandatory to appoint a nominee when establishing a OPC, in case of incapacity or demise, he will act as a successor to the sole director and shareholder.

• Step 1: Written Consent
  • As a first step, a written consent is to be provided to the sole director and shareholder. This consent is an acknowledgement to take on the responsibilities associated with the role of a nominee, therefore the responsibilities and obligations need to be carefully reviewed before consenting.

• Step 2: Qualifications
  • To become a nominee in an OPC, it is essential to meet specific qualifications.
    • Citizen of India
    • Resident of India
    • Requirement of Age

To be eligible for the position of a nominee in an OPC, it is crucial to meet these qualifications. It is important to select a capable person who is trustworthy, and reliable to handle the responsibilities of being a nominee.

• Step 3: Agreement with the Sole Shareholder and Director
• After giving the written consent and meeting the necessary qualifications, you must make an agreement with the OPC’s sole director and shareholder which outlines the responsibilities, rights, and obligations associated with the position and formalizes your role as a nominee.  

• Step 4: Intimation to the Registrar
  • The OPC must submit the required documents to the Registrar of Companies after completing the agreement. Under the Companies Act 2013, these documents include the consent letter, agreement, and other required forms. By submitting the documents within the stipulated time frame in the prescribed format, the OPC must ensure compliance.

What are the role and responsibilities of a nominee?

Specific duties and responsibilities need to be fulfilled the nominee in an OPC. These include:

• Taking the affairs over
  • The nominee manages the company’s affairs and ensures its smooth functioning in the event of the sole member’s incapacitation or demise.
• Legal formalities Completion
  • All necessary legal formalities such as filing documents and maintaining compliance with regulatory requirements need to be done by the nominee.
• Stakeholders’ interests Protection
  • By acting as custodian of stakeholders’ interests, the nominee ensures that there is no disruption in the company’s operations.

What are the benefits of having a nominee in OPC?

Several benefits are provided by a nominee in an Indian OPC to the business owner and the company. Let’s explore some of these advantages:

• Business Continuity
  • Even in the absence of the sole member, the presence of a nominee ensures that the business can continue its operations, thereby providing reassurance and stability to the stakeholders.
• Liability Limitation
  • The interests of the company’s creditors and other stakeholders are protected by the nominee through limiting their liability and safeguarding their investments.
• Enhancing Flexibility
  • The sole member can change the nomination during his lifetime, providing flexibility to adapt to changing circumstances or preferences.
• Improved Confidentiality
  • For individuals who wish to maintain their privacy while operating the business, the nominee’s identity can be kept confidential.

Nominee Withdrawal

By providing a written notice to the sole member and the OPC, a nominee can withdraw his consent. The sole member has fifteen days to propose another nominee upon receiving the withdrawal notice. A notice of the change in nominee must be filed the OPC to the Registrar using Form INC-4 within thirty days of acknowledging the withdrawal notice and the change in a nominee, using Form INC-3, the fresh nominee’s consent should be submitted in writing.

Death of the director in OPC

The nominee automatically becomes a member of the company in the unfortunate event that the sole member of an OPC passes away or becomes incapable of entering into a contract. The new member must propose a person to act as their nominee within fifteen days of becoming a member. An indication of the cessation of the former member and the nomination of the new member must be filed by the OPC with the Registrar, using Form INC-4. Form INC-3 should include the written consent of the newly listed person.

Conclusion

It is a crucial aspect of a One Person Company’s structure and operations to have a nominee. The nominee in one person company ensures the company’s smooth functioning and continuity, reassuring stakeholders. Entrepreneurs considering OPC registration should select a nominee carefully who has the necessary qualities and qualifications essential to fulfill the roles and responsibilities. Designating a nominee enhances the credibility, stability, and long-term prospects of an OPC.

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