A private company can be formed with two persons and a public company requires at least seven persons for its formation. A person may take only one other person to constitute the minimum number of members required in a private company or six others to constitute the required seven for a public company.
The person may keep with itself a substantial number of shares to have controlling power over the company. Other members might be holding shares as nominees to the principal holder. Such a company may be regarded as ‘One Person Company’. That one person may use this position to run the company for his personal gain with the advantage of limited liability.
A company may also be formed by a person by taking the family members only. Such a company is regarded as ‘Family Company‘. Even in such cases the company will have a separate entity as distinct from the majority shareholder. (Saloman v. Saloman & Co. Ltd.).
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ADVERTISEMENTS:
Law neither prohibits any of the relations from becoming members of the company nor desires to make any enquiry into the motives of the promoter so long as the objects of the company stated in the memorandum are legal.
The Companies Bill 2011 which is yet to become a law has a provision for one Person Company with just one person as its member.
Sec. 2(62) of the Bill provides, “One person company means a company which has only one person as member”. Sec. 4(l) (f) of the Bill requires the memorandum of association of such company to state the name of the person who in the event of death of the subscriber shall become the member of the company. The other person shall be required to give prior written consent in this regard. As per Sec. 149(1) of the Bill, Board of Directors of one Person Company shall have only one director.
ADVERTISEMENTS:
These companies, as per the provisions of the Bill, may be limited by shares or limited by guarantee or an unlimited company.