Mr. RM was engaged in the trading of handloom items with his wife. One of their friends suggested that they should form a private limited company.…

CA Foundation · Business Laws · PYQS · September 2025
Mr. RM was engaged in the trading of handloom items with his wife. One of their friends suggested that they should form a private limited company. By corporatizing their business, they could gain better recognition and even explore export opportunities. They established M/s RM Private Limited with both as the sole members. They got the work orders on job basis from local artisans, sold their products in the Indian market, and exported them as well. The company also secured a line of credit from the bank amounting to 30 lakhs. Tragically, Mr. RM met with an accident and passed away. Now Mrs. RM was the only member in the private limited company. A family friend suggested including her brother as a member, but she declined. Instead, she decided to convert the private limited company into a One Person Company (OPC) and nominate her brother, Mr. AK, who is currently employed in London, UK. Examine with reference to the Companies Act, 2013: (i) Whether Mrs. RM's decision to convert the private limited company into a One Person Company (OPC) is legally valid; and (ii) When Mrs. RM's decision to nominate her brother Mr. AK, as a nominee, is not legally valid?

Suggested Answer and Working Notes:

(i) A Private Limited Company can be converted into an OPC if it meets the eligibility criteria under Section 2 (62) of the Companies Act,2013. An OPC can have only one member and the Memorandum of OPC shall indicate the name of the other person, who shall, in the event of the subscriber's death or his incapacity to contract, become the member of the Company. The member of OPC may at any time change the name of such other person by giving notice to the company and the company shall intimate the same to the registrar. No person shall be eligible to become nominee in more than one OPC. Further only a natural person who is an Indian citizen whether resident in India or otherwise - shall be eligible to incorporate a One Person Company;shall be a nominee for the sole member of a One Person Company. Explanation I - For the purposes of this rule, the term “resident in India” means a person who has stayed in India for a period of not less than one hundred and twenty days during the immediately preceding financial year. In view of the above, in the given case, Mrs. RM's decision to convert the Company into an OPC is legally valid. (ii) Nominating Mr. AK may not be valid if he does not meet the residency requirement (i.e., if he has not stayed in India for at least120 days in the preceding financial year). In that case, Mrs. RM must nominate another Indian resident. (ii) ALTERNATE ANSWER Here, Mrs. RM’s decision to nominate her brother Mr. AK, as a nominee is not legally valid in the case where he has obtained the foreign citizenship being in employment in London UK. Note: Since nothing is specified as regards the citizenship of Mr. AK, a benefit of doubt may be given to the students who assumes that Mr. AK has obtained the UK citizenship being therein employment. In that case he may lose the Indian Citizenship and shall be disqualified to be nominated as a nominee.

Topics: The Companies Act, 2013

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