Understanding the Legal Consequences of Strike Off for One Person Company (OPC)

Introduction

One Person Company (OPC) is a popular form of business in India that is suitable for small entrepreneurs who wish to operate as a company with limited liability. It is a type of company structure where a single person owns and operates the business. However, there are certain compliance requirements that must be met by OPCs, failing which the company can be struck off from the records of the Ministry of Corporate Affairs (MCA). In this article, we will discuss the legal consequences of strike-off OPC.

What does “Strike off” mean?

Strike off a company refers to the process of removing the name of a company from the records of the Registrar of Companies (RoC) maintained by the Ministry of Corporate Affairs (MCA). This is done when a company fails to comply with the regulatory requirements or when it ceases to operate its business.

The MCA can strike off a company on its own accord or on the application of the company itself. The process of strike-off involves giving notice to the company and publishing the same in the Official Gazette. After the expiry of the notice period, the MCA removes the name of the company from its records, and the company ceases to exist as a legal entity.

Once a company is struck off, it cannot continue to operate its business or undertake any transactions. The assets and liabilities of the company are deemed to be extinguished, and any legal action arising from the company’s activities before the strike-off can be taken against the company and its directors.

Legal Consequences of Strike Off OPC

1. Inability to carry out business operations:

When an OPC is struck off from the records of the MCA, it loses its legal existence as a company. Consequently, the company cannot continue to operate its business or undertake any transactions, including the opening of bank accounts, taking loans, and entering into contracts. The company is considered dead in the eyes of the law, and all its assets and liabilities are deemed to be extinguished.

2. Legal action against the director:

The director of an OPC can be held liable for any legal action that arises from the company’s activities prior to the strike-off. In other words, the director can be held personally responsible for the debts and liabilities of the company. This means that creditors can take legal action against the director to recover their dues.

3. Difficulty in reviving the company:

If an OPC is struck off from the records of the MCA, it can be revived only by filing an application for revival with the National Company Law Tribunal (NCLT). The process of revival can be time-consuming and complicated, and there is no guarantee that the NCLT will grant the application. Even if the application is granted, the company may have to pay penalties and fines for non-compliance, which can be substantial.

4. Consequences for the director’s future:

If a director of an OPC is found guilty of non-compliance or other irregularities, it can have severe consequences for their future. It can affect their reputation and make it difficult for them to secure employment or start another business in the future. Additionally, if the director is a professional, such as a chartered accountant or a lawyer, it can have implications for their professional license.

5. Legal action by stakeholders:

When an OPC is struck off from the records of the MCA, its stakeholders, such as shareholders, creditors, and employees, can take legal action against the company and its director. Shareholders can sue the director for mismanagement or breach of trust, creditors can file a suit for recovery of dues, and employees can file a case for non-payment of salaries or other employment-related issues.

Conclusion:

In conclusion, the legal consequences of striking off OPC can be severe and far-reaching. It is essential for OPCs to comply with all the necessary requirements and regulations to avoid being struck off. In case of non-compliance, it is advisable to take corrective measures as soon as possible to prevent any legal action or penalties. Directors of OPCs must also be aware of their legal obligations and ensure that the company is operating in compliance with the law. By doing so, they can protect themselves and their company from legal consequences and ensure the smooth functioning of their business.