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Legal Aspects of a Single Person Company
Table of Contents
Companies have a prominent role in the economic development process of countries, so there is a special interest in regulating companies. They are divided into companies based on personal consideration, companies based on financial consideration, and mixed companies based on consideration between personal and financial.
As a result of the economic development and the rapid growth of the commercial sector, and the presence of an urgent need to confront this growth and its accelerating requirements, all of this led to the emergence of a new type of company that differs from the traditional classification of commercial companies, which is what is known as a one-person company (OPC), to suit the requirements of small and medium enterprises which does not require huge funds.
Reason For The Emergence of a One-Person Company
A company is a contract under which two or more persons are obligated to each of them contribute a share of money or work in a specific project aimed at a profit in order to divide the outcome of this project and therefore the multiplicity of partners is considered an objective cornerstone of the company. As time went by, and in order to keep pace with the developments that have occurred in the world of commerce, it became important to depart from the above basic principle.
This allowed the establishment of this new type of company, which is owned and composed of one person, created and established from a single administration, and for reasons that require the approval of a single person company. It is actually a sole proprietorship, as the main partner is the only person in charge of it. The rest are fictitious partners just to fulfil the legal form required for the company’s establishment.
This company includes a project whose capital is fully owned by one natural or legal person. The company owner is not responsible for its obligations except to the extent of the capital allocated to the company.
In addition, it allows the project owner to manage his own company independently and flexibly without the need to adhere to the procedures required to issue decisions like in other companies. The history of the emergence of the one-person company goes back to German Law. One of the most important questions one might ask is what type of company I must establish. In order to make it easier, I will display the difference between a one-person company and a limited liability company:
- The number of partners in a limited liability company is from 2 to 20 people, but it consists of only one person in a single person company.
- Regarding the manager’s appointment, in a limited liability company, it is obligated to choose the manager based on an appointment decision with the approval of a majority of the owners of the capital. This situation is different from the one-person company where an individual decision chooses the manager.
- There is also a difference regarding the dismissal of the manager. The majority of the partners agree upon the limited liability company. As for the one-person company, this is done by a decision of the sole partner in the company.
- Regarding the general assembly of a supervisory body, the situation is also different in the limited liability company than in the one-person company because it does not exist in the last legal system.
- As for the issue of converting the company, we find that a limited liability company can transform into a joint liability company if its number exceeds the required number. As for a single person company, it can transform into a limited liability company if the number of partners exceeds two partners.
- Expiration of the company: The one-person company expires with the death of the only partner. As for a limited liability company, it does not expire with the death of one of the partners unless the articles of incorporation stipulate that.
Regarding the share capital of a one-person company, the company cannot carry out its burdens without sufficient capital to face it. The capital consists of the shares presented, where the capital represents the guarantee for the company’s creditors and the company’s assets, and the capital is estimated in cash, whatever the shares that are presented.
One main aspect of a one-person company is the kind of shares. It has been permitted that the capital in a one-person company includes in-kind shares according to the provisions and legislation. In-kind shares are the ones that are replaced by money other than cash, and this money may be real estates such as land and buildings, or it may be movable such as machines, cars, tools and goods.
Single-Person Company Management
A single person company is managed by a manager who may be the only partner, and the manager may be from outside the company. The manager must be a natural person and have a fixed term, having full capacity, reaching the legal age, being qualified and competent. Their name is registered with the commercial registry to protect the third parties who deal with this company.
The owner of the company has the right to dismiss the manager. The manager has the right to demand compensation from the company as a penalty of isolation without an acceptable justification. If it is at an inappropriate time and the manager has the right to resign provided that his resignation is justified and at an appropriate time, or the company has the right to claim compensation because this is considered abuse of the right.
One-Person Company’s Financial Disclosure
It is the sum of a person’s rights and the financial obligations that are present accordingly. The financial liability consists of two components:
- The Positive Element: it is called assets, and it is a set of rights and funds that actually exist and financial rights expected in the future.
- Negative Component: It is called debts or obligations according to the provisions of the one-person company. The partner’s responsibility for the obligations and losses of the company is to the extent of his share in the capital, which means that the partner is not responsible except to the extent that he shares from him and that the maximum loss that can be attached to it is the part that he allocated in the one-person company. Accordingly, the partner’s financial liability will not be responsible for the company’s debts.
The company shall terminate upon the expiry of the date set for it or the end of the work for which it was performed. The partners usually set a specific date that ends at the end of the company and thus expires by the force of the law if the term specified for it in the contract expires.
Moreover, the company shall terminate if the work and the purpose of its establishment have been implemented. The company also ends with the loss of all or a large part of its money or the death, insolvency, or bankruptcy of the sole partner. The company might also end due to a court’s decision. This dissolution takes place by the court and before the agreed-upon date based on many reasons.
The company might also end by merging and changing the form of the company, where a new company is formed and legally replaces the previous company with its rights and obligations, within the limits of what was agreed upon in the merger rights. The company will definitely end with the loss of all or most of the company’s funds or due to the liquidation of the company’s funds.