What is a Single Member Company (SMC)?

By Published On: May 18, 20224.2 min readViews: 856

What is a Single Member Company (SMC)?

By Published On: May 18, 20224.2 min readViews: 856
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A single member company is a class of private company, limited by shares which is incorporated with one member, or whose membership is reduced to one person.

It shall not issue an invitation to the public to subscribe to any share of the company.

The company shall not register any share(s) in the name of two or more persons to hold one or more shares individually or jointly and the Number of members of the company shall be limited to a single person.

RESPONSIBILITIES

The liability of the member is limited to the amount of its investment and the existence of a company does not cease on the death of a member.

DECISION-MAKING POWERS

Single-member of a single-member company has complete control over how the business is operated. The single member may make all business decisions independently and receive the full share of distributed profits. Any matter that is to be decided by directors as required by the ordinance or rules and regulations made thereunder shall be deemed to be satisfied if the decision is taken by a sole director of the company and is properly recorded in the minutes’ book.

REGISTRATION WITH AUTHORITIES

  1. It is mandatory to register a company with SECP under the Companies Act, 2017 as a company cannot otherwise exist.
  2. It is mandatory to register with FBR for National Tax Number (NTN) and Sales Tax Number (STN).

REGISTRATION WITH SOCIAL SECURITY

It is mandatory for an establishment having 5 or more employees, to register with Social Security.

ADVANTAGES

  • SMC has a separate legal entity from its member.
  • Liability of the member is limited to the amount of his investment.
  • The existence of the company does not cease on the death of a member.
  • SMCs are subject to lower corporation tax.
  • Single-member of an SMC has complete control over how the business is operated.
  • The single member may make all business decisions independently and receive the full share of distributed profits.
  • Single member does not have to deal with shareholders or a board of directors as a company would be required to do.
  • SMC is less formal than a corporation.
  • Ownership of an SMC can be easily transferred to another person without much paperwork and complying with legal formalities.
  • The transformation of sole proprietorship into SMC will help in the documentation of the economy.

DISADVANTAGES

  • It cannot issue a prospectus to the public.
  • In the stock exchange shares cannot be quoted.

INCORPORATION

  • Any person or a body corporate may form an SMC. All the requirements for incorporation of a private limited company shall mutatis mutandis apply to an SMC.
  • Any private company can also be converted into an SMC, by complying with the relevant provisions of the Ordinance and the Rules, framed thereunder.

SINGLE MEMBER COMPANY CONVERSION

A private company may be converted into a single-member company with prior approval of the Commission in writing by passing a special resolution on this behalf by the private company amending its memorandum and articles of association, in such a manner that they include the provisions relating to a single-member company in the articles and complying with all the requirements as may be specified.

  • On an application for change in status of a company, if the Commission is satisfied that the company is entitled to be so converted, such conversion shall be allowed by an order in writing.
  • A copy of the order, confirming the conversion duly certified by an authorised officer of the Commission shall be forwarded to the company and to the registrar within seven days from the date of the order.
  • A copy of the memorandum and articles of association as altered shall, within fifteen days from the date of the order, be filed by the company with the registrar and he shall register the same and thenceforth the memorandum and articles so filed shall be the memorandum and articles of the newly converted company.

If a company, being a single-member company, alters its articles in such a manner that they no longer include the provisions which are required to be included in the articles of a company in order to constitute it a single-member company, the company shall—

  • as on the date of the alteration, cease to be a single-member company; and
  • file with the registrar a copy of the memorandum and articles of association as altered along with the special resolution.
  • If the default is made in complying with the provisions of any of the preceding sub-sections, the company, and every officer of the company who is in default, shall be liable to a penalty not exceeding level 2 on the standard scale.

DOCUMENTS REQUIRED FOR REGISTRATION

  • 3 Proposed Names of the company.

  • The principal business of the Company.

  • Registered address of the Company.

  • Name of the Chief Executive of the Company.

  • Name of Directors of the Company.

  • Scanned copies of CNICs of the Directors and nominee director.

  • NTN of the proposed C.E.O, director/subscriber and nominee director.

  • Authorized Capital & Paid-up Capital

  • Share Value Rs. 10, Rs. 50 or Rs. 100 per share

  • Mobile Number & Email ID of the C.E.O & directors of the Company

  • SECP login details of the director/subscriber (if available)

Registration Charges

Rs. 20,000

Registration Time

2-3 Working Days

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