Former requirements for incorporating an OPC were deemed too strict. The Companies (Incorporation) Amendment Rules 2021 have lifted these provisions, encouraging the incorporation of OPCs.
Under the Companies Act of 2013, the One Person Company (OPC) was welcomed by solo entrepreneurs who sought to incorporate their businesses as private limited companies. The key difference between an OPC and other corporate structures is that the sole shareholder or member is the center of attention.
Experts say a group of people should not be forced into implementing a revolutionary idea through a business regime. It is important that a person has a platform even if he is the only one in the club. As a result, one person companies were created by the Act. The Act also approved a few compliances for incorporation of an OPC.
Provisions Regarding The Second Amendment Rules To The Companies (Incorporation) Act Of 2021:
Before the amendment to the Companies (Incorporation) Rules, 2014:
- A company can convert into a public or private limited company if its paid-up share capital or annual turnover exceeds 50 lakhs or 2 crores during the said period. An OPC may be converted voluntarily only after two years of incorporation
- A private company with a paid-up share capital of 50 lakhs or less, or an annual turnover of less than 2 crores, can become an OPC by passing a special resolution at its general meeting.
- The incorporation of an OPC can only be done by an Indian citizen or resident of India. In the previous calendar year, you must have spent a minimum of 182 days in India.
Company (Incorporation) Second Amendment Rules 2021:
The government encouraged start-ups and innovators in the Union Budget 2021 by making measures to incentivize OPCs. There were no restrictions on OPC incorporation. To encourage OPCs, the following changes to the rules have been made:
- Companies that were public or private limited company could convert into OPCs regardless of their paid-up capital, annual revenue turnover, and how long they had been operating.
- An OPC can be formed by a non-resident Indian (NRI) who can also act as the nominee.
- The residency tenure was shortened from 182 days to 120 days.
With the provisions in place since April 2021, the OPCs have been significantly incentivized by reducing the prerequisites. The lifting of limitations regarding the incorporation of OPCs will undoubtedly attract a number of entrepreneurs. Converting OPC into a private or public limited company with strict conditions would certainly have hindered the company’s growth. According to the new rules, there will be an increase in the number of OPCs being incorporated, and even more being converted into public or private establishments.
Although the incentives thus proposed are not appealing enough to make one prefer sole proprietorships to public or private limited companies, they could definitely encourage sole entrepreneurs to start out. We will have to wait and see whether these proposals motivate an OPC, as it could still be too early to tell.
Furthermore, some experts believe that limiting the scope of an OPC to a natural person will limit the company’s development. Other public or private limited companies will be incentivized once they become members of an OPC. Furthermore, shareholders may not be members of more than one organization. OPCs need to structure taxes effectively, which is currently lacking. The OPCs are likely to be motivated if they are able to implement these suggestions, which may seem a bit far-fetched.