Government eases restrictions on OPCs, revises definition of small companies

New Delhi: Swiftly pushing efforts to improve the ease of doing business and boost the startup ecosystem, the corporate affairs ministry has relaxed the restrictions on One Person Companies, including allowing NRIs to set up such entities, as well as reduced the paid-up capital and turnover thresholds for small companies. The ministry — which is implementing the companies law, among others — has notified the relevant changes close on the heels of Finance Minister Nirmala Sitharaman making announcements related to companies matters in the Union Budget speech on Monday.

Besides, the fast track process for mergers under the companies law has been extended to mergers of startups with other startups and with small companies.
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“The measures will help in further promoting the ease of doing business and reducing the compliance burden on companies,” Corporate Affairs Secretary Rajesh Verma told on Tuesday.

In a move that will benefit startups and innovators, especially those who are supplying products and services on e-commerce platforms, the ministry has decided to incentivise incorporation of One Person Companies (OPCs) and has amended the rules in this regard. It is also likely to help in bringing more unincorporated businesses into the organised corporate sector.

According to ministry officials, the amendments allow OPCs — a concept introduced under the Companies Act, 2013 — to grow without any restrictions on paid-up capital and turnover and conversion into any other type of company at any time.

Also, the residency limit for an Indian citizen to set up an OPC has been reduced to 120 days from 182 days and Non-Resident Indians (NRIs) can also incorporate OPCs.

The amendments will come into effect from April 1, 2021.

Currently, there are around 30,000 OPCs in the country. OPCs have one director and one member. An Indian citizen setting up such a company can be both a director and a member while in the case of NRIs, an Indian citizen should be appointed as a director.

Earlier, NRIs were not allowed to set up OPCs. Now, any natural person, who is an Indian citizen, whether resident in India or otherwise would be allowed to form an OPC.

The rule related to voluntary conversion unless OPC has completed two years of incorporation will be omitted from April 1. An OPC can convert itself into a public or a private company, other than a company registered under Section 8 of the Companies Act, after increasing the minimum number of members and directors to two or minimum of seven members and three directors.

Further, the limitation of paid-up capital and turnover applicable for OPCs has been done away with. The requirement was a paid-up share capital of Rs 50 lakh and an average annual turnover during the relevant period of Rs 2 crore.

According to the officials, the paid-up capital threshold for small companies has been increased to Rs 2 crore from Rs 50 lakh and turnover criteria to Rs 20 crore from Rs 2 crore.

The move is expected to benefit more than two lakh companies in terms of lesser compliances, lesser filing fees and lesser penalties in case of any defaults, the officials said.

On account of the revised definition, the companies concerned will not be required to prepare cash flow statements as part of financial statements, mandatory rotation of auditor is not needed, and an annual return of the company can be signed by the company secretary or where there is no company secretary by a single director, among other benefits.

In her Budget speech on Monday, Sitharaman — who also holds the charge of the corporate affairs ministry — announced that NRIs will be allowed to set up OPCs, the definition of small companies will be revised and various provisions of the Limited Liability Partnership (LLP) Act will be decriminalised.

The consultation process for the proposed decriminalisation of Limited Liability Partnership (LLP) Act, 2008 is in progress.

Government eases restrictions on OPCs, revises definition of small companies Government eases restrictions on OPCs, revises definition of small companies Reviewed by TechCO on 2/03/2021 Rating: 5

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