START UPS AND ONE-PERSON-COMPANIES

The incubation cells at the various IITs and other institutions have played a major role in evolving the ecosystem for start-ups. Over the years quite a few of these start-ups have become unicorns.

Several such start-ups essentially operate as a one-person company (OPC).

The Companies Act 2013 provides for the incorporation of OPCs but the paid-up capital/turnover thresholds and the compliance burden specified under the Act worked as a dampener for its formation and subsequent operations.

The FM while presenting the Budget 2021 appears to have taken note of the issues and has relaxed some of the restrictions on OPCs.

The relaxations brought out in the Budget include:

ü Allowing NRIs to set up such entities by reducing the residency limit from 182 days to 120 days. In the past, only resident Indian citizens were allowed to form OPCs.

ü Relaxation in paid-up capital and turnover thresholds for small companies - In the past, if the paid-up capital of an OPC exceeded Rs 50 lakhs or the average annual turnover of the past three financial years exceeded Rs 2 crores, then the OPC had to mandatorily get converted into a private limited or public limited company. The revised law “Allows OPCs to grow without any restrictions on paid-up capital and turnover”.

ü Fast track process for mergers of start-ups with other start-ups and small companies.

ü Incentivising incorporation of OPCs by start-ups and innovators who provide products and services on e-commerce platforms. Necessary rules have been amended in this regard.

ü The OPCs will thus be free from stringent legal compliances such as board meetings, quorums, rotation of auditors, etc. 

The government feels that these measures will help further promote the ease of doing business and reduce the compliance burden on such companies. India is currently placed 60th in the Ease of Doing Business Ranking for the year 2020.

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