A resident of India was one of the key requirements for incorporating an OPC. The Companies (Incorporation) Second Amendment Rules, 2021 have removed that requirement and have allowed NRIs to establish OPCs in India.
One Person Companies (OPC) are a better option for individuals who want to start a business as a sole proprietorship. Its shareholders have limited liability and it has its own legal identity, among many other differences from a sole proprietorship.
Can An OPC Be Set Up In India?
As per the Companies Act,2013, the sole member of the OPC must be an Indian citizen and a resident. Therefore, the drafters have not incorporated the OPC for non-resident Indians. In India, many deserving entrepreneurs would have been unable to start a business because they could not live there.
Rules Amending The Companies (Incorporation) Act of 2021:
The Ministry of Corporate Affairs (MCA) introduced the Companies (Incorporation) Second Amendment Rules 2021 in order to improve the rules pertaining to OPC incorporation. They were originally introduced in 2014.
An outstanding move of the amendment released in the year 2021 was the modification of the definition of “One Person Company”, under Rule 3.
Rule 3 was amended to state:
- An Indian citizen can incorporate a One Person Company, regardless of whether he or she lives in India
- A citizen of India can act as a nominee for a company member, whether or not they live in India.
In this case, “whether resident in India or otherwise”, gave NRIs the opportunity to incorporate an OPC within India. Moreover, in the earlier amendment, it was mandatory that the resident remain in India for not less than 182 days. This was shortened to 120 days in the latter amendment. NRI entrepreneurs have undoubtedly benefited from the amendment, which opens new arenas for them.
Also, the Companies (Incorporation) Second Amendment Rules 2021 made significant changes to sub-rule 7, which deals with the procedure pertaining to the conversion of an OPC into a private limited company or a public limited company, and its paid-up share capital. If the company wished to convert to a private or public limited company, it had to wait for 2 years after incorporation. OPCs can now be converted at any time since the recent amendment.
A company that has accumulated a paid-up share capital of 50 lakhs or a turnover of 2 crores is deemed to have been converted into a public or private limited company, respectively, according to the previous rule. Companies Rules of Second Amendment 2021 removed this proviso as well by eliminating the entire sub-rule 7. Therefore, an OPC can now be converted into a public or private limited company regardless of its paid-up capital or revenue.
Earlier, the INC-5 form that was used to submit to the Registrar when an OPC applied to become a public or a private limited company was omitted and replaced with the revised INC-6 form. Earlier, INC-5 forms were not required. Passing a resolution with respect to the conversion of the company, the OPCs will alter the Memorandum of Articles (MoA).
NRIs are allowed to incorporate OPCs by Companies (Incorporation) Rules of Second Amendment 2021. The relaxation of rules pertaining to NRIs could be a win-win situation for both entrepreneurs and the Indian economy. It implies that an NRI can now easily start an OPC, and if it does well, can make a decision within a jiffy to convert it into a private limited company without having to contemplate the matter for 2 long years. It could generate a great deal of revenue for the company and in turn for the country, and it could also create numerous job opportunities.
A little change can produce such huge benefits, isn’t it? Reach out to the experts to take advantage of these landmark changes and set up your own OPC.