Experts positive about changes in OPC rules

Finance Minister Nirmala Sitharaman, in her Budget for 2021-22, announced changes to the One Person Companies (OPCs) rules, allowing NRIs to incorporate OPCs and removing the limitation of paid-up capital. Experts are of the opinion that this would benefit startup entrepreneurs.

"...the incorporation of OPCs is being incentivised by amending the Companies (Incorporation) Rules to allow OPCs to grow without any restrictions on paid-up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow Non-Resident Indians (NRIs) to incorporate OPCs in India," The Ministry of Corporate Affairs said in a statement.

"In addition, the fast track process for mergers under the Companies Act, 2013 has also been now extended to also include mergers of startups with other startups and with small companies, so that the process of mergers & amalgamations is completed faster for such companies," it added.

Satish Shukla, Co-founder, Robotic startup Addverb Technologies, believes the provision on setting up OPCs without the limit of paid-up capital and turnover will add a much-needed boost to the ‘Make in India’ initiative.

COO and Co-founder of MyGate, Abhishek Kumar says: "There is strong excitement in startup circles around OPC formation. The reduced compliance burden and absence of board meetings will surely make the early risks of entrepreneurship more palatable to new founders, enabling them to be more focused on building their business."

Roma Priya, Founder of Burgeon Law, a law firm for startups calls it a growth-oriented move. "The new rule will make the sector less cumbersome by helping startups grow without too many restrictions on the paid-up capital and turnover. This will also reduce the compliance burden while enabling them to achieve the desired legal status, which is often a concern for them."

Priya says the small ventures who rely on e-commerce can reap most of the benefits by joining the OPC brigade and strengthening the Make in India movement.

"As the new rules get executed, we can expect this to boost the gig economy culture across small towns as more women entrepreneurs and homepreneurs will be empowered by this."

Serial entrepreneur Guhesh Ramanathan, however, is of a differing opinion. "I'm not sure if the recent amendments to companies rules regarding One Person Companies will be beneficial to Indian startup entrepreneurs. First, the amendments are referring to benefits for founders from overseas being able to set up a company quickly in India, with less red-tape. But even then, for raising funds, every VC would prefer the more amenable private limited company format. This means that even NRI founders, who are setting up an OPC company in India, will eventually have to move to the Pvt Ltd format.

For being considered as a resident in India, the residency period has been proposed to be reduced to 120 days from 182 days for NRIs.

The finance minister has also announced the scrapping of the limitation of paid-up capital & turnover presently applicable for OPCs (paid-up share capital of fifty lakh rupees and average annual turnover during the relevant period of two crore rupees) 'so that there are no restrictions on the growth of OPCs in terms of their paid-up capital & turnover'.