On Monday, while presenting her third Union Budget, Finance Minister Nirmala Sitharaman said that the government proposes to incentivise incorporation of one-person companies (OPCs) — a move that will benefit start-ups and innovators. Sitharaman proposed removing restrictions related to paid-up capital and turnover for setting up OPCs.

Share Market Live

NSE

In her speech, she said the incorporation of OPCs will be incentivised by allowing such companies “to grow without any restrictions on paid-up capital and turnover, allowing their conversion into any other type of company at any time”.

The Companies Act, 2013, provides that if the paid-up share capital limit of an OPC exceeds the prescribed limit (Rs 50 lakh) or turnover exceeds Rs 2 crore in three years preceding consecutive years, then the entity will shall lose its OPC status, and would be required to convert to either to a private or public company.

Sitharaman, in her speech, also proposed reducing the duration of residency for an Indian citizen “from 182 days to 128 days” to set-up OPCs, and allowed “NRIs to incorporate OPCs in India”. The minister added: “This will be a big boost for start-ups.”

According to the Companies Act, 2013, to enjoy the advantages of an OPC, a person has to be a “naturally-born” Indian as well as a resident of India.

So, what is a one-person company (OPC)?

As the name suggests, an OPC is a company that has been formed with just one person as a member. This concept was first recommended by an expert committee of Dr J J Irani in 2005. It’s the simplest concept introduced under the Companies Act, 2013, according to which a one-person company is defined as follows: “One Person Company means a company which has only one member.”

It’s a boon for small traders, artisans and other service providers who wish to start their own venture with minimal procedural and compliances, but with the structure of an organised business. Such people get all the benefits of a private limited company. In other words, they have access to credits, bank loans, limited liability, legal protection, etc.

The concept of OPC is new in India, but in the UK and other European countries, it has been a successful model of business for a long time.