Budget 2021: FM Sitharaman proposes to incentivise OPC setup to benefit startups; removes capital limits

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Updated: Feb 01, 2021 7:52 PM

Union Budget 2021 India: According to the Ministry of Corporate Affairs, if the paid-up share capital of an OPC currently surpasses Rs 50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs 2 crore, then the company is mandated to convert itself into a private or public company.

Budget 2021-22, Union Budget 2021FM Sitharaman also proposed reducing the duration of residency for individuals to set-up OPC. (PTI)

Indian Union Budget 2021-22: Finance Minister Nirmala Sitharaman in her third budget speech on Monday proposed to incentivised the setting up of a one person company (OPC) to benefit startups. The minister proposed removing restrictions with respect to paid-up capital and turnover for setting up OPCs. “By allowing OPC companies to grow without any restriction on paid-up capital and turnover, allowing their conversion into any other private company any time,” Sitharaman said. “Incentivisation to one person company by removing capital limits, free conversions and overhauling residency limits definitely to boost the startup ecosystem in India – Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP told Financial Express Online. 

FM Sitharaman also proposed reducing the duration of residency for individuals to set-up such companies. “…reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 128 days and allowing also NRIs to incorporate OPCs in India, this will be a big boost for startups,” the minister added. “NRIs may be able to incorporate One Person Company and no turnover/capital threshold will be applicable. This will incentivize investments from NRIs in startups in India,” Shailesh Kumar, Partner, Nangia & Co LLP told Financial Express Online.

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According to the Ministry of Corporate Affairs, if the paid-up share capital of an OPC currently surpasses Rs 50 lakh or its average annual turnover of immediately preceding three consecutive financial years exceeds Rs 2 crore, then the company is mandated to convert itself into a private or public company. To become an eligible member of an OPC, only an Indian citizen, and resident in India is eligible to become a member and nominee of an OPC. Resident in India is currently referred to a person who has lived in India for not less than 182 days during the immediately preceding one financial year. “Simplified regime for one person company will encourage startups and entrepreneurs to do business under a corporate structure in an organised and structured manner that can help them to scale and grow,” said Suraj Malik, Partner – Transaction Tax, BDO India.

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