IMPORTANT UPDATES ON ONE PERSON COMPANY – Eshwars
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IMPORTANT UPDATES ON ONE PERSON COMPANY

Authored by Praveen & Adit

(A)  REQUIREMENT OF MANDATORY CONVERSION OF ONE PERSON COMPANY (“OPC”) TO PRIVATE COMPANY DONE AWAY WITH

Background of One Person Company (“OPC”):

Under erstwhile Companies Act, 1956, to incorporate a private limited company, at least 2 shareholders and 2 directors are required. The Irani Committee, which was set up by the Ministry of Corporate Affairs to advise the Government on the new Company law, identified the need to provide a simpler form of entity for entrepreneurs, which will not necessarily be required to be formed with association of persons. With this background, the concept of One Person Company was introduced under Companies Act, 2013, wherein, unlike a private limited company, which requires at least 2 members and 2 directors, a OPC to be incorporated as a limited Company required only one member and one director.

However, the OPC was required to mandatorily raise the number of shareholders and directors to at least two and thereby converting it to a private company, in case, the paid-up capital or turnover of the OPC crossed Rs. 50 lakhs or Rs. 2 Crores respectively.

Removal of the requirement of Mandatory conversion:

The Government felt that this requirement of compulsory conversion, placed restrictions on the start-ups and innovators and thereby defeating the purpose of OPC. Hence in order to incentivise the incorporation of OPC, the Government, in its Union Budget 2021, decided to remove this requirement of compulsory conversion of OPC.

(B) NRI’S ALLOWED TO INCORPORATE OPC:

Only Indian Citizens residing in India were allowed to incorporate a OPC. However the Government, in its Union Budget 2021, had announced that the Non-Resident Indians (NRIs) will also be allowed to incorporate a OPC.

(C) Criteria of a minimum number of days in India, to be considered as resident in India for the purpose of OPC, has been relaxed from a minimum of 182 days to a minimum of 120 days.

All the aforementioned amendments are effective from 1st April 2021.

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