START UPS AND ONE-PERSON-COMPANIES
The
incubation cells at the various IITs and other institutions have played a major
role in evolving the ecosystem for start-ups. Over the years quite a few of
these start-ups have become unicorns.
Several
such start-ups essentially operate as a one-person company (OPC).
The
Companies Act 2013 provides for the incorporation of OPCs but the paid-up
capital/turnover thresholds and the compliance burden specified under the Act
worked as a dampener for its formation and subsequent operations.
The FM
while presenting the Budget 2021 appears to have taken note of the issues and
has relaxed some of the restrictions on OPCs.
The
relaxations brought out in the Budget include:
ü Allowing NRIs to set up such
entities by reducing the residency limit from 182 days to 120 days. In the
past, only resident Indian citizens were allowed to form OPCs.
ü Relaxation in paid-up capital and
turnover thresholds for small companies - In the past, if the paid-up capital
of an OPC exceeded Rs 50 lakhs or the average annual turnover of the past three
financial years exceeded Rs 2 crores, then the OPC had to mandatorily get
converted into a private limited or public limited company. The revised law
“Allows OPCs to grow without any restrictions on paid-up capital and turnover”.
ü Fast track process for mergers of
start-ups with other start-ups and small companies
ü Incentivizing incorporation of OPCs
by start-ups and innovators who provide products and services on e-commerce
platforms. Necessary rules have been amended in this regard.
ü The OPCs will thus be free from
stringent legal compliances such as board meetings, quorums, rotation of
auditors, etc.
The
government feels that these measures will help further promote the ease of
doing business and reduce the compliance burden on such companies. India is
currently placed 60th in the Ease of Doing Business Ranking for
the year 2020.