FM Sitharaman, Budget 2021: Incentivise OPC setup to benefit startups; removing limits

On Monday, Finance Minister Nirmala Sitharaman, while giving her speech on Indian Union Budget 2021-22 session suggested to incentivise the setting up of a One Person Company (OPC) to benefit startups. She proposed removing legal limitations on 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,” said Sitharaman.

Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP told Financial Express Online that “Incentivisation to OPC by removing capital limits, free conversions and overhauling residency limits definitely to boost the startup ecosystem in India.”

FM Sitharaman also proposed decreasing the residency duration for people to found 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,” added the minister.

“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.

As per the statement of 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.”

As of now, a person who has spent in India for 182 days or more during a financial year is considered as a Resident in India. 

“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.