One-person firm proposal to drive entrepreneurship 200,000 firms likely to benefit from the changes

The Union Budget 2021-22 proposal to allow the creation of one-person company (OPC) will propel entrepreneurship, said experts.

An OPC eradicates the requirement of traditional time-consuming and cumbersome methodologies like board meetings and financial statement inclusions, thus, rendering it more attractive.

“The changes introduced can possibly benefit 200,000 companies in India in easing their compliance requirements. With the earlier threshold of existing as an OPC being lower, transitioning into a private or public limited company meant greater restrictions on the company’s trade and practices,” said Salman Waris, managing partner at specialist technology law firm Techlegis Advocates & Solicitors.

Finance Minister Nirmala Sitharaman during the Budget presentation on February 1 had announced incentivising the incorporation of OPCS by allowing them to grow without restrictions on paid-up capital and turnover, allowing their conversion into any other type of company at any given time.

The threshold for paid-up capital has also been increased from ‘not exceeding ~50 lakh’ to ‘not exceeding ~2 crore’ for OPCS. Also, the threshold for turnover has increased from ‘not exceeding ~2 crore’ to ‘not exceeding ~20 crore’.

Another advantage is its distinct identity, separate from its owner. “Since the company is distinct from its owner, the personal assets of shareholders and directors remain protected in case of default. However, a proprietorship has unlimited liability,” said Ankur Bansal, co-founder and director of venture debt platform Blacksoil.

Unlike a proprietorship, an OPC can also raise equity funding and will be eligible to government schemes, such as those focused on micro, small and medium enterprises, added Bansal. “This step will give a fillip to solopreneurships not wanting to be a proprietor firm but a private limited firm or a limited liability partnership. They will not need another director to start a company,” said Sanchit Vir Gogia, CEO, Greyhound Research.

“The requirement of two directors was a frictional barrier. This gives greater freedom to operate a company, more so for start-ups. Moreover, the ease of doing business increases,” said Anup Jain, managing partner, Orios Venture Partners. Generally, there is also lesser compliance to set up and run an OPC versus a normal company. The Budget also reduced the residency limit for an Indian citizen to set up an OPC, from 182 days to 120 days and also allows non-resident Indians to incorporate OPCS in India. This is a positive to reel in overseas Indian talent. “With this move, the government has opened extra channels of investments in India,” said Nimesh Kampani, president, Letsventure Plus.