Entrepreneurs prefer to incorporate companies over sole proprietorships owing to the benefit of limited liability, i.e. business liabilities would not extend to their personal assets as their legal identity would be different from that of the company in which they hold majority shares or controlling interest.
Further, as a sole proprietor all business profits are taxed as per slab rates in the Individual's ITR. It is also believed that companies enjoy better credibility as businesses over sole proprietorships while dealing with corporate customers.
However, minimum 2 shareholders are required to incorporate a private limited company, and minimum 3 to incorporate a public limited.
To extend the benefit of companies to individual business owners, the concept of a One Person Company (OPC) was introduced by the Companies Act, 2013. However, due to restrictions around the scale of business an OPC could operate under, the structure did not see the kind of popularity it was expected to.
To correct the approach, the Companies (Incorporation) Rules are proposed to be amended w.e.f. 01-Apr-2021 to allow OPCs to grow without any restrictions on paid-up capital and turnover.
Liberties Extended to OPCs
Non-Resident Individual: Any Indian citizen, whether resident in India or otherwise, would be allowed to form an OPC. The residency period has been proposed to be reduced to 120 days from 182 days for NRIs, for being eligible to incorporate an OPC only.
Anytime Conversion to Pvt. Ltd. or Public Co.: Earlier, an OPC could not be converted to a private limited or public company before completion of 2 years from date of incorporation. However, such restriction is now proposed to be lifted. The related e-Forms shall also be rationalized.
No Restriction on Paid Up Capital: Earlier, an OPC could not have a paid up capital of over Rs. 50 lakhs. The restriction shall be lifted.
No Restriction on Turnover: An OPC could not have an annual turnover of over Rs. 2 crores. The condition is now lifted, and there shall be no such cap on turnover for OPCs.
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