Budget 2021: One-person company to propel entrepreneurship, say experts

Concept is attractive as it eradicates need for cumbersome practices like board meetings and financial statement inclusions; Changes introduced may benefit some 200,000 firms

The Budget proposal to allow forming One-Person Company (OPC) will propel entrepreneurship in the country, according to experts. 

OPC is attractive as it eradicates the requirement of traditional time-consuming and cumbersome methodologies like board meetings and financial statement inclusions. “The changes introduced can possibly benefit about 200,000 companies in India in easing their compliance requirements, as earlier with the threshold of existing as an OPC was lower, having to convert to a private or public limited company meant more 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 announced incentivising the incorporation of OPCs by allowing them to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time. The threshold for paid-up capital has also been increased from ‘not exceeding Rs 50 lakh’ to ‘not exceeding Rs 2 crore’ for OPCs. Also, the threshold for turnover has increased from ‘not exceeding Rs 2 crore’ to ‘not exceeding Rs 20 crore’.

Another advantage of OPC is that its identity is distinct from that of its owner. “Since the company is distinct from that of the owner, the personal assets of the shareholders and directors remain protected in case of a 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 also be eligible for government schemes such as those focused on MSME ones, added Bansal. 

“This step will give a boost to solopreneurs who don’t want to be a proprietor firm but a private limited firm or an LLP. They would not need another director to start a company,” said Sanchit Vir Gogia, chief executive of Greyhound Research. 

“The requirement of two directors was a frictional barrier. This gives great freedom to operate a company, especially startups. With this ease of doing business increases,” said Anup Jain, Managing Partner, Orios Venture Partners.

Generally there is also lesser compliance to setup 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 (NRIs) to incorporate OPCs in India. This is a positive to attract Indian talent overseas to come to India. “The government with this move has opened more channels of investments in India,” said Nimesh Kampani, President, LetsVenture Plus.

“In essence these changes encourage the further stability of the start-up ecosystem in India. There may possibly be a surge in the number of start-ups emerging in the country as they will now have access to more sources of funding, all the while being subject to lower restrictions in the market,” said Waris.