New rules for one person companies, revised thresholds for small firms

In a release, the Ministry of Corporate Affairs said incorporation of OPCs is being incentivised in order to bring in more unincorporated businesses into the organised corporate sector.
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The Ministry of Corporate Affairs on Wednesday said it has amended rules for One Person Companies (OPCs) and has extended fast track merger process to startups and other small companies.

In a release, the ministry said incorporation of OPCs is being incentivised in order to bring in more unincorporated businesses into the organised corporate sector.

The move is expected to directly benefit startups and innovators, especially those who are supplying products and services on ecommerce platforms.

With the amendments, OPCs will be allowed to grow without any restrictions on paid up capital and turnover as well as get converted into any other type of company at any time.

Besides, the residency limit for an Indian citizen to set up an OPC has been reduced from 182 days to 120 days, and Non-Resident Indians (NRIs) have been permitted to set up OPCs.

"The fast track process for mergers under the Companies Act, 2013 has now been extended to include mergers of startups with other startups and with small companies, so that the process of mergers and amalgamations is completed faster for such companies," the release said.

Also, the ministry has revised the threshold for paid-up capital and turnover for small companies.

The threshold for paid-up capital has been raised to Rs 2 crore from Rs 50 lakh and the turnover threshold to Rs 20 crore from Rs 2 crore.

"This is expected to benefit more than two lakh companies in terms of lesser compliances, lesser filing fees, and lesser penalties (in the event of any defaults)," another release said.

Presenting India's first-ever paperless Budget 2021, FM proposed revising the definition of small companies by raising the capital base to Rs 2 crore from the current limit of Rs 50 lakh.

Nirmala Sitharaman proposed the incorporation of one-person companies, with no restriction in paid-up capital and turnover, as well as an update to the definition of small companies under the Companies Act, 2013.

(Disclaimer: Additional background information has been added to this PTI copy for context)

Edited by Megha Reddy

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