Can an NRI set up an OPC in India?

One of the key prerequisites to incorporate an OPC, was to be a resident of India. Thankfully, The Companies (Incorporation) Second Amendment Rules, 2021 lifted that prerequisite and has allowed NRIs to establish OPCs in India.

The concept of the OPC was an improvement on the sole proprietorship companies that was resorted to when an individual wanted to kick start a business as a sole entrepreneur. OPC differed remarkably as against a sole proprietorship in a number of areas such as offering limited liability to the shareholder, having a unique legal identity, etc. Can an NRI set up an OPC in India? Read more to explore the answer.

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Who can Set Up an OPC in India?

Although there weren’t any stringent qualifications to launch an OPC, the Companies Act,2013 mandated that the sole member of the OPC must be a natural person, who is a citizen and a resident of India. This would mean that the drafters had not brought the NRIs (Non-Resident Indians) within the ambit of incorporating an OPC. This would essentially have deprived a number of deserving entrepreneurs of starting a business merely because they weren’t able to reside in India.

The Companies (Incorporation) 2nd Amendment Rules 2021:

The Ministry of Corporate Affairs (MCA), with an intent to improvise the rules pertaining to the incorporation of an OPC, brought in the Companies (Incorporation) Second Amendment Rules 2021. The rules replaced the earlier Companies (Incorporation) Rules, 2014.

One of the outstanding moves of the amendment released in the year 2021, was the modification of the definition of “OPC”, under Rule 3.

The amendment in Rule 3 stated that:

A natural person, who is an Indian citizen, whether resident in India or otherwise, can incorporate an OPC
A natural person, who is an Indian citizen, whether resident in India or otherwise, can act as a nominee for the member of the company.

Here, the words “whether resident in India or otherwise”, bestowed the NRIs with the eligibility to incorporate an OPC within India. Furthermore, in the earlier amendment, it was mandatory that the resident must have stayed in India for not less than 182 days. The latter reduced the residential period to 120 days. The amendment, for certain, has opened new arenas for NRI entrepreneurs and is undoubtedly a welcoming move.

Additionally, the One Person Company Registration Second Amendment Rules 2021 also brought significant changes in sub-rule 7 which deals with the procedure pertaining to the conversion of an OPC to a private limited company or a public limited company and also with respect to its paid-up share capital and turnover. Earlier, if an OPC intended to get converted to a public or private limited company, the company had to wait for 2 years after its incorporation. The recent amendment lifted that restriction and now an OPC can be converted at any time.

Also, as per the earlier rule, an OPC has to be converted mandatorily to a public or a private limited company when the paid-up share capital exceeds 50 lakhs or when the average annual turnover exceeds 2 crores. The Companies (Incorporation) Second Amendment Rules 2021 lifted this proviso as well by omitting the sub-rule 7 on the whole. This would imply that an OPC can now be converted to a public or a Private company irrespective of any time period and regardless of its paid-up capital and annual turnover.

Form INC-5 which was earlier used to submit to the Registrar, when an OPC makes an application to get converted into a public or a private limited company was omitted and replaced with the e-form INC-6 with revised content. The new amendment rules also permit the OPCs to alter the Memorandum of Articles (MoA) by passing a resolution with respect to the conversion of the company.

Therefore, the Companies (Incorporation) Second Amendment Rules 2021 has opened doors for NRIs for Company Registration. Relaxing the rules pertaining to NRIs could be a win-win situation both for the entrepreneurs and for the Indian economy. This simply implies that an NRI can now easily kick start an OPC, and seeing it pick up well, can make a decision in a jiffy to convert it into a private limited company without having it sit over the thought for 2 long years. This could bring a lot of revenue to the company and in turn to the country and also generate several job opportunities around.

Isn’t it amazing, how such minor changes could churn out such huge results? Reach out to the experts at Vakilsearch to take advantage of these landmark changes and set up your own OPC.