Funding and InvestmentsLegal Advice

Is Foreign Direct Investment (FDI) Allowed in an OPC?

Are you looking to incorporate an OPC but unsure about whether you can avail the benefits of foreign direct investment through this business vehicle? Keep reading to know for sure.

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What Is Foreign Direct Investment?

When a firm invests in a business entity in another nation, it is known as foreign direct investment (FDI). Foreign enterprises engaging in FDI are directly involved in the day-to-day activities of the company in the other country. This implies they’re contributing more than just money; they’re also bringing knowledge, skills, and technology.

In general, FDI occurs when an investor develops overseas business activities or acquires foreign business assets, such as acquiring ownership or control of a corporate body in another country. FDI inflows comprise equity inflows, unincorporated body equity capital, reinvested earnings, and other capital.

FDI influx is generally a result of commercial business decisions, and it is influenced by a variety of factors including natural resource availability, market size, infrastructure, political and general investment climate, macroeconomic stability, and foreign investor investment decisions. In comparison to the calendar year 2020, FDI inflows to India declined by 15% in the calendar year 2021.

What are the Features of an OPC?

The Indian Companies Act of 2013 introduced the One Person Company (OPC) as a new type of business in India. Only one director and one member are necessary to start an OPC, and both might be the same individual. As a result, this one-person business provides the advantages of both a sole proprietorship and a validly established limited liability organization. Furthermore, as compared to private limited companies and public limited companies in India, an OPC enjoys the benefits of simpler legal and governance frameworks for its activities and operations, as well as lower compliance requirements for general meetings and board meetings. As a result, an OPC is unquestionably ideal for professionals or business people who want to form a valid legal firm.

Is Foreign Direct Investment Allowed in an OPC?

No, foreign direct investment is not allowed in an OPC. However, non-resident entities are permitted to invest in private limited companies, subject to the FDI Policy and sectoral limitations. FDI in a Private Limited Company might take one of two routes: automatic route or approval route. FDI is allowed up to 100% in most industries, with the exception of those that are regulated or restricted.

KNOW THE EXEMPTIONS RELATED TO FDI

OPC Conversion Restraints

According to the Companies (Incorporation) Rules, 2014, a one-person company must convert to a private limited company or a public limited company if its paid-up capital reaches ₹ 50 lac or its average annual turnover over the previous three financial years surpasses ₹ 2 crore.

Under any of these circumstances, the OPC is obligated to notify the appropriate ROC via Form INC-5 within 60 days of the threshold limitations being exceeded. It should also be emphasized that an OPC cannot freely transform itself into any sort of business within two years of its creation unless it meets one of these two criteria.

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