India is one of the world's most populous countries, with over 1.3 billion people. This vast consumer base presents a significant market for goods and services, making it an appealing destination for businesses looking to expand their customer reach in India.
India has experienced steady economic growth over the years, and it is expected to remain one of the world's fastest-growing major economies. This growth creates opportunities for foreign investors across various sectors, including technology, manufacturing, and services.
One of the ways for NRIs investing in India is by incorporating a company in India.
There are several types of companies that can be incorporated in India, each with its own advantages and disadvantages. Here are the most common types of companies in India:
1. Private Limited Company (PTC): A PTC is the most popular form of company in India, and it requires a minimum of two and a maximum of 200 shareholders. The liability of the shareholders is limited to the extent of their share capital. A PTC cannot issue shares to the public and is required to use the words "Private Limited" after its name. A PTC requires minimum 2 directors.
2. Public Limited Company (PLC): A PLC is a company that has seven or more shareholders, and there is no upper limit on the number of shareholders. The liability of the shareholders is limited to the extent of their share capital. A PLC can issue shares to the public and is required to use the words "Limited" after its name. A PLC requires minimum 3 directors.
3. One Person Company (OPC): An OPC is a company that can be formed with just one shareholder. The liability of the shareholder is limited to the extent of their share capital. An OPC is required to use the words "One Person Company" after its name. An OPC requires minimum 1 director.
What is a One Person Company?
A One Person Company (OPC) is a type of business structure that allows a single individual to operate and manage a company with limited liability. This concept was introduced in India through the Companies Act, 2013, to encourage small businesses and entrepreneurs to set up and manage companies on their own.
Key characteristics of a One Person Company include:
1. Single Member: OPCs are limited to having only one shareholder. This individual is the sole owner of the company.
2. Limited Liability: The liability of the shareholder is limited to the extent of their contribution to the company's capital. This means that personal assets of the shareholder are protected in case of any business-related debts or legal issues.
3. Separate Legal Entity: An OPC is considered a separate legal entity, distinct from its owner. It can enter into contracts, own assets, and incur debts in its own name.
4. Director: The Companies Act mandates that each OPC must have a director who will look into the management of the company. The director should be nominated by the single member during the incorporation process. OPC can have either one director or more than one director
5. Nominee of Shareholder: The Companies Act mandates that each OPC must have a nominee of the shareholder of the OPC, who will take over the company's control in the event of the sole shareholder's death or incapacity.
6. Audit Requirements: OPCs are required to prepare and file financial statements and have them audited annually as per Companies Act, 2013. This ensures transparency and accountability in their financial operations. The said financial statement and annual report shall be filed with the Registrar of Companies within 180 days from the end of financial year.
7. No Minimum Capital Requirement: There is no minimum capital requirement for starting an OPC. It can be formed with a nominal amount of capital.
Who can incorporate an OPC in India:
The Companies Act,2013 and Company (Incorporation) Rules 2014 contain relevant provision for the incorporation of OPCs in India.
Before 1st April 2021
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 NRIs (Non-Resident Indians) were not allowed to incorporate an OPC in India. This would essentially have deprived NRIs from starting a business merely because they weren’t able to reside in India.
On or After 1st April 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 which were effective from 1st April 2021.
Through this amendment Ministry of Corporate Affairs allowed Non-Resident Indian to incorporate and OPC in India opening ways for NRIs to do business in India.
Since, Companies Act, 2013 mandates that in India, for a company is to have at least one resident director. A resident director is an individual who has stayed in India for a total period of not less than 182 days in the previous calendar year. This requirement is outlined in the Companies Act, 2013, and is meant to ensure that there is a person who can oversee the company's operations and compliance with Indian laws while being physically present in the country.
Due to this, NRIs incorporating an OPC in India must have a resident director in India.
Disclaimer: This article is intended for educational and informational purpose only. It is recommended to seek the assistance of a Practising Company Secretary or consultant in India to choose the most appropriate type of company for your business.
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