Union budget 2021-2022 introduce foremost impact on companies act by amendment in definition of small company and setting up or incorporation rules of one person company in India.
CHANGE IN DEFINITION OF SMALL COMPANY
Existing definition: – small company means a company, other than a public company which fulfil following conditions: –
(I) Paid up share capital of which does not exceed 50 lakh rupees and
(II) Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crore rupees.
Proposed definition: – small company means a company, other than a public company which fulfil following conditions: –
(I) Paid up share capital of which does not exceed 2 crore rupees and
(II) Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 20 crore rupees.
AMENDMENTS FOR ONE PERSON COMPANY: –
In her speech, hon finance minister said with respect to one person company (opc) “as a further measure which directly benefits start-ups and innovators, i propose to incentivize the incorporation of one person companies (opcs) by allowing opcs to grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an opc from 182 days to 120 days and also allow non resident Indians (nris) to incorporate opcs in India.”
As per second amendment rules 2021 which shall come into force on 1st of April 2021 the following amendments has made for opc to grow without any limits: –
Before discussing new amendments, we will discuss what does opc means, as per the companies act 2013 section 2 (62) “one person company” means a company which has only one person as a member; The revolutionary new concept of ‘One Person Company’ (OPC) has been introduced by the Companies Act, 2013. This concept of OPC was first recommended by the expert committee of Dr. JJ Irani in 2005.
SETTING UP/INCORPORATION OF ONE PERSON COMPANY IN INDIA:-
Existing provisions: for incorporation person resident in India or Indian citizen shall be eligible to incorporate one person company.
Proposed provisions: – person resident in India or otherwise shall be eligible to incorporate one person company. It simply means now non-Indian residents are allowed to incorporate opc in India. It will open doors to Nri’s to invest in India without any concerns for more compliances and investment. Now only signal person who is not an Indian resident can look forward for their investments in India.
CHANGE IN DEFINITION OF RESIDENT IN INDIA: –Union Budget 2021-22 has changed mandatory residency limit for the status of Indian resident. The residency limit has reduced by 62 days from 182 to 120.
Existing provisions: – resident in India means a person who has stayed in India for a period not less than 182 days during the immediately preceding financial year.
Proposed provisions: – resident in India means a person who has stayed in India for a period not less than 120 days during the immediately preceding financial year.
MANDATORY CONVERSION OF OPC: –
Existing provisions: – where the paid-up share capital of a one-person company exceeds fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as an One-Person Company and that company shall mandatorily convert itself into a public company or a private company with minimum numbers of two directors and members in case of private company or three directors and seven members in case of public company as the case may be.
Proposed provisions: – the limit of paid-up share capital and turnover for conversion of opc has omitted.