The Honorable Finance Minister of India, Nirmala Sitharaman, amidst several announcements for the IT sector in the Union Budget 2021, said government will incentivise incorporation of one person companies (OPC) for boosting startups.

Under this announcement, it proposes to incentivize the incorporation of one person companies which is a move that will benefit startups and innovators.

In the first without paper budget, the Honorable Indian Finance Minister, Nirmala Sitharaman said that the incorporation of OCPs will be incentivized by allowing one person companies to attain growth without restriction on the paid up capital and turnover.

This will reduce the residency limit of an Indian citizen for setting up an OPC from 182 days to 120 days and will be allowing also non-resident Indians to incorporate OPCs in India.

The Indian startup and VC ecosystem resoundingly welcomed the move.

Speaking about FM allowing one-person companies to boost startup incorporation, Ankur Bansal, Co-founder and Director, BlackSoil, says, "The biggest advantage of a one person company is that its identity is distinct from that of its owner. Therefore the owner will not be sued, only the company will. Another advantage is limited liability. Since the company is distinct from that of its owner, the personal assets of the shareholders and directors remain protected in case of a default. However, a proprietorship has unlimited liability. OPC is a combined package of a Sole Proprietorship business and a Company borrowing the best of both worlds. A proprietorship cannot raise equity funding which is possible for an OPC. Also an OPC will be eligible for government schemes such as those focused on MSME ones. Generally there is lesser compliance to setup and run an OPC v/s a normal company.

Weighing in his views on the move, Anup Jain, Managing Partner, Orios Venture Partners, said, “Incorporation of 1 person company allowed without any restriction on paid up limit is a welcome move for startups as 2 directors were necessary at a minimum and founders were forced to co opt others under the companies Act"