Aug. 30 – India’s upper house of parliament, Rajya Sabha, agreed this month to allow the establishment of individually owned enterprises. Under the new Companies Bill individuals may form a One Person Company (OPC) as an enterprise with a single shareholder.
Under the previous law, a private enterprise was required to have a minimum of two shareholders, a confounding factor for individuals looking to establish a company under their sole control. The new OPC category will make it easier for entrepreneurs to create and maintain control of their business and enhance the chance for success during the early stages of operation.
The Federation of Indian Chambers of Commerce and Industry praised the bill, stating that the “the bill… will give India a comprehensive and contemporary legislation. This legislation is indeed a milestone in the history of company law and will revolutionize the administration and management of businesses in the times to come.”
According to the Confederation of Indian Industry, 75-80 percent of businesses in India are family-owned enterprises. Under the new bill, these small enterprises will be afforded more control in an “environment for smooth working and growth.”
The concept of an OPC, while new to India, has been utilized with success in several countries around the world, including the United States, Singapore and the United Kingdom.
“A one person company is a paradigm shift in the Indian corporate regime, bringing it at par with global standards,” stated a report released by Nishith Desai Associates, a research-oriented tax services firm based in India.
Establishing a One Person Company
The defining feature of an OPC is its single-shareholder structure and legal status as a private company.
In order to establish an OPC, the sole member (shareholder) must:
- Register a company name, followed by the OPC suffix;
- Nominate a secondary sole member during incorporation to replace them in case of their death;
- Appoint a minimum of one and a maximum of 15 members to the enterprise’s board of directors; and
- File the enterprise’s memorandum and articles of association, which outline the objectives of the OPC.
As an incorporated company, the OPC will be taxed at the corporate rate of 30 percent. The OPC may also face a minimum alternate tax of 18.5 percent and a dividend distribution tax of 15 percent.
The Companies Bill was passed by the lower house of parliament, Lohk Sabha, in December of 2012 and will now go to the Prime Minister for final authorization.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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