Companies (Incorporation) Second Amendment Rules 2021 Notified By MCA

In view of the Pragmatic, Forward Looking, and Strategic Vision, the Union Finance Minister, Ms Nirmala Sitharaman, has announced amendment in the provisions concerning the One Person Company, by way of the Union Budget 2021. The said amended rules will be known as the Companies (Incorporation) Second Amendment Rules 2021, and will come into effect from 01.04.2021.

In this blog, we will discuss in details the changes bought by the Companies (Incorporation) Second Amendment Rules 2021.

Concept of One Person Company

The term One Person Company denotes a new age business entity, that has been defined under section 2 (62) of the Companies Act 2013. Further, the main aim behind the introduction of the concept of One Person Company was to increase the level of start-ups and investments in the market, which directly benefited the embryonic entrepreneurs, as this business structure provides all the benefits of a private limited company.

Reasons for Amending Companies (Incorporation) Rules 2014

The reasons behind the amendment of the provisions of the Companies (Incorporation) Rules 2014 can be summarised as:

• To provide direct benefits to Start-up and Innovation sector of the country; and
• To bring in more unincorporated business in the organised sector.

Also, Read: MCA Amends the Definition of Small Companies

Key Amendments Made in Companies (Incorporation) Second Amendment Rules 2021

The key amendments made in Companies (Incorporation) Second Amendment Rules 2021 are as follows:

• Based on the provision of Rule 3 Sub Rule 1, earlier NRIs were not allowed to start a One Person Company in India. However, MCA has amended the said provision, and on the basis of new provisions, any Natural Person, who is an India Citizen, whether being a Resident in India or otherwise will now be allowed to form a One Person Company in India;
• As per the amended regulations, to be considered as an Indian Resident, an NRI needs to be present in India for at least 120 days instead of 182 days;
• MCA has omitted the provisions concerning the voluntary conversion of the one person companies that have completed a period of two, starting from the date of incorporation. The said omission will come into from 01.04.2021. Further, as per the new regulations, conversion of an OPC into a Private Limited Company or Public Limited Company can be done at any time. Also, it shall be significant to state that an OPC can be converted into any form of business entity other than a Section 8 Company. The same can be done by increasing the number of directors and shareholders as per the requirements of the business structure;
• The restriction concerning the Paid up Capital and Annual Turnover on a One Person Company has been omitted by the Ministry of Corporate Affairs;
• The Ministry of Corporate Affairs has rationalised the e-forms applicable to an OPC. The same has been done by omitting INC 5 and modifying INC 6. The e-form INC 6 is an application for the conversion of an OPC into a Public Limited Company or Private Company. The same will apply in the case of conversion of a Pvt Ltd Company to OPC as well.

Conclusion

In a nutshell, to benefit the Start-ups and Innovators operating in the country, particularly those who are engaged in supplying products and services on e-commerce platforms, and to bring in more unincorporated businesses into the arena of organized corporate sector, MCA has decided to incentivize the incorporation of One Person Companies. The same has been done by amending the Companies (Incorporation) Rules 2014.

The amended provisions will be known as the Companies (Incorporation) Second Amendment Rules 2021 and will come into effect from 01.04.2021.

Copy of the Official MCA Notification

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