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MCA amends LLP, redefines small companies, allows NRIs to set up OPCs

By TIOL News Service

NEW DELHI, FEB 04, 2021: THE Ministry of Corporate Affairs (MCA) on Wednesday eased compliance burden by decriminalising compoundable offences of Limited Liability Partnership (LLP) Act, 2008, amended the Companies Rules to revise the definition of a 'Small Company' and allowed Non-Resident Indians (NRIs) to incorporate One Person Companies (OPCs) in India.

The changes, announced by Finance Minister Ms Nirmala Sitharaman in Budget 2021-22 will come into effect from April 1, said the ministry.

Decriminalising the 12 compoundable offences and section 73, for LLPs will lead to ease of doing business and unclog the criminal courts by removing criminality of offences from business laws where no malafide intentions were involved.

The MCA is also proposing to create a class of "Small LLP," in line with the concept of Small Companies with fewer compliances, lower fee or additional fee and lower penalties in the event of default.

LLPs would also be allowed to raise capital through issue of fully secured Non-Convertible

Debentures (NCDs) as an alternative to equity participation from investors who are regulated by the Securities and Exchange Board of India (SEBI) or Reserve Bank of India.

In addition, the MCA eased the compliance burden for more than 2 lakh small companies by increasing their thresholds for paid up capital and turnover. The previous definition under the Companies Act, 2013 mentioned a maximum paid up capital of Rs. 50 lakh and Rs. 2 crore for turnover.

"Paid up capital and turnover of the small company shall not exceed Rs. 2 crore and Rs. 20 crore respectively," it notified.

Moreover, any natural person who is an Indian citizen, whether resident in India or otherwise, will be allowed to incorporate a One Person Company (OPC).

Earlier, NRIs were not allowed to form OPCs. For being an Indian residence, the notification reduced the residency period to 120 days from 182 days.

Further, the MCA incentivised OPCs to voluntarily convert to a private or public company and withdrawn any restrictions on paid up capital and turnover as prescribed by the Companies Act.

In addition, the fast track process for mergers under the Companies Act, 2013 has also been now extended to also include mergers of startups with other startups and with small firms, so that mergers and amalgamations is completed faster.

The move would benefit benefit startups and innovators, especially those supplying products and services on e-commerce platforms, bringing more unincorporated businesses into the organised corporate sector, said the ministry.


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