Foreign Direct Investment (FDI) in One Person Company (OPC)

Introduction of the One Person Company

One Person Company (OPC) in India is a new concept that has been introduced with the Companies Act 2013. This form of company is mainly designed for an individual who are not willing to enter in partnership with others but want a corporate structure. OPC can be termed as Organized / Corporate Structure of the Proprietorship along-with a feature of limited liability.

Section 2(62) of the Act provides that the “One Person Company means a company which has only one person as a member.” That means the 100% of shareholding being held by the single individual.

However, it is important to note that no individual shall be eligible to incorporate more than one OPC or become a nominee in more than one such company. However, if an individual, being a member in OPC becomes a member in another OPC by virtue of his being a nominee in that OPC within a period of 180 days then he shall withdraw his membership from either of the OPCs within 180 days.

Whether FDI in OPC is allowed?

In OPC, the whole shares are held by single individual i.e. a natural person and not by any legal entity. Therefore, FDI by the Foreign Company in the OPC will not be permissible as per the provisions of Companies Act however, FDI by non-resident Indian who is citizen of India may form an OPC.

NRIs can invest in OPC on non-repatriation basis as well as repatriation basis in OPC.

Investment on Non-Repatriation basis

Investment on Non-Repatriation basis is treated at par with domestic investment. Therefore, FEMA pricing guidelines and reporting compliances are not applicable at the time of investment.  The disinvestment / sales proceeds shall be credited only to the NRO account of the person concerned, irrespective of the type of account from which the consideration was paid.

There are certain businesses in which investment is prohibited under this route such as a Nidhi company or a company engaged in agricultural or plantation activities or real estate business or construction of farm houses or dealing in transfer of development rights.

The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/NRO account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

Investment on Repatriation basis

Investment on Repatriation basis will require compliance with sectoral caps and conditions, FEMA pricing guidelines and reporting compliance such as FCGPR, FCTRS, FLA etc. The Sales proceed can either be credit to the NRE account or can be transfer to the foreign bank account (subject to deduction of applicable taxes)

In this route, the prohibited sectors are: (a) Lottery business including Government or private lottery, online lotteries, etc. (b) Gambling and betting including casinos, etc. (c) Chit funds (d) Nidhi company (e) Trading in Transferable Development Rights (f) Real estate business or construction of farm houses (g) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes. (h) Activities or sectors not open to private sector investment e.g. (I) Atomic energy and (II) Railway operations (other than permitted activities mentioned in paragraph (3) of Schedule I) (i) Foreign technology collaborations in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for lottery business and gambling and betting activities.

The amount of consideration shall be paid as inward remittance from abroad through banking channels or out of funds held in NRE/FCNR(B)/Escrow account maintained in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.

Disclaimer

The information contained in this article is for general informational purposes only and is not intended as legal advice or to create an professional-client relationship. The contents of this article should not be relied upon as a substitute for obtaining legal advice from a qualified attorney. No professional-client relationship is formed by the use of this information, and no reader should act on this information without seeking professional / legal counsel. Hence, we recommend that professional advice is sought before taking any action on specific issues before entering into any investment or financial obligation based on this Content