“What is FDI?”, “What is a One Person Company?” And whether or not FDI is allowed in an OPC

Introduction

As announced in the Budget 2021, OPC now has additional freedom and benefits that will help NRI (Non Resident Indian) to form One Person Company in India. In this article information on whether or not FDI is allowed in an OPC is mentioned. Before going through the question that whether FDI is allowed in One Person Company, let’s have a quick look at “What is FDI?”, “What is a One Person Company?”

What is FDI (Foreign Direct Investment)?

Foreign direct investment is when a company finances a company in another country (FDI). Foreign companies who participate in FDI are directly involved in the day-to-day operations of the business in the foreign nation. This means that they are bringing more than simply financial support; they are also bringing technology, knowledge, and skills.

In general, Foreign Direct Investment (FDI) takes place when an investor establishes overseas commercial ventures or buys foreign company assets, including obtaining ownership or control of a corporation in another nation. Equity inflows, unincorporated body equity capital, reinvested earnings, and other capital are all types of FDI inflows.

FDI inflow is typically the result of commercial business decisions, and it is influenced by a number of factors including the availability of natural resources, market size, infrastructure, the overall political climate for investing, macroeconomic stability, and the investment decisions of foreign investors.

What is a One Person Company?

A One Person Company (OPC) is a business that has only one owner. Before the Companies Act of 2013 went into effect, only two people may form a corporation. If a person wished to start a business, he or she could only choose a sole proprietorship because a company could only be founded with a minimum of two directors and two members.

A business can be incorporated under Section 2(62) of the Company’s Act 2013 with just 1 Director and 1 Member. It is a type of corporation with fewer compliance obligations than a private corporation.

Therefore, a one-person company is a business that has the characteristics of a corporation and the advantages of a Sole Proprietorship and can be incorporated by a single person, who may be a resident or an NRI.

Whether or not FDI is allowed in an OPC (One Person Company)

No, OPCs (One Person Companies) do not permit foreign direct investment. However, according to the FDI Policy and sectoral restrictions, non-resident firms are allowed to invest in private limited companies. A Private Limited Company may choose between the automatic method and the approved route for FDI. With the exception of those that are controlled or restricted, FDI (Foreign Direct Investment) is permitted up to 100 percent in the majority of industries.

Conclusion

To sum up, the relaxation of some regulations will entice NRIs to open up OPCs and increase foreign investment in FDI. The other side of the coin presents us with unfavorable data. Beyond a certain point of growth, OPCs have their own constraints, therefore if they want to scale significantly, they must become a Private Limited Company with outside funding. They must rely on finance from banks, financial institutions, and other sources of debt funding if they seek funding with the status of OPCs. Once more, the question is how much debt can be leveraged in comparison to equity. As a result, it is a fallacy that an OPC can attract outside investment.