Introduction

One Person Company (OPC) was introduced in India under the Companies Act, 2013 to encourage individual entrepreneurship with a simplified corporate structure. While OPCs enjoy several benefits like limited liability, simplified compliance, and single ownership, there are certain limitations, especially when it comes to foreign investment. These restrictions are rooted in the intent to keep the OPC model focused on domestic, individual entrepreneurs. This article outlines the limitations and regulations governing Foreign Direct Investment (FDI) in an OPC structure.

Original Restriction on Non-Resident Participation

When OPCs were first introduced, only Indian citizens who were residents of India were allowed to form and operate them. This excluded non-resident Indians (NRIs), foreign citizens, and foreign companies from directly incorporating or participating in an OPC. As a result, FDI in OPCs was effectively prohibited, limiting the structure to domestically funded ventures.

Amendment Allowing NRIs to Form OPCs

In 2021, the Ministry of Corporate Affairs amended the rules to permit Non-Resident Indians (NRIs) to incorporate OPCs. However, this relaxation applies only to NRIs, and not to foreign citizens or foreign companies. NRIs must be natural persons and are now allowed to form OPCs even if they are not residents at the time of incorporation. The 120-day residency requirement was also removed for NRIs, making it easier for them to participate.

FDI Rules Still Governed by Sectoral Caps

While NRIs can form OPCs, foreign direct investment (FDI) is still governed by the Foreign Exchange Management Act (FEMA) and the FDI Policy of the Government of India. FDI is permitted in OPCs only through the automatic route in sectors where 100% FDI is allowed and where there are no sectoral conditions or performance-linked obligations.

Restrictions on Foreign Companies and Foreign Individuals

Despite the relaxation for NRIs, foreign citizens (non-NRIs) and foreign corporate entities are still not allowed to incorporate an OPC or invest directly in it as members or shareholders. This limitation restricts the use of OPCs for global expansion, joint ventures with foreign partners, or foreign-funded startups.

Indirect FDI and Compliance Complexity

Even if indirect FDI is attempted through multi-layered structures or funding instruments, it raises compliance complexities under FEMA and the Companies Act. Any such arrangement must be closely examined to avoid contravention of laws, and prior approval from RBI or relevant authorities may be required.

No Provision for Public Issue or External Shareholding

OPCs are restricted to a single shareholder, and by definition, cannot issue shares to the public or raise capital through equity markets. This structural limitation further blocks foreign investment avenues like venture capital or equity-based funding from foreign investors unless the OPC is first converted into a Private Limited Company.

Conversion as a Pathway to FDI

If an OPC seeks foreign investment beyond what is permitted, it must first convert into a private or public limited company, provided it meets the prescribed capital or turnover thresholds or chooses voluntary conversion after two years. Once converted, the company can accept FDI according to the applicable sectoral regulations and routes (automatic or government approval).

Conclusion

While the One Person Company model has become more inclusive with the 2021 amendment allowing NRIs to incorporate OPCs, direct foreign investment by non-NRIs or foreign entities remains restricted. These limitations are consistent with the regulatory intent to keep OPCs focused on small, domestically driven enterprises. For businesses seeking foreign funding or cross-border ownership, conversion into a private limited company remains the only viable route. Entrepreneurs must understand and adhere to these regulations to ensure compliance and plan their funding strategies accordingly.

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