The new Companies Act has made it legal to set up a company with just one director, limiting the liability of a business owner to the assets of the firm, unlike the alternative sole proprietorship model where an owner is personally liable for business debt.

Data from the corporate affairs ministry show that between 1 April, when the new Companies Act came into force, and 31 August, 478 such one-person firms were incorporated across the country.

A one-person company is required to have a paid-up capital of less than Rs.50 lakh and an annual average revenue of not more than Rs.2 crore in three consecutive years preceding its incorporation, according to the Companies Act, 2013. While a sole proprietorship is easy to form and manage, it is not a legal entity separate from its owner and will cease to exist once the owner dies or is declared insolvent.

While just 78 one-person companies (OPCs) had been incorporated till the end of June, the next two months saw 400 new OPCs being formed as the legal set-up gained popularity among entrepreneurs, corporate affairs ministry data show. Several countries including the US, the UK, Singapore, China, the UAE, Turkey and Pakistan already have laws that allow the setting up of such companies.

While IT firms dominate the list of such firms, traditional businesses are also being set up as OPCs.

Till 31 August, 275 OPCs are classified as registered in the business services segment, followed by community, personal and social services (54), manufacturing (39) and trading (36), according to the corporate affairs ministry data. (Mint)