Conversion from One Person Company (OPC) into Private Company
Legal Delight offers comprehensive services for converting OPCs to Private Limited Companies, ensuring smooth compliance and seamless transitions.
Meaning
In India, a one person company (OPC) provides a unique incorporation option for aspiring entrepreneurs. Unlike traditional companies requiring multiple founders, an OPC allows a single individual to be the sole director and shareholder. This structure offers limited liability protection, meaning the founder’s personal assets are shielded from business debts. Functioning as a separate legal entity, the OPC can enter contracts, own property, and even sue or be sued in its own name. While some compliance is necessary, OPCs benefit from simplified regulations compared to private companies. This makes them an attractive option for startups, freelancers, or those venturing into a new business venture with the security of limited liability.
As your business grows, your one person company (OPC) in India might reach a point where it requires a broader ownership structure or increased investment opportunities. Fortunately, the Companies Act, 2013 provides a legal pathway for an OPC to convert into a private limited company. This conversion governed by Section 18 of the Act and further clarified by subsequent amendments, allows the OPC to expand its shareholder base by bringing in additional investors while retaining the benefits of limited liability protection for all shareholders. This transition enables the company to access more capital, potentially improve its creditworthiness, and prepare for future growth.
Reasons for Conversion
- Need for Additional Investment: As a business grows, it may require more capital for expansion, product development, or marketing initiatives. An OPC’s limited single shareholder structure can restrict access to additional funding. Converting to a PLC allows the company to raise capital by issuing shares to multiple investors, diversifying ownership and bringing in fresh resources.
- Sharing Ownership and Control: An OPC founder might want to share ownership and decision-making with other individuals who bring complementary skills or experience to the table. Converting to a PLC facilitates the inclusion of additional directors and shareholders, allowing for a more collaborative leadership structure.
- Improved Credibility and Visibility: In some industries, being a PLC can enhance a company’s reputation and attract more business opportunities. Investors might perceive a PLC as a more established and stable entity compared to an OPC. This can be particularly relevant when seeking loans, establishing partnerships, or attracting talent.
- Compliance Considerations: While OPCs benefit from simplified compliance, there are limitations on their paid-up capital and annual turnover. Converting to a PLC removes these restrictions, offering greater flexibility for future growth without worrying about exceeding the thresholds.
- Exit Strategy: If the OPC founder eventually wants to exit the business but retain some ownership stake, converting to a PLC allows them to sell a portion of their shares while remaining involved.
Types of Conversion
- Voluntary Conversion: This method involves the OPC voluntarily deciding to convert into a Private Limited Company. The process generally requires passing a special resolution, amending the company’s memorandum and articles of association, and complying with regulatory filings with the Registrar of Companies (RoC). This route is often chosen when the OPC wishes to expand its operations or bring in additional shareholders.
- Compulsory Conversion: A One Person Company is mandatorily required to convert into a Private Limited Company when it exceeds specified thresholds in terms of paid-up capital (exceeding Rs. 50 lakhs) or turnover (exceeding Rs. 2 crores) during any of the three preceding financial years. This conversion must be initiated within six months from the date on which the thresholds are crossed.
Procedure of Conversion
- Board of Directors Meeting: As per Section 173 of the Companies Act, 2013 and Secretarial Standard (SS-1), a Notice of Board Meeting is issued to all company directors at least seven days before the meeting. Necessary resolutions are passed, including:
- Fixing the date, time and venue for Extra Ordinary General Meeting (EOGM).
- Appointment of Directors based on the chose form of company for conversion.
- Approval of draft Memorandum of Association (MoA) and Articles of Association (AoA).
- Authorization of Company Secretary or Director.
- Shareholder Approval: Pass a special resolution approving the conversion and altering the Memorandum and Articles of Association.
- File Form No. INC 6: It is required to be filed with RoC as per Section 18 of the Companies Act, 2013 and Rule 6(3) of the Companies (Incorporation) Rules, 2014. It must be filed within six months of mandatory or 30 days of voluntary conversion.
- Documents: Along with Form No. INC 6, following documents are also to be submitted:
- Altered Memorandum of Association (MoA) and Articles of Association (AoA).
- Copy of Special Resolution.
- List of Proposed Members and Directors.
- List of Creditors.
- Copy of Latest Duly Attested Financial Statement.
- Declaration by Directors.
- Certificate of Incorporation (COI): After verification, if the Registrar of Companies (RoC) is satisfied with the application, they will issue a Certificate of Incorporation (COI) indicating the conversion of the OPC into a Private Limited Company.
- Post-Conversion Formalities: Upon receiving the COI, update all legal and financial documents, including PAN, GST registration, bank accounts, and statutory registers, to reflect the new status as a Private Limited Company.
- Compliance: Ensure compliance with all post-conversion requirements, such as filing of annual returns, maintaining statutory registers, and adhering to ongoing regulatory obligations applicable to Private Limited Companies.
What is included in this
FAQs
The conversion process typically involves passing a special resolution, altering the MOA (Memorandum of Association) and AOA (Articles of Association), obtaining NOC (No Objection Certificate) from creditors, and filing necessary forms with the Registrar of Companies (ROC).
Previously, One Person Company could not voluntarily convert into a Private Limited Company before two years from the date of incorporation. Now they can convert into Private Limited Company anytime.
Converting into a Private Company allows for increased funding options, the ability to have more than one director, and less stringent compliance requirements compared to an OPC.
Before the Companies (Incorporation) Second Amendment Rules came into existence, OPC mandatorily converted into Pvt Ltd Company if paid-up share capital crosses the threshold of ₹ 50 lakhs. Additionally, they can convert into Pvt Ltd if the average turnover reached for three consecutive years is beyond ₹ 2 crores..
Yes, creditors and members are required to provide their consent or NOC before the OPC can be converted into a Private Company. Their interests must be duly considered and protected during the conversion process.
Post-conversion, the Private Company must adhere to the compliance requirements applicable to private companies under the Companies Act, 2013, including filing of annual returns, holding of board meetings, etc.
The assets and liabilities of the OPC are typically transferred to the newly formed Private Company upon conversion, ensuring continuity of business operations.
Yes, an OPC can be converted into a Private Company limited by shares or by guarantee, as per the provisions of the Companies Act, 2013.
The OPC must approach all its creditors and obtain their consent or No Objection Certificate (NOC) for the conversion. This ensures that creditors are aware of the change in structure and agree to continue their relationship with the newly formed Private Company.
No, there is no minimum paid-up capital requirement for a Private Company post-conversion. However, the company must ensure compliance with any statutory requirements related to capital structure under the Companies Act, 2013.
The OPC must file Form INC-6 along with the altered MOA and AOA, board resolution for conversion, NOC from creditors, and other required documents as specified by the ROC.
Yes, the sole member of the OPC can continue as the sole shareholder in the Private Company after conversion. The member’s rights and obligations will continue as per the terms of conversion and the new MOA and AOA.
The conversion itself does not typically trigger tax implications. However, it is advisable to consult with tax advisors to understand any potential indirect tax implications or benefits post-conversion.
The conversion process can take approximately 2-3 months, depending on the completeness of documentation, approval processes, and compliance with statutory timelines.
Non-compliance with conversion requirements may lead to penalties, fines, or other legal consequences under the Companies Act, 2013. It is important to adhere to all statutory requirements and timelines during the conversion process.
