As per the Companies Act of 2013, One Person Company is a form of company that has only one person as a member of the company. In a Private Company the minimum number of members is two whereas in a Public Company, the minimum number of members is seven. Have you ever think, can we convert One Person Company to Private Company?
One must know that Section 18 of the Companies Act, 2013 and Rule 6 of the Companies (Incorporation) Rules, 2014, provide certain provisions for the conversion of One Person Company into a Private Company. The provisions are Sec 12, 13, 15, 18, 122 and 173 of the Companies Act 2013 and Rule No. 6 and 29 of the Companies (Incorporation) Rules 2014 legally approve and allow the OPC to get converted into private and other forms of companies.
On this page
What is a One Person Company?
A One Person Company is a type of business structure in India where a single individual can own and manage the company. This structure is designed to encourage sole proprietors to enter the corporate world, offering them limited liability protection while still allowing for sole ownership.
The OPC can have only one shareholder and one director, although the shareholder and director can be the same person. It is required to nominate a person who will take over in case of the owner’s death or incapacity. This format simplifies compliance requirements compared to larger companies.
What is a Private Company?
A Private Company is a type of business entity owned by non-governmental organizations or a relatively small number of shareholders or members. This structure limits the number of shareholders to 200, excluding current and former employees. Private companies cannot freely trade their shares on public exchanges, offering greater control over ownership.
They enjoy limited liability protection, meaning shareholders’ assets are protected from company debts. Private companies have more stringent compliance and regulatory requirements than OPCs, but they benefit from being able to raise capital more easily from multiple shareholders.
How to convert One Person Company to Private Company?
There are two ways to convert one person company to private company. They are;
- Voluntary Conversion and
- Mandatory Conversion
What is voluntary conversion in OPC?
Voluntary conversion is one of the ways in which the One Person Company can be converted into a Private Limited Company. It can be possible only if it follows these 3 instructions:
- One Person Company can only get converted if it has crossed 2 months after the incorporation of the company.
- One Person Company’s paid share capital must exceed INR 50 lakhs or its average turnover exceeds INR 2 crores.
- It is essential to inform the Registrar of Companies (ROC) in the form 1NC-5 within 60 days.
What is mandatory conversion in OPC?
It is also known as Compulsory Conversion. It is mandatory for the One Person Company to convert itself into a Private Limited Company when the following conditions are satisfied.
- If the paid up share capital exceeds the INR 50 lakhs.
- The yearly turnover of the One Person Company in consecutive financial years exceeds INR 2 crores.
- This conversion must be done within 6 months from the exact date when the paid up capital is exceeded.
What are the procedure to convert OPC to Private company?
- Informing the Registrar of Companies
- Inform the concerned Registrar of Companies regarding its conversion before meeting.
- Passing of Board Resolutions
- Hold a general meeting to pass the resolution regarding the appointment of directors and members of the Private Limited Company.
- At least 2 members and 2 directors be there in OPC to get converted into Private Limited Company.
- Board resolution should be passed for approval of the Memorandum of Association (MoA) and Articles of Association (AoA) of the particular OPC.
Also check whether an LLP can be converted to an OPC?
Application to convert OPC to Private Company
Next, the company needs to file an application (e-form INC-6) to the particular Registrar of Companies to which the OPC is applying.
- Here are the following documents that must be submitted to convert One Person Company to Private Company:
- First, the altered Memorandum of Association (MOA) and Articles of Association (AOA) must be submitted.
- Copy of the special resolution of the OPC.
- List of members and directors that are proposed must be included with consent.
- Complete list of the creditors.
- Profit and loss account of OPC and latest audited balance sheet.
- Copy of the NOC of each and every creditor with application for conversion.
- Consent of the nominee for approval.
- Permanant Account Number (PAN) card copy of the member and nominee.
- Identity Proof of member as well as nominee.
- Residential proof of the member and nominee for verification.
If all the above steps are completed successfully, then the ROC will provide the Certificate of Conversion after a thorough investigation. Once after completing all these steps, OPC can be converted into a Private Limited Company.
JOIN 24EFILING TELEGRAM CHANNELConclusion
In conclusion, convert one person company to private company can be pursued through voluntary or mandatory routes, each with specific criteria and procedures outlined in the Companies Act of 2013. Whether through the fulfillment of conditions like exceeding paid-up share capital or annual turnover, or voluntarily after a specified duration and financial threshold.
The conversion process involves informing the Registrar of Companies, passing board resolutions, and submitting a comprehensive set of documents for approval. Successful completion of these steps results in the issuance of a Certificate of Conversion, facilitating the transformation of the OPC into a Private Limited Company.
FAQs
1. Why an OPC is converting into a Private Limited Company?
When the firm grows and the owner wants to accommodate more shareholders or directors, converting from an OPC to a Private Limited Company may be desirable. A Private Limited Company offers more capital injection and expansion potential.
2. What are the requirements to convert One Person company to Private Company?
The following requirements must be satisfied in order to convert One Person company to Private Company:
• The OPC must have been operational for a minimum of two years.
• The OPC’s paid-up capital shall not exceed INR 50 lakhs.
• The OPC’s revenue in the previous fiscal year should not have exceeded INR 2 crores.
3. What is the procedure for conversion to a Private Limited Company?
The following steps are commonly included in the conversion process:
• Adopt a special resolution converting the OPC to Private Limited Company.
• Modify the memorandum and articles of organisation to meet the criteria of a Private Limited Company.
• Submit a conversion application to the ROC.
• Obtain a new Certificate of Incorporation from the ROC, once authorised, indicating the change in status to a Private Limited Company.
4. What changes are required in the Memorandum and Articles of association for conversion?
The MOA and AOA should be amended to incorporate provisions for the nomination of extra directors and shareholders who are not generally included in documents.
5. Are there any tax implications for the conversion process?
There may be tax ramifications linked with the conversion such as Capital Gains Tax if the value of the shares changes. It is best to seek advice from a tax specialist on how to manage tax liabilities throughout the conversion.
6. What are the compliance requirements after the conversion to a Private Limited Company?
Following conversion, the firm must follow the compliance standards for Private Limited Companies, such as conducting regular board meetings, submitting yearly reports, and keeping correct accounting records.
7. How long does the conversion process take?
Depending on the processing time at the ROC and the quality of the documents, the conversion procedure might take several weeks.
