Conversion of One Person Company to a Private Limited Company

A Little Background ..

A “One Person Company” (OPC) is a company which has only one person as its Member. Only a natural person who is a citizen and resident of India –

  • Shall be eligible to incorporate a One Person Company (OPC)
  • Shall be nominee for the sole member of the One Person Company.

A natural person shall not be a member of more than 1, One Person Company at any point of time and the said person shall not be a nominee of more than 1, One Person Company.

Such company cannot be incorporated or converted into section 8 Company under the Companies Act 2013 and cannot carry out Non-Banking financial activities.

As per Rule 3 of Companies (Incorporation) Rules 2014, no such company can convert voluntarily into any kind of company unless two years have expired from the date of incorporation except the limit of paid up capital has been increased beyond fifty (50) lakh rupees and its average annual turnover during the relevant period exceeds  two (2) crore rupees.

Why do people opt for the conversion?

Benefits of conversion

In case of OPC, all the major decisions are taken by only one director and hence responsibility and liability lies with only one director. In case of a Private Limited company, the decisions are taken by two directors and responsibilities and/or liabilities are shared by two. Hence it is always beneficial to have mutual participation in business decisions and income/ profits. As soon as there is development in business growth, it would be better if the tasks would be defined among two people. Also in case of a private limited company, people can bring in more capital together which helps grow the business.

What are the Methods of Conversion ?

  • Mandatory conversion of OPC into Private Limited Company
  • Voluntary conversion of OPC into Private Limited Company

1) Mandatory Conversion

Whenever a One Person Company crosses the relevant parameters as mentioned under the Companies Act 2013 and the (Incorporation) Rules, 2014 such company has to convert itself into a Private Limited Company. Those parameters have been mention in Rule 6 of Incorporation Rules, 2014 which are as follows:–

  • Effective date of  crossing the paid up capital limit specified i.e fifty (50) lakh rupees  AND
  • When the average annual turnover crosses the limit beyond two (2) crores during the immediately preceding three consecutive years.  

In this case such respective company will have to convert itself compulsorily into a Private Limited or a Public Limited company within a period of Six months.

2) Voluntary Conversion

Any One Person Company (OPC) cannot convert itself voluntarily into a Private Limited unless it has completed two years from the date of incorporation. After such time has elapsed, such OPC can apply for converting itself into a Private Limited. Such Conversion has to be done in accordance to the provisions of the section 18 of the Companies Act 2013 and Rule 6 of the (Incorporation) Rules 2014.

According to Section 18 of the Companies Act 2013:

(1) A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of Memorandum and Articles of the company in accordance with the provisions of this Chapter.

(2) Where the conversion is required to be done under this section, the Registrar shall on an application made by the company, after satisfying himself that the provisions of this Chapter applicable for registration of companies have been complied with, close the former registration of the company and after registering the documents referred to in sub-section (1), issue a certificate of incorporation in the same manner as its first registration.

(3) The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done.

Procedure of Conversion of OPC to Private Limited as per rule 6 of the Incorporation Rules, 2014

Steps :

A) Holding a Board Meeting & Alteration to MOA/AOA

1)  To issue notice as per section 173(3)of the Companies Act 2013 for holding the  Board Meeting.

2) To hold a Board Meeting and pass a board resolution for increasing the number of Directors to minimum of 2 and increase of member minimum upto 2.

3) To pass a resolution to get approval of shareholders to alter Memorandum of Association and Articles of Association.

As per section 122 of the Companies Act 2013 for OPC it shall be sufficient if, in case of such One Person Company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director.

B) e-Form INC- 5  filing with RoC

As per rule 6 of the (Incorporation) Rules, 2014 such OPC has to give notice within 60 days from the date of crossing the above mentioned limits to Registrar of Companies.

Attachments:                      

  • Certified true copy of the board resolution
  • Copy of duly attested latest financial statements.
  • Certificate from a Chartered Accountant in Practice for calculation of average turnover for the relevant period.
  • Any other information as may be required.

Penalty

If  any Director or concerned officer of the OPC contravenes any of the provisions of these Rules then such Director or Officer shall be punishable with the fine which may extend upto ten (10) thousand rupees and with a further fine of one (1) thousand rupees which may extend till the default continues.

The change of name shall become effective on receipt of Certificate of Incorporation from the Registrar and the Conversion shall become effective from the date of receipt of approval.

What are the Post Conversion tasks?

A) Arrange new PAN for the company.

B) Arrange new Stationary for the company.

C) Inform all the concerned Authorities.

D) Update bank account details.

E) Print updated MOA and AOA for the company.

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