All about Conversion of an OPC to a Private Company

Meaning of One Person Company

According to Section 2 (62) of the Companies Act 2013, a One Person Company is a company formed under the Company Act 2013 with just one member. It is a new type of business that was created in 2013 as a result of the Companies Act. It is a type of business that, like any other type of corporation, has independent legal entities from its promoter. The main advantage of the OPC form of company is that there can only be one member with whom the company can be incorporated, whereas incorporating and maintaining a private limited company requires a minimum of two members, and incorporating and maintaining a public limited company requires a minimum of seven members. Through this type of organisation, a single individual can run a corporate entity with minimal liability protection; nevertheless, an OPC has a few limits. The member must designate one person as his/her nominee for incorporating the business under this form of company, and that nominee must grant his/her approval to become such person’s nominee.

Meaning of Private Company

The Private Company is defined under Section 2(68) of the Companies Act, 2013. A private company is a privately held firm or a closed corporation whose shares are not publicly traded. The transferability of shares is restricted by the Private Company’s Articles of Association (AoA). According to Section 2(68) of the Companies Act of 2013, the maximum number of members in a private company is 200. Each member’s responsibility is restricted to the amount of their share. In the event that the company suffers a loss, the shareholders have the option to sell their own shares. Even in the event of the death, bankruptcy, or insolvency of any of its members, a private company continues to exist under the law in perpetuity.

Legal provisions for converting an OPC to Private Company

According to Section 18 of the Companies Act of 2013, and Rule 7 of the Companies (Incorporation) Rules of 2014, an OPC can be converted into a Private Limited Company by changing its Memorandum of Association and Articles of Association. There are two ways to convert an OPC into a Private Limited Company –

1. Voluntary Conversion of OPC into Private Limited

2. Compulsory or Mandatory Conversion of OPC into Private Limited

1. Voluntary Conversion of OPC into Private Limited

An OPC cannot voluntarily change to a Private Limited Company until two years have passed from the date of establishment of the OPC. Following the alteration of the OPC’s MOA and AOA, an application is filed to Central Government for conversion.

The legal existence, rights, and obligations of the Company remain unchanged following the Conversion. In order to meet the minimal requirements of a Private Limited Company, at least two shareholders and two directors must be appointed. Within 60 days, the OPC must notify voluntary conversion to the ROC through E-Form INC-5.

2. Compulsory or Mandatory Conversion of OPC into Private Limited

The OPC is required to establish a private limited company if:

• the paid-up share capital reaches Rs. 50 lakhs, or
• the average annual turnover during the relevant period surpasses Rs. 2 crore.

Such a company must change to a private or public limited company within 6 months of the above-mentioned conditions.

Prerequisites to convert an OPC to Private/Public Company

• The applicant company needs to prepare and audit its Profit and Loss A/c, Balance Sheet, Financial Statements and other Books of Account.
• Before undertaking conversion, the applicant company must file all returns and documentation with the ROC.
• On the issuance of a share certificate, a private business must pay its stamp duty.
• A private company is required to file TDS Returns for all deductions.
• A private corporation is required to file its GST Returns.
• The company must implement all of the provisions of the professional tax.

Benefits of Conversion of OPC into Private Limited Company

• Increase the number of OPC members

The OPC only has one member. Thus, if the OPC wishes to expand the number of members, it can do so by changing to a private limited company and increase in the number of members to 200.

• Raise Paid up Share Capital 

The maximum share capital for an OPC is 50 lakhs, but there is no such limit for a private limited company. Thus, by changing to a private limited company, OPC can expand its share capital to any amount in the future.

• Limited Liability of members

In the case of an OPC, the sole owner/member is solely accountable for the firm, but in the case of a Pvt. Ltd. Co., the shareholders have limited responsibility; they are liable only to the extent of the number of shares invested by them.

• External Funding 

If an OPC wishes to be externally funded, it should change to a private limited company, as major investors and venture capitalists prefer to support private limited companies over OPCs.

• High Turnovers in Private Limited

Private Limited Companies are suitable for high-turnover enterprises, entrepreneurs, and businesses that require external capital to fulfil their aims.

Procedure for Conversion of an OPC to a Private Company

Board Meeting

The firm must provide the Board of Directors 7 days’ notice before calling a Board Meeting to examine the conversion of OPC into Private Limited.

The Board of Directors must adopt a Board Resolution in order to discuss-

1. Whether the OPC should be converted into a private limited company

2. To increase the number of Directors and Members, as a Private Limited Company must have at least two Directors and two Members.

3. To pass a resolution requesting shareholder approval to change the MOA and AOA in order to convert the OPC to a private limited company.

• Shareholders’ Meeting to pass Special Resolution

Following that, the OPC shareholders will conduct a General Meeting and vote on the following Special Resolutions:

1. Increase in Paid-up Capital (if required)

2. Increase in number of Directors and Members as there shall be minimum 2 Directors and 2 Members in Private Limited Company

3. Alteration of MOA & AOA to effect the conversion

• Inform ROC 

In the event of Compulsory Conversion, the OPC must notify the ROC by filing Form INC-5 with MCA that the above-mentioned threshold limit has been surpassed and that the OPC must be converted into a Private Limited Company. This form must be submitted within 60 days after exceeding the threshold limit.

• Application to ROC 

The OPC must thereafter make an application with the ROC for conversion of the OPC into a Private Limited Company by submitting Form INC-6 within the time frame specified by the Special Resolution.

1. In case of Voluntary Conversion – 30 days

2. In case of Compulsory Conversion – 6 months

The form shall be enclosed with following attachments –

1. Duly Certified copy of Board Resolution

2. Altered MOA

3. Altered AOA

4. Duly Certified copy of latest Financial Statements

5. Duly Certified copy of Special Resolution

• Certificate of Conversion by ROC

Finally, the ROC shall issue a certificate to the effect of Conversion of OPC into Private Limited Company upon satisfaction with the application and documentation attached thereto that the specified conversion conditions have been met.

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