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A sole proprietorship can be defined as a business run by a single person. A One-Person Company (OPC) can be described as a business with a single shareholder as the member. When you convert a sole proprietorship into a one-person company you get a structured and regulated platform and other benefits.

In a sole proprietorship, the business’s owner invests in it and maintains all authority over it. The owner reaps the profits and also bears the losses. A one-person company offers greater financial security and facilitates strategic decision-making. You can register a one-person company in India to give your company a legal existence. The registration process can be done online and you can hire professional services for one person company registration.

Converting A Sole Proprietorship Into An OPC

Process for converting

When converting a sole proprietorship into an OPC legal procedures and various steps have to be followed. The process is as follows:

  • For converting a sole proprietorship into an OPC a few eligibility criteria have to be met. The owner of a sole proprietorship should be a person and a citizen of India. Only one person is allowed to become a member of OPC. The owner of a sole proprietorship should not be a member or a nominee of another OPC.
  • The process is done online through the Ministry of Corporate Affairs (MCA) and therefore the proprietor will need a Digital Signature Certificate (DSC).
  • The owner of a sole proprietorship will need a Director Identification Number (DIN. All the directors of companies in India are given DIN which is a unique identification number.
  • The name of the OPC has to be selected as per the guidelines of the Companies Act, of 2013. The name should not match or be similar to any existing company or trademark.
  • The documents required are address proof, identity proof, passport-sized photograph, PAN card and others.
  • The sole proprietor will have to conduct a board meeting and pass a resolution for converting into an OPC. The director of the OPC will be the sole proprietor.
  • Documents like Memorandum of Articles (MOA) and Association of Articles (AOA) will have to be drafted. These documents state the company’s rules, regulations and goals.
  • The proprietor will have to give a No Objection Certificate to ensure that there are no objections to the conversion.
  • Fill out the required forms like Form INC-32, Form INC-33 and Form INC-34 and submit them to the office of the Registrar of Companies (ROC). These forms contain information about the company and the directors.
  • The ROC will examine all the documents and if they are right then the Certificate Of Incorporation of the company will be issued.

Benefits of converting

  • One of the main benefits of converting into an OPC is the limited liability. The owner of a sole proprietorship is responsible for all the business debts and obligations. In an OPC the liability is limited to the invested capital. This helps to safeguard the owner’s personal assets.
  • An OPC is a distinct legal entity capable of entering into contracts, acquiring assets, and defending legal action. This gives better credibility to the business.
  • An OPC’s existence is not affected even if the owner chooses to retire or passes away. The change in ownership does not affect the company’s operations. This will ensure stability and continuity for the business.
  • An OPC makes it easy for owners to attract new investors and transfer ownership to partners or family members. It also permits share transferability.
  • An OPC has fewer regulations to follow and requires fewer compliances. This makes it easy to comply with legal requirements while focusing on the company.
  • OPCs enjoy certain tax benefits like tax deduction and allowances which helps to reduce the overall tax liabilities. OPCs may be liable to lower tax rates than individual firms in certain cases.
  • Investors who meet certain requirements can be granted shares by an OPC. They can provide financial support for the company’s growth. Converting to an OPC can open new avenues to raise capital. When compared to sole proprietorship an OPC will find it easier to get funding from financial institutions.
  • When you own an OPC it presents a more structured and regulated business image. This can instill confidence in the customers, suppliers and potential partners.

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May 2024