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Advantages of Converting Existing Business to OPC in India

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One Person Company (OPC) is a popular business structure in India that allows entrepreneurs to run their businesses as separate legal entities. Converting an existing business to OPC in India can provide various benefits, such as limited liability protection and easier access to funding. It is important to note that only natural persons who are Indian citizens and residents can form an OPC. Existing businesses in India can convert to OPC by fulfilling certain criteria, such as having a turnover of less than Rs. 2 crores and having only one director. 

The conversion process involves filing various documents with the Registrar of Companies. However, it is important to carefully consider the advantages and disadvantages before switching to OPC. Therefore, this article assists you in making the initial action to take towards changing over to OPC from your current business.

Key Takeaways

  1. One Person Company (OPC) allows entrepreneurs to run their businesses as a separate legal entities in India.
  2. Converting an existing business to OPC can provide benefits like limited liability protection and easier access to funding.
  3. Only natural persons who are Indian citizens and residents can form an OPC.
  4. Criteria for converting to OPC include having a turnover of less than Rs. 2 crores and having only one director.
  5. Conversion requires approval from all directors, a decreased net worth, and the designation of a nominee for the OPC.
  6. Prerequisites for conversion include obtaining a certificate of no objection, establishing and auditing financial statements, and filing all ROC Returns.
  7. Advantages of converting to OPC include limited liability, simplified annual returns filing, streamlined decision-making, and permanent existence.
  8. OPCs have lower compliance rates, no requirement for an annual general meeting, and tax advantages.
  9. The capital and share structure of an OPC must comply with the Companies Act of 2013, with certain criteria and limitations.
  10. The budget has introduced modifications, allowing OPCs to expand without limitations and reducing the minimum residency requirement for Indian citizens.

Understanding OPC Conversion Eligibility

You must meet the following prerequisites before being allowed to convert your Private Limited to a One Person Company.

  • The conversion decision must get the approval of all directors.
  • To the extent that you can counter this conversion—which is, to be honest, a downgrade—your net worth should have been severely decreased.
  • You must designate a nominee who will manage your one-person business in the event of your death or incapacitated state.
  • Before proceeding with this conversion, you must receive the consent of your creditors.
  • The directors must certify in an affidavit that they are willing to resign from their positions for your private limited company to be changed into a one-person company.

Prerequisites for Your Business Meets the OPC Conversion Requirements

  • A special resolution needs to be initially approved by the shareholders of an existing company at an extraordinary general meeting (EGM). Consequently, the organization must get a certificate of no objection from the current members and creditors before adopting the resolution.
  • The existing business shall designate a nominee for the new one-person firm in its memorandum. The nominee’s approval ought to have been getting.
  • The company has to establish and audit its profit and loss account, other books of account, balance sheet, and financial statements before initiating the conversion.
  • Before initiating the conversion process, the Private Limited Company is required to file all of the ROC Returns.
  • Inspect to determine if the organization has made the necessary payments for the share certificates’ results and that the share certificates are appropriately matched with the stamp duty payments.
  • The Company was required to file the proper TDS Returns for each TDS deduction.
  • The company is required to submit and pay their GST, VAT, and Service Tax returns.
  • The company’s office should keep an up-to-date register containing the shareholder and board meeting minutes.
  • To continue operating the offices, warehouse, shops, etc., the applicant company must have a Registration Certificate issued under the relevant state’s Shops and Establishment Act.
  • The Company was obligated to follow the Professional Tax laws, if any, in the state wherever the Company’s registered office was based and any states where the Company had workers.
  • If there are more than 20 employees, the firm is registered with PF; if there are more than 10, the company is registered with ESIC. Both registrations are contingent upon the company filing monthly returns and making required payments to PF and ESIC.

Advantages of Converting to a One Person Company

The following are some possible advantages of converting a private limited company to an OPC:

Limited Liability

Most sole proprietors obtain loans from private parties or financial institutions. They are, therefore, personally liable for all debts. If they cannot pay them back through the company they own, they will have to do so by using personal assets like their home, car, jewellery, and other possessions. This is not true in the case of a one-person business because liability is restricted, and personal assets are not at stake.

Makes Annual Returns Simpler to File

An OPC has far lower annual and ROC compliance requirements than any other business structure. Before filing the annual returns, the director is not required to obtain authorization from the company secretary. This makes it easier and less time-consuming for the director to manage the company’s legal obligations. 

Decision-Making is Simple

Due to the need for quicker decision-making than any other corporate structure, operating an OPC is straightforward. The reason for this is that there is only one person who can decide. Due to the speed at which decisions can be made, time is freed up for more beneficial tasks.

Permanent Existence

The business would have ceased with the sole proprietor’s passing if the promoter had been the sole proprietor rather than a one-person company. A one-person company, yet, has its own legal existence and will be transferred to the nominee upon the owner’s death. There will always be something like this.

Lower Compliance Rate

In a one-person company, there is just a single shareholder and director. Hence there are fewer compliances like annual reports only required for share certificates and statutory registers.

No AGM is Needed

Compared to rules governing private corporations, OPC regulations are less restrictive. As a result, a one-person company is exempt from the annual general meeting requirement. It is necessary to keep accurate accounting records and submit annual returns to the Registrar of Companies. An OPC is also not permitted to seek public deposits or issue shares.

Converting a private limited company to an OPC also has tax advantages because OPCs are taxed at lower rates than private limited companies.

Capital and Share Structure for OPC Conversion

According to the Companies Act of 2013, if an OPC’s paid-up share capital surpasses 50 lakhs or its annual revenue exceeds two crores, the firm will no longer qualify as an OPC. It must compulsorily change to either a private or public company before six months. This criterion has been modified by the budget, which now permits OPCs to expand without any limitations on paid-up capital or turnover, permitting conversion into any other type of business at any moment. Additionally, the budget lowers from 182 to 120 days the minimum residency requirement for an Indian citizen to establish an OPC and permits non-resident Indians to incorporate OPCs in India. 

Conclusion and Expert Recommendations

Compared to other business types, a One Person Company (OPC) can be handled with much less compliance. One-person companies make a great organizational structure for medium-sized organizations. According to this organisational structure, the single promoter has complete control over the business, which also limits his responsibilities to protect his personal assets. This business’s owner also serves as a shareholder. OPC has the same option as a Private Company to choose a unique person as a director for its management. In the case of OPC, a nominee must be appointed. Most of those connected to the company will benefit from converting an existing business to OPC.

It’s crucial to comprehend the rules and specifications established by the government to ensure your company complies with the OPC conversion standards. This entails securing the required authorizations and licences and putting the appropriate security measures and procedures in place. To make sure that all applicable laws and regulations are followed, it may also be beneficial to seek advice from industry specialists or legal experts. 

In this case, Kanakkupillai succeeds with the experts in handling the conversion to OPC process while carefully balancing the costs, advantages, and regulatory requirements. We also offer suggestions on how to inform stakeholders of the changes in a way that will facilitate a smooth transition. Kanakkupillai can assist companies in navigating the challenging process of converting to OPC and ensuring compliance with all necessary requirements because of our experience and understanding. Kanakkupillai also provides continuing assistance and maintenance to guarantee the OPC implementation’s success. 

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