Conversion of One Person Company to Private Limited Company
Section 18 of the Companies Act 2013 is governing the conversion of an OPC (One Person Company) to a Private Limited Company. Along with this, the provisions of Rule 7(4) of Companies (Incorporation) Rule, 2014 shall also become applicable.
The One Person Company (OPC) can be converted into a Private Limited Company (PLC) as per Section 18 of the Companies Act, 2013 (‘Act’) and the provisions of Companies (Incorporation) Rules of 2014 (‘Rules’). For incorporating a private limited company there needs to be a minimum of two members and two directors.
It should be specifically noted that this conversion shall not affect the existing debt, liabilities, and Contracts, or Obligations which has been entered into by the OPC, and shall now be committed by the company.
In a general sense, the conversion of OPC to Private Limited Company is done in two manners and these are:
- Voluntary Conversion
- Mandatory or Compulsory Conversion
Under both types of conversions, the necessity is to make alterations or changes in the Memorandum of Association (MOA) or Articles of Association (AOA) of the OPC, along with the minimum number of directors and members requirement. As the minimum requirement here will be at least 2 members and 2 directors.
Types of Conversion
For an OPC to convert to a Private Limited Company, at least 2 years should have expired from the date of its incorporation as an OPC.Though, the OPC can convert into a Private Limited Company within 2 months, if its paid-up share capital exceeds INR 50 lakhs and the average turnover exceed INR 2 Crore.
Such voluntary conversion shall be intimated by the OPC to the Registrar of Companies in form INC-5 within a period of 60 days. And OPC should also have 2 directors and 2 members minimum.
Under this, an OPC will have to mandatorily convert into a Private Limited Company if the following conditions are prevailing;
(a) Paid-up Share capital of the OPC exceeds INR 50 lakhs, and
(b) the yearly turnover of the OPC during the immediately preceding three consecutive financial years is more than INR 2 Crores.
If these conditions are met with then it becomes mandatory for the OPC to convert into a Private Limited Company within a period of 6 months from such date of attaining these conditions. The conversion will be made by passing a special resolution in the general meeting along with checking for a NOC (No Objection Certificate) in a written form from creditors, and other members of the OPC. The NOC should be obtained before the passing of the special resolution in the general meeting.
The following steps are to be followed by an OPC for converting the same into a Private Limited Company;
Step 1: Passing the Special Resolution
A General Meeting shall be held by the shareholders of the OPC, for raising the paid-up share capital of the OPC (if required), the number of shareholders, and also the appointment of directors such that the requirements for forming a Private Limited Company shall be met with. A Private Limited Company should have at least 2 directors and 2 members.
A Special Resolution shall also be passed by shareholders for approving the alteration of the MOA and AOA of the OPC.
Step 2: Application for Conversion of OPC to Private Limited Company
When the above steps are done with, the OPC should then file with the Registrar of Companies an application for conversion into a Private Limited Company along with the resolution that was passed in the general meeting within 15 days of passing such resolution.
The application for such conversion shall be done by OPC in Form INC-6 along with the payment of prescribed fees and attaching the following documents;
- The directors of the Private Limited Company shall give a declaration by way of an affidavit which duly confirms that the members and creditors have given their consent for the conversion of OPC into a Private Limited Company. There shall also be a confirmation made with regard to the fact that paid-up share capital of the company and the average annual turnover of the company is over INR 50 lakhs and INR 2 Crore,
- A list of members and creditors of the entity,
- Latest Audited Financial Statements i.e., Balance Sheet and Profit & Loss Account of the Company and,
- The copy of the No Objection Certificate or Letter from the Creditors.
The Registrar after considering the application given by the OPC and the details furnished in the same, confirms such details and the fees paid by the entity after which a Certificate of Conversion shall be issued. Here, a new incorporation Certificate shall be provided by the ROC to indicate the conversion of the OPC into Private Limited Company.
The officers of the company who contravenes with the provisions of the Companies Act with respect to such conversion or the provisions of such rules shall be punished with a fine amounting to INR 10,000 and there shall also be a further fine of INR 1,000 for every day after which such contravention was committed and is continued.
The concept of OPC was brought under the Companies Act such that the single entrepreneurs would enter the corporate world and open themselves into a wider world of opportunities and thereby create more growth in the economy. However, there are also restrictions placed with respect to quantum of business that could be carried out by a single owner which will mandatorily end up with conversion into Private Limited Company.