Home General An Overview on Conversion of One Person Company to Private Limited Company or Public Limited Company
An Overview on Conversion of One Person Company to Private Limited Company or Public Limited Company

An Overview on Conversion of One Person Company to Private Limited Company or Public Limited Company

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An Overview on Conversion of One Person Company to Private Limited Company or Public Limited Company

A one-person company (OPC) is a type of business where there is only one member, as opposed to a private company where there must be at least two members and a public company where there must be at least seven members. The conversion of a One Person Company (OPC) to other forms of the Company, as the case may be, is expressly provided for under Section 18 of the Companies Act of 2013 and Rule 6 of the Companies (Incorporation) Rules of 2014.

There are two ways for One Person Company (OPC) to transform into different company forms.

  • Voluntary conversion

One Person Company may not voluntarily convert into a private or public limited company until two years have passed from the date of establishment of the OPC. However, a One Person Company or OPC may transform itself into a private limited company within two months if its paid-up share capital surpasses INR 50 lakhs or if its average annual turnover surpasses and goes aboveINR 2 crores.

One Person Company or OPC must notify the relevant Registrar of Companies i.e., ROC in form INC-5 within 60 days of any such voluntary conversion.

  • Mandatory Conversion:

In the following situations, One Person Companies are required to transform into Private or Public corporate entities:

  1. Paid-up share capital is greater than INR 50 lakhs,
  2. The combined annual revenue of the most recent three financial years is greater than INR 2 crores.

The conversion must be completed within six months of the date the paid-up capital surpasses and goes aboveINR 50 lakhs or the corresponding period in which the average annual turnover surpasses and goes above INR 2 crore, whichever comes first.

ESSENTIAL REQUIREMENTS

  1. To give effect to the conversion, Memorandum of Association and Articles of Association must be changed in line with Section 122(3) of Companies Act of 2013 and Rule 6(1) of the Companies (Incorporation) Rules of 2014.
  2. Complying with the minimal conditions stated under the Rule 6(2) of the Companies (Incorporation) Rules, 2014 for converting a One Person Company (OPC) to a private limited company or public limited company, as applicable must also be adhered to:
  • The minimum number of directors should be increased to two or three, as appropriate.
  • Increase the required minimum membership to two or seven, as appropriate.
  • Maintaining the minimal paid-up capital necessary to comply with the Act’s criteria for this kind of organisation or the legal structure chosen for conversion
  • The Companies Act of 2013’s section 18 must be followed in a complete manner.

PROCEDURE:

1. Call a Board of Directors Meeting, in accordance with Section 173 & SS-1:

  • Give at least seven days’ prior notice of the board meeting to all of the company’s directors at the addresses on file with the company. If there is an urgent business matter, shorter notice may be given.
  • Include the Notice’s Agenda, Notes for Agenda, and also a Draft Resolution.
  • Call a meeting of the company’s board of directors, and adopt the required board resolution:

2. appointment of Directors in accordance with the conversion business structure chosen.

  1. To determine the day, date, time, and location of the company’s Extraordinary General Meeting also referred to as EGM.
  2. To approve the proposed EGM notice and its accompanying explanatory statement in accordance with Section 102 of the 2013 Companies Act.
  3. To accept the proposed Articles of Association and Memorandum of Association.
  4. To give the Director or Company Secretary the go-ahead to sign and publish a notice of the Extraordinary General Meeting and take any other actions that may be required to carry out the Board’s decision.
  5. To give the Director or Company Secretary permission to complete the necessary paperwork, sign it, and send it back to the Registrar of Companies or the ROC.
  • Within 15 days following the completion of the board meeting, draft of minutes should be prepared and distributed to all directors for feedback through hand delivery, registered mail, speed post, email or courier.
  • However, in the case of a One Person Company (OPC), the entry of the resolution in the minutes-book, duly signed and dated by the one director, shall be deemed to be the date of the Board of Directors meeting as per Section 122(4) of the Act.
  1. Changes to the articles and memorandum pertaining to the Rule 6(1) of the 2014 Companies (Incorporation) Rules:

To give effect to the conversion and make required modifications incidental thereto, the memorandum and articles of the One Person Company or OPCshall be amended by passing a resolution in accordance with section 122(3) of the Act.

  1. Director Nominations:

Additionally, the One Person Company (OPC) will make an effort to appoint directors in accordance with the minimum number of directors required by law, which is typically two or three.

  1. Form MGT-14 submission to ROC pertaining to Section 117 of the 2013 Companies Act:

Within 30 days of adopting the Special Resolution, the Company must submit a copy of the resolution in form MGT-14 to the Registrar of Companies (ROC).

  1. In accordance with Section 18 of the Companies Act of 2013 and Rule 6(3) of the Companies (Incorporation) Rules of 2014, submit Form No. INC 6:

In accordance with section 8 of the Act, the One Person Company or the OPC must submit an application in Form No. INC 6 within six months of a required conversion and within thirty days of a voluntary conversion. It must also include the paperwork listed below, as well as the fees outlined in the Companies (Registration offices and fees) Rules, 2014.

  • Copy of the Special Resolution and the Modified Memorandum and Articles of Association,
  • A list of the prospective members and the organization’s directors, together with their signatures,
  • Along with the Creditors’ list,
  • A copy of the most recent, legally verified or audited financial statements, including the profit and loss account and audited balance sheet, and
  • All of the company’s creditors and members have approved the conversion, according to a statement made by the board of directors in an affidavit that has been properly sworn.
  1. Section 13(3) of the Companies Act of 2013 and Rule 29(2) of the Companies (Incorporation) Rules of 2014, the new certificate of incorporation:

The Registrar will issue a new Certificate of Incorporation with the Changed name to the applicant firm in Form INC-25 when Forms MGT-14 and INC-6 have been approved.

  1. Post-Conversion Requirements:
  • Every modification to the company’s memorandum or articles, as applicable, must be mentioned in every copy of the document adhering with Section 15(1) of the Companies Act, 2013.
  • Each Company must also:
  1. Print the revised Certificate of Incorporation together with the updated Altered Memorandum of Association and Articles of Association.
  2. Outside of each location where it conducts business, it should paint or affix its name and the address of its registered office in visible characters in adherence to Section 12(3)(a) of the Companies Act, 2013.
  3. If it has a seal, have its name etched on it in clear lettering as per the Companies Act of 2013’s Section 12(3)(b).
  4. Print the company’s name, registered office address, corporate identity number, phone number, fax number, email address, and website address, if applicable, on all correspondence, notifications, and other official documents adhering to Section 12(3)(c) of the Companies Act, 2013.
  5. Every modification to the company’s memorandum or articles, as applicable, must be mentioned in every copy of the document in compliance to Section 15(1) of the Companies Act, 2013.
  6. Have the company’s name printed on bills of exchange, promissory notes, and other legal documents with respect to the Section 12(3)(d) of the Companies Act, 2013.
  7. Send all banks,regulatory authorities, and other suppliers of basic utility services or such other relevant stakeholders the new address of the company’s registered office, if appropriate.
  • Apply for a necessary amendment in accordance with the following Acts:
  1. Goods and Services Act
  2. Shops & Establishment Act
  3. Factories Act
  4. Inter-State Migrant Workmen Act
  5. Private Security Agency Act
  6. Employees Provident Fund Organization
  7. Employees State Insurance Corporation
  8. Other Labour Laws
  9. Industry-Specific Laws.
  10. Important Points for One-Person Businesses (OPCs)
  • A minor is not permitted to join the One Person Company or serve as a candidate.
  • One Person Company shares with beneficial interests cannot be held by minors.
  • Section 8 of the Act prohibits the incorporation or conversion of One Person Companies.
  • One Person Companies are not permitted to engage in non-banking financial investment activities, such as purchasing securities from other Body Corporates.

Business Registration Is Important: Here Are Reasons Why You Should Register Your Business

Choosing the form your business will take is equally important to maximising the benefits of registration or incorporation, even though registering or incorporating a business with the Corporate Affairs Commission is a wise and rewarding decision for you as an entrepreneur for a variety of reasons. The benefits, pros, advantages, and significance of business registration are highlighted by the following:

1. Avoiding Personal Liabilities and Risks

The majority of your personal liabilities and risks are eliminated when you incorporate your firm. The amount of shares you own in the firm has an impact on the size of your liabilities. If your business incurs debts, they cannot be paid off with your personal assets, and you cannot be held accountable unless you personally guaranteed the loan or debt. Your corporation is a distinct legal entity.

2. Distinct legal entity

The law considers your incorporated business to be a distinct legal entity. It can own property (it is against the law for an unregistered business to buy or sell land in Nigeria), conduct business using its common seal, incur liabilities, and bring or receive legal action in its own name. It has the same rights and privileges as other people. As a result, you can manage your business risks and guard your personal assets from some financial and legal risk.

3. Investing in equity

It will be much more of an easier task for you to get and attract the investors and raise funds or capital for your business entity. Investors are more willing to fund a registered corporation than an unregistered firm with no clear organisational structure. If your company is registered, you may be able to acquire funding through equity financing, which entails offering prospective shareholders, angel investors, or venture capitalists shares of your company. Equity financing has the benefit of not requiring repayment of the funds raised and charging no interest. Only in cases of profit must the corporation distribute dividends to shareholders. Raising capital could be necessary for your company’s development and growth.

4. Status and Reputation

Your company’s reputation and standing are improved. Your company’s incorporation may imply that it is dedicated to efficient and responsible administration and has a lasting existence. It inspires confidence in third parties, such as clients, consumers, and contractors. Having Ltd., Plc., Ltd., orsuch other legal structures as part of your company name may help you do more business since people will think your firm is more stable than one that isn’t registered. You could discover as a contractor that some government MDAs and businesses would only work with incorporated corporations.

5. Continuous Succession

An organisation that has been legally constituted has eternal succession. Contracts are made between persons other than you, other directors, shareholders, or workers and the “company.” In other words, the corporation has an endless life span; it will carry on even if its owners, directors, or other key personnel pass away, quit their jobs, or the company changes hands. Only if it is formally wound up by a court order will a company cease to exist. This gives your company the chance to outlive you and possibly even generations, among other advantages.

6. Legal defence

Nobody in Nigeria may use the same name or even one that is confusingly similar to your firm once it has been registered or incorporated with the Corporate Affairs Commission. This has the advantage of legally preventing pass off or unlawful use of your company’s name and brand.

7. Perception in the public and brand credibility

By registering your business, you may improve how people see you and your brand. As many businesses will only hire or engage with registered companies rather than individuals, this has the effect of improving your business’s future interactions with third parties. Therefore, incorporating a business can create fresh perspectives and opportunities that otherwise wouldn’t be possible.

8. Business Bank Account

Having a corporate bank account allows you to separate personal and professional activity, which is a valuable tool for your company. To open a corporate bank account in Nigeria, you must demonstrate that your company is registered with the Corporate Affairs Commission. Giving your clients a corporate bank name rather than your personal name for payment is more professional.

9. Taking on Debt

By registering your firm, you open up the possibility of obtaining a business loan from a commercial bank or an institutional lender. Before granting credit to your company, lenders and credit institutions will require documentation of your company’s registration with the Corporate Affairs Commission. Debt financing is a tool you can use to accelerate the expansion of your company.

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