Starting a business as a One Person Company (OPC) is a popular choice for solo entrepreneurs in India. It offers the convenience of limited liability and simplified compliance while allowing complete control over the company. As your business grows, it may reach financial thresholds that legally require you to convert your OPC into a Private Limited Company (Pvt Ltd). Many businesspeople often miss or delay this conversion, as they are unaware of the regulatory requirements and the consequences of non-compliance. They often misunderstand that such delays can lead to penalties, legal complications, and lost business opportunities.
In this blog, we will understand the legal implications of delaying the OPC to Pvt Ltd conversion, why timely action is crucial, and how to navigate the process smoothly.
What is an OPC (One Person Company)?
An OPC is a company that has only one shareholder. It was introduced in the Companies Act, 2013. OPCs were designed to give solo entrepreneurs the ability to operate as a corporate entity without needing a co-founder. It provides the benefits of limited liability and perpetual succession, just like a private limited company
What is a Private Limited Company (Pvt Ltd)?
A Private Limited Company (Pvt Ltd) is a type of business that is privately owned and has limited liability. A Pvt Ltd company must have at least two shareholders and two directors.
Legal Mandate for Conversion from OPC to Pvt Ltd
According to Rule 6 of the Companies (Incorporation) Rules, 2014 (as amended), an OPC has to mandatorily convert itself into a Private Ltd (or Public Ltd) company if any of the following conditions are fulfilled:
- Paid-up share capital exceeds ₹50 lakhs, or
- Average annual turnover exceeds ₹ two crores (calculated over the last three financial years)
Voluntarily Conversion
Ministry of Corporate Affairs – Companies (Incorporation) Second Amendment Rules, 2021, to remove the two-year waiting period and the paid-up capital/turnover thresholds for voluntary conversion. Now, an OPC can voluntarily convert into a Private Limited Company at any time, even before completing two years from the date of incorporation.
Step-by-Step Process for Converting OPC into a Private Limited Company
- Board Resolution: First, pass a board resolution to approve the conversion and accordingly amend the Memorandum of Association and Articles of Association.
- Amend MOA and AOA: Update your MOA and AOA to reflect the changes from OPC to Pvt Ltd Company.
- Appoint a second director and shareholder: Since Pvt Ltd companies require a minimum of two directors and two shareholders, onboard at least one additional director in your company.
- File e-Form INC-6: Submit the conversion form Form INC-6 to the Registrar of Companies (ROC) online at the MCA portal, along with:
- Latest audited financial statements
- Board resolutions
- Altered MOA/AOA
- NOC from creditors (if any)
- ROC Approval: If all documents are in order and as the ROC will issue a fresh certificate of incorporation as a Pvt Ltd company.
What Happens if You Delay the Conversion?
Delaying the conversion after meeting the mandatory requirements has serious legal and financial implications, such as:
1. Violation of Companies Act, 2013
Not converting your OPC after exceeding the prescribed financial limits is a direct violation of Rule 6 of the Companies (Incorporation) Rules. This makes your company non-compliant in the eyes of the law and can attract a fixed penalty of up to ₹10,000, plus a daily fine for every day of continued non-compliance.
2. Officers in Default
The company and every officer in default (e.g. director) are personally liable. In addition to daily fines, officers may face separate penalties or prosecution.
3. Limited Access to Funding
Delaying conversion to a Private Limited Company can raise concerns for potential investors. Venture capitalists, angel investors, and institutional lenders generally prefer investing in Private Limited Companies due to their structured governance, transparency, and scalability
4. Contractual Limitations
Some business clients, especially corporates and government departments, may insist on dealing only with Private Limited Companies for large contracts or tenders. If you choose to run OPC despite qualifying for conversion, you might lose potential clients or business partnerships.
5. Challenges in Expansion
OPCs have structural limitations that restrict growth:
- Cannot add multiple shareholders
- Equity fundraising through share issuance is not allowed
- Implementation of Employee Stock Option Plans (ESOPs) is difficult
Delaying conversion keeps the business confined to a model that is unsuitable for expansion.
How to Stay Compliant and Avoid Risks?
1. Monitor financial thresholds regularly
Regularly review your company’s financials to check if:
- Paid-up share capital exceeds ₹50 lakhs, or
- Average annual turnover exceeds ₹ two crores over the last three financial years.
2. Convert within the prescribed time limit
Only your OPC can cross the threshold and initiate the conversion process within 6 months. Delays can lead to penalties and legal action.
3. Mandatory statutory compliance
Even before conversion, an OPC must:
- Conduct annual filings (Form AOC-4, MGT-7A)
- Maintain proper books of accounts
- Hold at least one board meeting in each half of the financial year
4. Engage professional support
Consult a Company Secretary or Chartered Accountant regularly to:
- Ensure statutory compliance
- Stay updated on regulatory changes
- Complete timely filings and resolutions for conversion
5. Maintain proper documentation
Audited financials, board minutes, and MOA/AOA alterations must be up to date to facilitate smooth conversion.
