Overview

As prescribed in section 18 of the Companies Act, 2013, the provisions for the conversion of an OPC or One Person Company into Private Limited Company should be discharged by a newly formed Private Limited Company. These rules do not affect the existing liabilities, obligations, current debts, or contracts of the OPC. Two ways have been prescribed for converting an OPC into Private Limited Company i.e., either voluntarily or mandatorily.

Under both the type of conversions, the primary requirement is a necessary alteration in the Memorandum of Association (MOA) and Article of Association (AOA), according to Section 18 of the Companies 2013 read with Section 122 of the Act. The prescribed section says to obtain no objection in written form, from the concerned members and creditors. It also needs to pass a no complaint in written form, passing a resolution supporting the conversion from the concerned members and directors.

For the incorporation of a private limited company, the minimum paid capital is Rs. 1, 00,000. Apart from this two members and two directors have to be present. To apply for conversion of OPC into a private Limited company, you need to fill form INC-6, to the Ministry of Corporate Affairs (MCA), Government of India.

Types of Conversion

For converting an OPC into Private Limited Company, the provisions have been explained in section 18 of the Indian Companies Act, 2013 and the Companies (Incorporation) Rules of 2014. Specifically, Rule7 (4) of the Companies (Incorporation) Rules, 2014, need to be followed for both the conditions voluntarily and under compulsion.

Voluntary Conversion

The voluntary compulsion of an OPC into Private Limited Company is not permitted unless two years have expired from the expiration date of the OPC. Though the paid-up share capital exceeds 50 lakhs rupees or its average turnovers exceed Rs. 2 crores, the OPC could be converted into a private limited company within two months.

OPC needs to communicate voluntary conversion to the Registrar of Companies (ROC) in form INC 5 within sixty days.

For converting OPC into a Private Limited Company, it should have two directors and two members.

Mandatory or Compulsory Conversion

Under these types of circumstances, you need to compulsorily convert OPC into a private limited company. The reason for this is that OPC has paid share capital which is more than Rs. Fifty lakhs and the annual turnover of the immediate past three consecutive financial years is more than Rs. 2 crores, and then it becomes mandatory to convert any OPC.

Such a company essentially has to convert to a private or public limited company within 6 months from the date when the paid-up share capital exceeds Rs. Fifty lakhs or the last date of the relevant period in which the average annual turnover exceeds Rs. 2 crores.

The conversion is done by passing a special resolution at the general meeting. It needs to check the NOC written to creditors and other members before passing the resolution.

conversion process

The process of conversion of OPC into

private limited company is as follows:

Passing a special offer

Shareholders in the OPC should hold a general meeting to meet the requirements of a private limited company for paid capital (if necessary), to increase the number of shareholders and to pass a resolution to appoint directors.

To convert an OPC into a private limited company, there must be at least two shareholders and two directors.

The ROC concerned will first communicate via an appropriate method that is needed to convert OPC into a private limited company.

intended for ROC

First, the concerned ROC should communicate through the suggested method that OPC should transform itself into a private limited company.

The one-man company shall file a copy of the special resolution as No-MGT 14 within thirty days from the date of passing such resolution.

Application for conversion of OPC into Private Limited Company

OPC will file an application within Form No-INC 6:

• Six-month compulsory conversion
• 30 days voluntary conversion

For the purpose of its conversion into an individual company with the requisite fees provided in the Companies (Registration Office and Fees) Rules, 2014 by attaching the following documents:

• The directors of the company should declare through affidavit confirming that all the members and creditors of the company have given their consent for the conversion. The paid up share capital of OPC is fifty lakh rupees or less or the average annual turnover is less than two crore rupees, as the case may be.
• List of members, as well as record of creditors.
• Latest audited balance sheet and profit and loss account.
• A copy of the NOC of the secured creditors.

Fee Structure (if the capital is Rs. 50 lakhs)

The fee structure of ROC for the conversion of OPC to Private Limited Company are as follows:

Benefits

Easier to Raise Funds

Raise funds as a private limited company is an easy task as it provides an opportunity for raising shares and has many ways to raise funds in the form of private equity, ESOP (Employee Stock Options), and more.

Limited Liability of Owners

The obligation or debts of the company does not create a charge over the owner’s personal assets. The liability is limited only to the subscribed unpaid capital by them.

Taxation Benefits

One person company is not recognized under the Income Tax Act, and hence it has been put in the same category as other companies for taxation purposes. Private companies are placed under the tax bracket of 30% on total calculated income. Hence, from the perspective of taxation, the concept of One Person Company becomes less profitable. It also imposes a hefty financial load.

Separate Legal Existence

A private company is registered as a legal entity in the eyes of the law, which is separate from its owners and managers. The company needs to operate in its own name from opening a bank account to one asset and enter into a contract with the parties. This also provides the capacity to sue the third party.

Required Documents

• DSC (Digital Signature) of director
• DIN (Directors Identification Number)
• OPC Name Approval from ROC
• Certificate of Incorporation is generated by Submitting Final Documentation (like AOA, MOA, Subscription Pages, Consent Letters, Business Address Proofs, etc.)
• Application for PAN & TAN

Some Difference

Shareholders in the Company

In an OPC, only one person and one shareholder is required to incorporate and function the company. Moreover, the One Person Company's director and shareholder is the same individual who holds 100% shares in the company.

While in Private Limited Companies, a minimum of 2 shareholders and a maximum of 200 shareholders are needed during the incorporation. Also, the shareholders of a private limited company can be any entity.

Funds Raising

Fundraising is a complicated part of an OPC as there is only one member who holds the entire financial burden.

In contrast, a Private Limited Company gets funding from various venture capitals, angel investments, etc.

Board of Directors

As per the name OPC, there is only one member in the company, which means there is no need of holding any such Annual General Meeting (AGM) or Board meetings.

In contrary in a private limited company, there are Board of Directors that consists of a minimum of two directors and a maximum of seven directors at the time of incorporation. Also, it is compulsory to convene four Board meetings and one AGM in a financial year.

Investment by the NRI

The suggested benefit of having a Private Limited Company is that the foreign nationals and NRIs can start the private Limited Company in India. Also, the Foreign Direct Investment route is accessible in Private Limited Company.

However, in an OPC, only Indian citizens are allowed to commence a company. Hence, One Person Company is not eligible for Foreign Direct Investment.

Business Activities

Some of the activities like an investment in securities, NBFC are restricted in OPC. However, a company that is registered as a Private Limited Company can engage in these types of activities after taking approval of the concerned authority.

Controls and Ownership of the Company

In One Person Company, the only member that is the director has the total ownership of the company, and it must not shared with any other individual.

While in the case of the private limited company, the ownership is segregated between two members. Also, it is based on the ratio of shares held by each member, the voting power is divided.

Company’s Establishment

The costs involved in the formation of One Person Company and private company is the same, but the cost involved in the compliances is different.

In OPC, the compliance cost is very less in comparison to the OPC. The filing of each form requires Rs. 500, which reflects the higher compliance cost charged for the OPC.

Whereas in a Private Limited Company, the compliance cost is more than the OPC.

Some Facts

• Can OPC be converted into private limited company?

Yes, it is possible to convert an OPC into a private limited company. If the paid-up share capital exceeds Rs, 50 lakhs, or if its annual turnovers exceed Rs. 2 crores, then within a time span of two months, the OPC can be converted into a private limited company.OPC has to communicate about the voluntary conversion to companies' registrar in Form INC-5 within sixty days.

• Is OPC a private limited company?

One Person Company means any Company which has only one person as to its member. An OPC is effectively a company that has only one shareholder as its member. A private Limited Company in the form of a company where a minimum of two members are required and a maximum number of members can be 200.

• Can one person start a company?

Companies Act 2013 has included the clause of one Person Company. According to this, only one person can start a company. As per one Person Company, there will be only one owner and one shareholder. Generally, they will be the same person.

• Under what circumstances OPC shall be liable to convert itself into Private Limited Company?

OPC shall be liable to convert into a private limited company where the paid-up share capital of OPC exceeds Rs. Fifty lakhs or the average turnover exceeds Rs. 2 crores. It shall cease to function as a one-person company. OPC can be converted into Private Limited Company after two years from the date of incorporation.

• What are the Compliances that must be followed after Conversion of OPC into private limited company?

The following compliances must be followed after conversion of OPC into Private Limited Company:

• Alter its memorandum of Association (AOA) and Articles of Association by passing a special resolution.

• Intimate to ROC within 30 days that it ceased to be OPC.

• Increase the number of directors and the number of members up to seven.

What are the naming guidelines for OPC?

The naming guidelines that are applicable to Private Limited Company will be applied to a converted OPC.

• Can an OPC be sold to another person?

Yes, an OPC can be sold to another person.