Conversion of One Person Company
Conversion of One Person Company
The conversion of a One Person Company (OPC) is a legal process that involves transforming a company with a single shareholder into a different type of company. This conversion can be mandatory or voluntary, depending on certain factors and circumstances. Understanding the conversion process is crucial for OPCs and their shareholders to navigate the legal procedures smoothly and ensure compliance with the relevant Companies Act 2013 and other applicable laws. By undergoing the conversion process, an OPC can adapt to its evolving needs, enhance its growth potential, and explore new opportunities in the business landscape.
Conversion of One Person Company – Applicable Law
One-Person Companies (OPC) can be converted into Private Limited Companies (PLCs) under section 18 of the Companies Act 2013 and the Companies (Incorporation) Rules 2014. The OPC’s existing debts, liabilities, commitments, or contracts remain unaffected during this conversion.
To facilitate the conversion, specific changes must be made to the OPC’s Memorandum of Association (MOA) and Articles of Association (AOA). These changes are under the provisions outlined in Section 18 of the Companies Act 2013 and Section 122. The MOA and AOA of the OPC must be amended to align with the requirements and provisions applicable to a Private Limited Company.
Conversion of One Person Company – Types
There are two ways in which a One Person Company (OPC) can be converted into other forms of companies:
- Voluntary Conversion
- Mandatory/Compulsory Conversion
Voluntary Conversion
A voluntary conversion into a private or public limited company is not permitted until two years have passed since the incorporation of the One Person Company (OPC). However, if the OPC’s paid-up share capital exceeds Rs. Fifty lakhs or its average turnover exceeds Rs. 2 crores; it can convert into a private limited company within two months. In the case of voluntary conversion, the OPC needs to inform the concerned Registrar of Companies (ROC) by submitting Form INC-5 within 60 days.
Mandatory/Compulsory Conversion
The OPC is required to compulsorily convert itself into a private or public limited company under the following circumstances:
- If the paid-up share capital exceeds Rs. Fifty lakhs, or
- If the average turnover of the immediately previous three consecutive financial years is more than Rs. 2 crores.
This conversion must be completed within six months when the paid-up capital exceeds Rs. Fifty lakhs or the relevant period in which the average annual turnover surpasses Rs. 2 crores.
Mandatory Requirements for Conversion
Mandatory Requirements for Conversion of One Person Company to another form of the company are as follows:
Alteration of MoA and AoA
The Memorandum of Association (MOA) and Articles of Association of the One Person Company (OPC) must be modified following Section 122(3) of the Companies Act, 2013. These changes should reflect the conversion process as specified in Section 18(1) of the Act and Rule 6(1) of the Companies (Incorporation) Rules, 2014.
Complying with Minimum Requirements
The conversion of the OPC to a Private Limited Company or Public Limited Company (depending on the case) must adhere to the minimum requirements stated in Rule 6(2) of the Companies (Incorporation) Rules, 2014. These requirements include:
- Increasing the minimum number of directors to two or three, as applicable.
- Increasing the minimum number of members to two or seven, as appropriate.
- Maintaining the minimum paid-up capital as per the Act’s requirements for the specific class of company.
Due to Compliance with Section 18
The conversion process must comply with the provisions outlined in Section 18 of the Companies Act 2013. This ensures that all relevant legal requirements and procedures are followed accurately during the conversion.
Procedure for Conversion of One-Person Company
Board of Directors Meeting Procedure:
Convene a Meeting of the Board of Directors: Following Section 173 and Secretarial Standard (SS-1), issue a Notice of Board Meeting to all company directors at least seven days before the meeting. If there is urgent business, shorter notice can be issued. Attach the Agenda, Notes to Agenda, Draft Resolutions, and the Notice.
Hold the Board Meeting: Conduct the meeting of the Board of Directors and pass the necessary resolutions, including.
- Appointment of Directors based on the chosen form of company for conversion.
- Fixing the date, time, and venue for the company’s Extra-Ordinary General Meeting (EOGM).
- Approval of the draft notice of EOGM and the explanatory statement as required by Section 102 of the Companies Act, 2013.
- Approval of the draft Memorandum of Association (MoA) and Articles of Association (AoA).
- Authorization of the Director or Company Secretary to sign and issue the notice of the Extra Ordinary General Meeting and perform necessary actions to give effect to the Board’s decision.
- Authorization of the Director or Company Secretary to sign and file the required forms and returns with the Registrar of Companies (ROC).
Prepare and Circulate Draft Minutes
Within 15 days from the conclusion of the Board Meeting, prepare the Draft Minutes and circulate them to all the Directors for their comments. This can be done through Hand/Speed Post/Registered Post/Courier/E-mail. Refer to the relevant procedure for detailed guidelines on preparing and signing Minutes of Board Meetings.
Note: In the case of One Person Company (OPC), the resolution shall be considered approved by entering it in the minute’s book, duly signed and dated by the single director. The date on which it is entered in the minute’s book will be deemed the meeting date of the Board of Directors, as per Section 122(4) of the Act.
Alteration of Memorandum and Articles
According to Rule 6(1) of the Companies (Incorporation) Rules, 2014, the alteration of the memorandum and articles of the One Person Company (OPC) should be done by passing a resolution in compliance with section 122(3) of the Companies Act, 2013. This alteration is necessary to facilitate the conversion process and make any incidental changes that may be required.
Appointment of Directors:
The One Person Company (OPC) should try to appoint directors following the minimum statutory requirements, which may be two or three, depending on the specific case.
Convening a General Meeting for the Conversion of an OPC to a Private Limited Company:
The following steps need to be followed to convene a General Meeting for the conversion of an OPC to a Private Limited Company,
- Issue Notice: Issue a Notice of the General Meeting to all shareholders of the OPC, providing them with the meeting details, including the date, time, and venue. The notice should send to the registered addresses of the shareholders. The notice period should comply with the required timeline.
- Attach Agenda and Explanatory Statement: Along with the Notice, attach the Agenda of the General Meeting, which should include the specific item of the conversion of the OPC to a Private Limited Company. Also, provide an Explanatory Statement according to the requirement of Section 102 of the Companies Act, 2013, explaining the reasons, implications, and benefits of the conversion.
- Seek Shareholder Approval: Present the resolution for converting the OPC to a Private Limited Company during the General Meeting. Shareholders will have the opportunity to discuss and vote on the solution. The requisite majority should pass the resolution as per the Companies Act 2013.
- Prepare Minutes of the Meeting: After the General Meeting, prepare the meeting minutes, documenting the discussions, decisions, and outcome of the vote on the conversion resolution. The minutes should be signed and maintained as per the legal requirements.
File Required Forms
Following the General Meeting, file the relevant forms and documents with the Registrar of Companies (ROC) within the prescribed timelines. These forms may include Form MGT-14, which is required for filing a copy of the Special Resolution with the ROC.
File Form No. INC 6
Form No. INC 6 is required to be filed under Section 18 of the Companies Act and Rule 6(3) of the Companies (Incorporation) Rules, 2014. This form is relevant for Person Companies (OPCs). It must be filed within six months of mandatory or 30 days of voluntary conversion, except for modifications under Section 8 of the Act. Along with the completed form, the following documents, and prescribed fees from the Companies (Registration offices and fees) Rules, 2014 must also be submitted:
- Altered e-Memorandum of Association and e-Articles of Association: The OPC should provide the updated versions of its MoA and Articles of Association, reflecting the changes made during the conversion process.
- Copy of Special Resolution: A copy of the Special Resolution passed by the OPC’s shareholders to approve the conversion should be included. This resolution confirms their consent and agreement to the conversion.
- List of Proposed Members and Directors: The OPC needs to provide a list of the proposed members (shareholders) and directors after the conversion, along with their consent to act in their respective roles.
- List of Creditors: The company’s creditors should be included. This list should identify all individuals or entities to which the company owes outstanding debts or obligations.
- Copy of Latest Duly Attested Financial Statements: The OPC must submit a copy of the most recent audited financial statements, which typically include the profit and loss account and the audited balance sheet. These statements provide a snapshot of the company’s financial position.
- Declaration by Directors: The directors of the OPC are required to provide a declaration in the form of an affidavit. This declaration should be duly sworn in and confirm that all company members (shareholders) and creditors have consented to the conversion.
These documents, along with the completed Form No. INC 6 and the applicable fees must be submitted to the relevant authority as specified in the Companies (Registration offices and prices) Rules, 2014.
Get a New Certificate of Incorporation
As per Section 13(3) of the Companies Act, 2013, and Rule 29(2) of the Companies (Incorporation) Rules, 2014, when the Registrar approves Form MGT-14 and Form INC-6 for a company’s name change, a new Certificate of Incorporation will be issued in the form of INC-25.
Once the Registrar approves the name change, the applicant company will receive a fresh Certificate of Incorporation reflecting the updated name. This certificate serves as an official confirmation of the company’s incorporation and includes the new name.
Post Conversion Compliances:
After the conversion of a company, certain post-conversion compliances need to be followed. These include:
- Noting Alterations in Memorandum: Any changes made in the company’s memorandum should be recorded in every copy of the memorandum or articles, as per Section 15(1) of the Companies Act, 2013.
- Printing Altered MoA & AoA with the New Certificate of Incorporation: The company needs to print the new altered Memorandum of Association (MoA) and Articles of Association (AoA) along with the new Certificate of Incorporation. These documents should reflect the changes made during the conversion process.
- Displaying Name and Registered Office Address: The company must prominently display its name and the address of its registered office outside every place of business in legible letters, as per Section 12(3)(a) of the Companies Act, 2013.
- Engraving Name on Seal: If the company has a seal, its name should be engraved in legible characters, as mandated by Section 12(3)(b) of the Companies Act 2013.
- Updating Company Information on Official Documents: The company should ensure that its name, address of the registered office, Corporate Identity Number (CIN), telephone number, fax number (if any), email address, and website address (if any) are printed on all business letters, billheads, letter papers, notices, and other official publications, as required by Section 12(3)(c) of the Companies Act, 2013.
- Printing Name on Documents: The company’s name should be printed on hundies, promissory notes, bills of exchange, and other such documents, as per Section 12(3)(d) of the Companies Act, 2013.
- Informing Banks and Basic Utility Service Providers: The company should communicate the new address of its registered office to all relevant banks, authorities, and other essential utility service providers.
- Filing Necessary Amendment Applications: The company needs to file necessary amendment applications under various acts, including but not limited to:
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- Goods and Services Act
- Shops & Establishment Act
- Factories Act
- Inter-State Migrant Workmen Act
- Private Security Agency Act
- Employees Provident Fund Organization
- Employees State Insurance Corporation
- Other labor laws
- Industry-specific laws
Complying with these post-conversion requirements ensures that the company’s records, official documents, and legal obligations are updated following the changes made during the conversion process.
