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Conversion of One Person Company

Mandatory conversion of One Person Company to Private Limited Company is required in case a One Person Company meets certain parameters:

• Effective date of increase in the paid-up share capital of a One Person Capital beyond rupees fifty lakhs, and/or
• Increase of average annual turnover during the period of immediately preceding three consecutive financial years is beyond rupees two crores.

In either of the above case, the One Person Company shall be mandatorily required to convert itself into either a private or a public company within a period of six months. In this article, we look at the procedure for the conversion of one person company into a private limited company or limited company.

Voluntary Conversion 

One Person Company can be converted into a Private Limited Company both voluntarily before meeting any of the above criteria or mandatorily after meeting the above-mentioned criteria. An OPC may convert itself into a private limited company after the expiry off 2 years from the date of incorporation. If there is more than one director is appointed in a company, then the board meeting will be required to be held to consider the proposal of conversion. Pursuant to provisions of section 122, the provisions of section 100 are not applicable to OPC. Accordingly, the board decision will be informed to the member and then he will intimate the decision by passing the resolution to the company, which will be recorded in the minutes’ book that is maintained by the company. The Memorandum and Articles of Association of the One Person Company will also be required to be amended by passing members to that effect.

Documents Required 

The following are the required documents to be furnished for the conversion of One Person Company.

• The directors of the company would be given a declaration by an affidavit by confirming that all the members and creditors of the company have provided their consent for the conversion, the paid-up share capital company is Rs. 50 lakhs rupees or average annual turnover is less than Rs. 2 crores rupees, as the case may be;
• The list of members and creditors;
• The recent Audited Balance Sheet and the Profit and Loss Account;
• The copy of No Objection Certificate of secured creditors.

Approval of Conversion

The board resolution is to be passed for the purpose of approval of the proposal for the conversion of an OPC into Private Limited Company or Public Limited Company.

The following approvals with subjected to the members’ approval:

• Alteration of Articles of Association 
• Alteration of Memorandum of Association.
• Conversion of a company into a Public or Private Limited Company.

The board resolutions passed to be intimated to the sole member by providing a notice of the resolutions that are passed at the board meeting. The resolution member providing the authority to the director to director to sign and submit e-form INC-5 and INC-6 digitally is required to be filed for the conversion of the company.

After the approval from the directors regarding the conversion of the company is obtained, the copy of the resolution is to be sent to shareholder/ member along with Notice of passing of such resolution. The member is required to submit the resolution for the conversion to the company. 

Upon the approval of the shareholder for the conversion of the company, the board is required to proceed with the process of filing the application with the registrar of companies and comply with various other formalities. 

Note: The Company must not be a defaulter in terms of appropriate submission of the financial statement or any documents due for filing with the Registrar.

Steps to be taken for conversion of One Person Company

In case a One Person Company does not take steps for conversion when it is mandatorily required within the prescribed time, the One Person Company or any Officer of the One Person Company shall be punishable with a fine which may extend to rupees five thousand and with a further fine which may extend to rupees five hundred for every day after the first day during which such inaction continues.

1. Intimation of Registrar of Companies

The concerned Registrar of Companies must first be intimated through the prescribed methodology that the One Person Company is now required to convert itself into a private limited company or a limited company by virtue of its paid-up share capital or average annual turnover, having exceeded the threshold limit.

2. Passing of Board Resolutions

The shareholders of the One Person Company must hold a General Meeting and pass the relevant resolution for increasing the paid-up capital (if required), number of shareholders, and appointment of the director(s) to meet the requirements of a Private Limited Company or Limited Company. For conversion of One Person Company to Private Limited Company, it is to be ensured that there exist at least two shareholders and two directors. For conversion of One Person Company to Limited Company, it is to be ensured that there exists at least seven shareholders, three directors and paid-up share capital of rupees five lakhs.

In addition to the above, a board resolution must also be passed by the shareholders to approve alteration of the Memorandum of Association and Articles of Association of the OPC to confirm with the requirement of a Private Limited Company or Limited Company.

3. Application for conversion of One Person Company to Private Limited Company

Once the above steps are completed, the One Person Company can make an application in the prescribed format to the concerned Registrar of Companies for the conversion of one person company to a private limited company or limited company. The company has to file a Special Resolution passed by the shareholders for Conversion of Private Company into OPC with the concerned Registrar of Companies. Hence, file form MGT-14 within 30 days of the passing of Special Resolution with the concerned Registrar of Companies. The Registrar has to verify and approve the application and the associated documents, the Registrar would issue a fresh certificate of incorporation and then converting the one person company into a private limited company or limited company. The new registration may not affect the debts, liabilities, obligations or contracts entered into previously by the company.