Procedure for Converting Private Limited Company to OPC
Procedure for Converting Private Limited Company to OPC
One Person Company (OPC) is a relatively new business concept introduced under the Companies Act 2013. As the name suggests, it allows for the registration of a company with a single individual as its sole owner. On the other hand, a Private Company is a type of company privately held by a small group of individuals. The Companies Act 2013 provides the provision for converting one class of companies to another. In some instances, private limited companies may choose to convert into OPCs due to the need for less legal compliance. In this article, we will explore converting a private company into an OPC, discussing the necessary steps and requirements involved in this conversion procedure.
Private Limited Company
The Companies Act 2013 defines a Private Limited Company under Section 2(68). It is a privately held company or closed corporation where the shares are not traded publicly. The Article of Association (AoA) of a Private Company imposes restrictions on the transferability of shares.
- The maximum number of members in a Private Company is limited to 200 as per Section 2(68) of the Companies Act, 2013.
- Each member’s liability is limited to their shares only, and shareholders can sell them in the event of company losses.
- Private Companies enjoy perpetual existence, even in member death, bankruptcy, or insolvency cases.
One Person Company (OPC)
Under the Companies Act 2013, One Person Company (OPC) is defined under Section 2(62). It is a company with only one person as its member.
- In an OPC, the compliance requirements are relatively less stringent than other types of companies under the Act.
- One unique feature of an OPC is that the sole member must nominate someone while registering the OPC.
- In the event of the sole member’s death, the nominee can become the sole member of the OPC or reject the position.
Compared to other types of companies, OPCs enjoy several privileges and exemptions per the Companies Act 2013.
Law Governing – Conversion of a Private Company into an OPC
The following legal provisions govern the conversion of a Private Company into an OPC:
- Section 18 of the Companies Act, 2013
- Rule 7 of the Companies (Incorporation) Rules, 2014
These provisions outline the specific regulations and procedures for the conversion process. By adhering to these legal provisions, a Private Company can convert into an OPC while ensuring compliance with the applicable laws and regulations.
Benefits of Converting a Company to OPC
Converting a company to OPC (One Person Company) offers several advantages.
- Easy and quick decision-making with a single person in charge.
- Reduced annual and ROC compliances compared to private limited companies.
- Less work related to share certificates and annual filings.
- Exemption from Annual General Meetings (AGM) and other legal requirements applicable to private limited companies.
Conditions for Conversion of Private Limited Company into OPC
Condition for the conversion of a Private Company into an OPC is subject to certain conditions, which include:
- Paid-up Share Capital: The company’s paid-up share capital should be less than 50 lakh Rupees.
- Annual Turnover: The company’s turnover should not exceed 2 Crores Rupees in the three consecutive financial years preceding the conversion.
- Shareholder’s Nationality: The shareholder of the new OPC must be an Indian citizen.
- Shareholder’s Residential Status: The shareholder of the new OPC should be a resident of India. When a person stays in India for at least 180 days in a calendar year, they are considered a resident.
- Ownership Limit: The shareholder should not hold any other OPC or be a member of any other OPC.
- Exclusion of Minors: A minor cannot be a part or member of an OPC.
Process for Converting Private Limited Company to OPC
The procedure for converting the private limited company to a One-Person Company is as follows:
Hold Board Meeting
To initiate the conversion process of a private company into an OPC, the company directors need to convene a board meeting. During this meeting, the following agenda items should be discussed:
- Approval from the Directors: The company’s directors should approve converting the private company into an OPC. This signifies their agreement with the proposed change.
- Fixing the EGM Details: The directors must decide on the date, time, day, and venue for the Extraordinary General Meeting (EGM), where the shareholders will vote on the conversion. These details need to be finalized and included in the notice.
- Approval of EGM Notice: The directors should review and approve the notice for the EGM, along with its agenda and explanatory statement. The notice must accurately convey the purpose of the meeting and provide relevant information to the shareholders regarding the proposed conversion.
- Authorization to Issue EGM Notice: A director or other designated person should be authorized by the board to issue the EGM notice. This person will be responsible for sending the notice within the specified timeframe.
All board members should receive a meeting notice at least seven days before. It should include the agenda items mentioned above. Additionally, the notice must be passed as a special resolution, indicating the shareholders’ consent for converting the private company into an OPC.
Call an Extraordinary General Meeting (EGM)
The company must formally notify its directors, members, and auditors to convene an Extraordinary General Meeting (EGM). This notice serves as an invitation to attend the EGM and must be dispatched to all relevant parties at least 21 days before the scheduled date of the meeting.
NOC From Creditors
Before passing a special resolution in the Extraordinary General Meeting (EGM) for the company’s conversion, obtaining a No Objection Certificate (NOC) from the existing creditors and shareholders is essential. This NOC serves as a written confirmation from the creditors and shareholders, indicating that they have no objection to the proposed conversion of the company into a One Person Company (OPC).
Hold Extraordinary General Meetings (EGM)
The Extraordinary General Meeting (EGM) should be conducted at the designated time, date, and location specified in the notice. The EGM serves various purposes, including:
- Checking for the quorum of the meeting: It is essential to ensure that the minimum number of members required for a valid session is present. The quorum is determined by the company’s articles of association or as prescribed by law.
- Checking for the presence of the company auditor: The attendance of the company auditor should be verified. If the auditor cannot attend, it is necessary to determine if they have been granted leave of absence as per Section 146 of the Companies Act, 2013.
- Passing a special resolution: The primary objective of the EGM is to seek shareholders’ approval for the company’s conversion into a One Person Company (OPC). A special resolution must be passed, indicating the shareholders’ consensus on the conversion.
- Additionally, approval for the altered Memorandum of Association (MOA) and Articles of Association (AOA) should also be obtained during the meeting.
Filing of Relevant Form to RoC
To convert a private company into a One Person Company (OPC), the company must file specific e-forms with the Registrar of Companies (ROC). The following forms need to be filed:
Form MGT-14: This form should be filed with the MCA within 30 days of passing the special resolution for converting the private limited company into an OPC. Form MGT-14 contains details regarding the resolution passed by the shareholders, and it is essential to submit this form within the specified timeframe.
Form INC-6: The application for converting a private company into an OPC should be filed with the ROC using Form INC-6. Along with the form, the company must submit the necessary documents. Form INC-6 serves as the application form for the conversion process, providing information about the company and its shareholders.
Certain documents and the respective forms must be provided when converting a company to OPC. The following attachments should accompany the Form MGT-14:
- A copy of the Extraordinary General Meeting (EGM) notice and the explanatory statement.
- A copy of the special resolution passed during the EGM
- The altered Memorandum of Association (MOA) and Articles of Association (AOA) of the company
- A copy of the board resolution approving the conversion
For Form INC-6, the following attachments are required:
- A complete list of creditors and members of the company
- The latest balance sheet of the company
- No Objection Certificate (NOC) from secured creditors
- The NOC from both creditors and members
Moreover, the directors should provide a duly sworn affidavit confirming the consent of all creditors and members of the company.
Issue of Certificate
After verifying the e-Forms and accompanying documents submitted by the company for the conversion into an OPC, the Registrar of Companies (RoC) will carefully assess compliance with the prescribed requirements. Once the RoC is satisfied that the private company has fulfilled all the necessary criteria, they will issue a Share Certificate to acknowledge the successful conversion of the private company into an OPC. This Share Certificate serves as a legal document indicating the change in the company’s status and confirms the ownership of shares in the newly converted OPC. It is a vital record that reflects the transition from a private company to an OPC.
Post Conversion Requirements
After the conversion of a company into a One Person Company (OPC), the following post-conversion requirements need to be fulfilled:
- Obtain a New PAN Card: Apply for a new PAN card for the OPC, as the PAN card of the private company will no longer be valid. This is necessary for conducting business transactions and complying with tax obligations.
- Update Stationery: Arrange for new stationery, including letterheads, invoices, and other official documents, with the updated name and details of the OPC. This ensures consistency in branding and communication.
- Update Bank Account Details: Inform the bank about the conversion and update the company’s bank account details to reflect the new OPC status. This ensures smooth banking operations and avoids any confusion in financial transactions.
- Notify Concerned Authorities: Inform the relevant authorities about the status change of the company. This includes notifying the Goods and Services Tax (GST) department, Income Tax Department, and any other regulatory bodies as per the nature of your business. This ensures compliance with applicable laws and regulations.
- Print Altered MOA and AOA: Print copies of the altered Memorandum of Association (MOA) and the OPC Articles of Association (AOA).
By fulfilling these post-conversion requirements, the OPC ensures legal and operational compliance, maintains accurate records, and facilitates a smooth transition into its new structure.