Conversion from OPC into Private Limited Company
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.
Voluntary Conversion
According to voluntary conversion method :
- The condition is that the OPC cannot be converted into a private limited company until the end of 2 years from the date of incorporation as an OPC.
- An application should be filed in Form INC-6.
- The number of shareholders and directors must be enhanced to the essential limit.
Procedure for Voluntary conversion
- Issue notice according to the provisions of section 173(3) of the companies Act, 2013 and SS-I for holding a meeting of the Board of Directors.
- To discuss whether Company want to convert the OPC into private ltd company
- To pass Board resolution for increase in number of Directors (minimum 2 directors) and for increase in shareholder of the Company (minimum 2 shareholders).
- To pass a resolution to get shareholder’s approval in MOA & AOA of Company.
- Hold a shareholder’s meeting to pass shareholder resolution.
- According to section 18 of Companies Act 2013, the OPC should file E-form INC-6 with ROC within 30 days of passing special resolution
Attachments:
- Certified true copy of board resolution where person giving notice has been authorized.
- Altered copy of MOA and AOA.
- Copy of duly attested latest financial statements.
- Certified true copy of special resolution where person giving notice has been authorized.
- Any other information can be provided as an optional attachment.
On being satisfied that company has complied all the requirements the ROC shall issue the Certificate to the effect of conversion.
Mandatory or Compulsory Conversion
According to Mandatory or compulsory conversion method :
- The OPC company must be converted mandatorily if its paid up capital becomes more than Rs 50 lakhs and average annual turnover of preceding 3 years crosses Rs 2 crores
- Notice of conversion in Form INC-5
- Application should be filed in Form INC -6
- The number of shareholders and directors should be increased to the requisite limit
Procedure for mandatory conversion:
Identity and Address Proof of Directors and Shareholders
- Issue notice according to the provisions of section 173(3) of the companies Act, 2013 and SS-I for holding a meeting of the Board of Directors.
- To discuss with directors that Company has crossed the Limits as given above and there is need to mandatory conversion of OPC into Company.
- To pass Board resolution for increase in number of Directors (minimum 2 directors) and for increase in shareholder of the Company (minimum 2 shareholders).
- To pass a resolution to get shareholder’s approval in MOA & AOA of Company.
- Hold a shareholder’s meeting to pass shareholder resolution.
- OPC is required to file E-Form INC -5 within 60 days from the period when condition as mentioned above attract informing that it has ceased to be OPC and that it is now required to convert itself into a private or public company.
Attachments:
- Certified true copy of board resolution where person giving notice has been authorized.
- Copy of duly attested latest financial statements.
- Certificate from CA in practice for calculation of average turnover during the relevant period- this certificate is mandatory to attach if the threshold limit is exceeded on account of average annual turnover.
- Any other information can be provided as an optional attachment.
- According to section 18 of Companies Act 2013, the OPC should file E-form INC-6 with ROC within 30 days of passing special resolution.
Attachments:
- Certified true copy of board resolution where person giving notice has been authorized.
- Altered copy of MOA and AOA.
- Copy of duly attested latest financial statements.
- Certified true copy of special resolution where person giving notice has been authorized.
- Any other information can be provided as an optional attachment.
On being satisfied that company has complied all the requirements the ROC shall issue the Certificate to the effect of conversion.
Benefits of Converting OPC into Private Limited Company
The benefits of converting OPC into Private Limited Company are:
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.
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.
Documents Required for Conversion of OPC into Private Limited Company
- 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
Difference between OPC and a Private Limited Company
The difference between OPC and Private Limited Company are:
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.
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 hold 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. Whereas in a Private Limited Company, the compliance cost is more than the OPC.
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