How to Convert One Person Company (OPC) to Private Limited Company

Detailed Guide and Process on Conversion of One Person Company (OPC) to Private Limited Company in India

How to Convert One Person Company (OPC) to Private Limited Company

One Person Business (OPC), which allows a company to be incorporated by a single person, was introduced by the Companies Act in 2013. In the Companies (Incorporation) Second Amendment Rules, 2021, the Ministry also established standards for converting a one-person firm into a private limited company. The definition of a one-person company, the process for converting a one-person company into a private limited company, and recent revisions are all covered in this article.

What is One Person Company (OPC)?

Section 2(62) of the Companies Act defines OPC as a company having only one member. These companies get funds easily. The Companies Act gives ample exemptions to OPCs and easy incorporation and management.

A private limited company has a minimum two-member and a maximum of 200 members. The liabilities of these members are limited to the amount of shares held by them.

Who can be a member of an OPC?

A natural person who is an Indian citizen, whether or not they reside in India, may incorporate an OPC in accordance with the Companies (Incorporation) Second Amendment Rules, 2021 and the Companies (Incorporation) Rules, 2014. He will be the candidate for OPC's lone member. In this context, a person who spent 120 days or more in India in the previous year is referred to as a resident. At no point should this natural person hold membership in more than one OPC. He shall not be more than one OPC's nominee, as well. It is not possible to incorporate or change these businesses into section 8 firms. They are also prohibited from engaging in non-bank financial investing operations.

Legal Foundation for OPC's Conversion to a Private Company

  • The conversion of a one-person firm into a private limited company is covered in Section 18 of the Companies Act of 2013, the Companies (Incorporation) Rules of 2014, and the Companies (Incorporation) Second Amendment Rules of 2021. The OPC's current liabilities are unaffected by these restrictions. The same is covered in Section 17 of the Companies Act and Rule7(4) of the Companies (Incorporation) Rules, 2014 as well.
  • The Companies (Incorporation) Second Amendment Rules, 2021were adopted by the government in April 2021 as an amendment to the Companies(Incorporation) Rules, 2014.
  • Section 18 of the Companies Act and Rule 7(4) of the Companies (Incorporation) Rules, 2014 both require the filing of E-form INC-6.
  • A corporation may change its memorandum and articles to become any other company, according to Section 18. The applicant is required to submit the application to the Registrar if the firm converts in accordance with this provision. After reviewing the application and supporting documentation, the Registrar will issue the certificate of incorporation. The company's liabilities will not be impacted by its registration.
  • A previous version of Rule 7 of the 2014 Rules stated that no OPC could voluntarily transform into any type of business until two years had passed since the OPC's incorporation, the threshold limit had climbed to Rs. 50 Lakhs, or the turnover had reached Rs. 2 crores. The 2-year limitation has already been lifted, though. OPCs are not subject to any restrictions on paid-up capital or turnover when converting into any business at any time.
  • According to Sections 18 and 122 of the Companies Act, the conversion allows for the modification of MOA and AOA. One must file form INC-6to request conversion from a one-person firm to a private limited company. The company must get the members' and creditors' unanimous approval before proceeding. OPCs can become private businesses by meeting the required threshold for members and directors.

Changes after Companies (Incorporation) Second Amendment Rules, 2021

  • Prior to the April 2021 Amendment, OPCs might voluntarily convert to a private limited company after two years of incorporation. However, the modification from 2021 removed it. OPCs can now become a private corporation at any moment. They must exchange information on Form INC-6regarding the conversion of the one-person firm into a private limited company.
  • Before the Companies (Incorporation) Second Amendment Rules were implemented, OPCs were required to change to private limited companies if their paid-up share capital exceeded Rs. 50 lakh and their annual turnover exceeded Rs. 2 crore for three straight years. A special resolution was passed in a general meeting to effect this conversion. A no-objection certificate is submitted by the creditors and other members prior to the conversion.
  • Since the government changed this clause, there are no longer any restrictions on the expansion of OPCs in India in terms of paid-up capital and turnover.

Conversion of One Person Company into Private Limited Company

The conversion of a One Person Company into a Private Limited Company is governed by Companies Rule 6 (Incorporation) Second Amendment Rules, 2021.

  • First, the board resolution needs to be approved by the firm. The resolution is approved at a general meeting of the shareholders. According to section 122(3) of the Companies Act, there is a board resolution authorizing the changes to the MOA and AOA. This makes the necessary changes and puts into action the conversion of One Person Company into Private Limited Company.
  • Second, the OPC must inform ROC of the One Person Business's transformation into a private limited company. Within 30 days of the resolution, they must file a copy of the special resolution in Form No. MGT-14 with the Registrar.
  • The minimal number of members and directors must be increased to 2 or 7, respectively, before a one-person corporation can be converted into a private company. In order to convert, they must maintain a minimum paid-up capital and follow Section 18 of the Companies Act.
  • For the conversion of a one-person company into a private limited company, the business must file an electronic form, INC-6, with the Registrar and pay applicable fees to notify them that they are no longer an OPC. They must also advise people that it has changed its status to a private corporation.
  • The Registrar accepts the form and issues the certificate of conversion once the OPC satisfies all conditions.

Documents necessary for OPC to become a private firm

The following documents must be provided in order to change a one-person company into a private limited company.

  • The directors must certify in an affidavit or no-objection certificate (NOC) that all members and creditors have approved the conversion.
  • PAN cards for the nominee and company members are also required as ID and residency documents.
  • MOA and AOA changes.
  • Attestation of a financial statement
  • A replica of the board resolution that approved the notification also the minutes' copy.
  • A list of the creditors and members.
  • Along with a profit and loss statement that has been audited.
  • The certificate of no objections or the nominee's approval.

How can I submit the Conversion of One Person Company into Private Limited Company e-form, No. INC-6?

  • The applicant must submit an application in e-form No. INC-6 for the conversion of a one-person firm into a private limited company.
  • Along with the name and category of the company, the applicant must provide information such the CIN and GLN.
  • He must submit the registered office address and the date of formation.
  • He must also submit the company's current board of directors information.
  • The applicant must fill out Form MGT-14 with the details of the special resolution.
  • The number of members and the capital structure of the company must be disclosed by the applicant.

Approval of Conversion

  • The members must approve the board resolution to convert OPCs into private companies before moving forward with the conversion of a one-person company into a private limited business. AOA and MOA amendments as well as the firm's conversion into a public or private limited company require the approval of the company's members.
  • The board resolution is sent to the single member. For the conversion of the corporation, the director must electronically sign and submit form INC-6.
  • The shareholders receive a copy of the resolution and the notice of passing the resolution when the directors have given their approval. The board continues to work on the application once the shareholders provide their support.

Effects of conversion of OPC

The transformation of a sole proprietorship into a private limited corporation has no consequences. As a result, the business is responsible for all of its prior obligations.

Conclusion

OPCs were only introduced in India to encourage entrepreneurship. It enables individuals to contribute to India's economic development. One Person Companies that meet the requirements outlined by the Companies Act may convert to a private limited company. In order to accommodate the expansion of OPCs in India, the 2021 revisions have eliminated the strict requirements related to OPC conversions.

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