Understanding One Person Company (OPC) and Private Limited Company (PLC)
An One Person Company (OPC) can be converted into a Private Limited Company under Section 18 of the Companies Act, 2013 and the Companies (Incorporation) Rules of 2014. The conversion does not impact the existing debts, liabilities, commitments, or contracts of the OPC.
One Person Company (OPC): One Person Company denotes a company formed with a single person as a member. It means OPC has only one shareholder as its member.
Private Limited Company: Business entities that shareholders privately own are known as private limited companies. It is a legal structure commonly chosen by small to medium-sized businesses. In a private limited company, the liability of shareholders is limited to their share capital contribution, which means their assets are safeguarded in case of any liabilities or debts incurred by the company. This limited liability provides financial security to the shareholders.
The conversion of an OPC (One Person Company) into a Private Limited Company can be done through two methods:
- Voluntary Conversion: It allows an OPC to choose to become a Private LimitedCompany at any time, without having to fulfill specific criteria regarding turnover or shareCapital. To voluntarily convert, an OPC must pass a special resolution, increase theNumber of members and directors to a minimum of two, and obtain a No ObjectionCertificate (NOC) from creditors in written form.
- Compulsory Conversion: It is triggered when an OPC's paid-up capital exceeds ₹50 lakh or when its annual turnover surpasses ₹2 crores for three consecutive financial years.
BENEFITS OF CONVERTING FROM ONE PERSON COMPANY TO PRIVATE LIMITED COMPANY
A Private ltd company has several benefits over an OPC:
- Limited Liability and Protection of Personal Assets: Shareholders enjoy limited liability, safeguarding their personal assets from business losses or liabilities.
- Ease of Borrowing funds: A private company can borrow funds with ease because it allows for the sale of shares and offers a variety of funding options such as ESOPs, Private Equity, and more.
- Legally Recognised: Private Limited Company obtains a distinct legal identity separate from its owners and managers. This legal status allows the company to engage in various activities in its own name, including opening bank accounts, owning assets, and entering into contracts with third parties. Additionally, being a separate legal entity empowers the company with the ability to initiate legal proceedings and sue other individuals or entities when necessary.
- Tax Benefits: OPC is not considered as a legal separate entity thus the tax is calculated based on the individual tax slab whereas for a private company the tax slab is fixed which might help the company to save a certain amount from taxation.
PROCESS OF CONVERSION FROM ONE PERSON COMPANY TO PRIVATE LIMITED COMPANY
- Board Meeting: Call for a board meeting to propose the conversion of the OPC into a Private Limited Company. Pass a board resolution to initiate the conversion process.
- Forms and documents filing: File return of appointment of additional directors with ROC within 30 days from the date of appointment in Form DIR-12 along with required documents and fees and also if directors are interested file Form MBP-4.
- Register of members: Make necessary entries in the register of members in Form MGT-1 within 7 days of the Board meeting in which number of members to increase to 2 was approved.
- General Meeting: Conduct a general meeting and obtain approval from the shareholders to convert the OPC into a Private Limited Company. Pass a special resolution for the conversion. To consider and approve MOA and AOA. To regularise additional directors if any(ordinary resolution).
- Forms and documents filing:
a) File a return containing the particulars of appointment of directors with ROC within 30 days of appointment in general meeting in Form DIR-12.
b) File a copy of special resolution with explanatory statement with ROC within 30 days of passing of resolution in Form MGT-14.
c) The company shall file an application in Form INC-6 with ROC for its conversion into a private company .
- Registrar's Approval: Once the application is submitted, the ROC will review the documents. If everything is in order, the ROC will issue a Certificate of Incorporation, indicating the conversion of the OPC into a Private Limited Company. The change in status is effective from the date mentioned in the certificate.
DOCUMENTS REQUIRED FOR ONE PERSON COMPANY TO PRIVATE LIMITED COMPANY CONVERSION
- Memorandum of Association (MOA) and Articles of Association (AOA): These documents outline the company's objectives, rules, and regulations, and they need to be updated to reflect the change in company type from OPC to Private Limited.
- Board Resolution: A board resolution should be passed by the OPC's board of directors, approving the conversion and authorizing a designated person to carry out the necessary steps for conversion.
- Shareholder Resolution: A special resolution needs to be passed by the OPC's shareholders, approving the conversion from OPC to Private Limited Company.
- No Objection Certificate (NOC): A NOC must be obtained from the sole member of the OPC, indicating their consent for the conversion.
- Declaration from Director: A declaration is required from the director or promoter of the OPC, stating that all the members and creditors have been informed about the proposed conversion and that their interests will not be adversely affected.
- Statement of Assets and Liabilities: A statement of assets and liabilities of the OPC must be prepared, certified by a Chartered Accountant. This document provides a snapshot of the financial position of the OPC at the time of conversion.
- Updated PAN and Aadhaar Cards: The PAN and Aadhaar cards of the director or promoter need to be updated with the new company name and structure.
- Application for Conversion: A formal application for conversion from OPC to Private Limited Company needs to be prepared in the prescribed format. This application should be submitted to the Registrar of Companies (RoC) within the OPC's jurisdiction.
- Other Required Forms: Depending on the jurisdiction, additional forms and documents may be required to be filed with the RoC, such as Form INC-6 (Application for Conversion of OPC to Private Limited), Form INC-22 (Notice of Situation or Change of Registered Office Address), etc.
POST-CONVERSION COMPLIANCES FOR PRIVATE LIMITED COMPANY (PLC)
After the conversion, you must fulfill certain post-conversion compliance requirements, including:
a. Issuing new share certificates to the shareholders of the Private Limited Company.
b. Updating the statutory registers, such as the Register of Members, Register of Directors, etc.
c. Informing various authorities and agencies about the conversion, such as the tax authorities, banks, suppliers, etc.
d. Changing the company name, if desired, by obtaining approval from the ROC.
|1.||Board Meeting||8 to 10 days||1 day|
|2.||General Meeting||23 to 25 days||1 day|
|3.||Filing of a copy of special resolution with ROC||30 days||1 day|
|4.||Filling application for conversion with ROC||5 days||5 days|
|5.||Certificate from ROC||20 days||5 days|
|Total||86 to 90 days||13 days|
FREQUENTLY ASKED QUESTION (FAQs)
Q.1. Why would someone want to convert an OPC to a Pvt. Ltd. company?
Ans. Converting an OPC to a Pvt. Ltd. company allows for more flexibility in terms of raising capital, attracting investors, and transferring ownership. Pvt. Ltd. companies have the advantage of limited liability, separate legal entity status, and better growth opportunities compared to OPCs.
Q.2. Is it mandatory to convert an OPC into a Private Limited Company?
Ans. No, it is not mandatory to convert an OPC into a Private Limited Company. However, an OPC must mandatorily convert into a Private Limited Company if its paid-up capital exceeds the prescribed threshold, or if its average annual turnover exceeds the prescribed limit, as specified by the Companies Act, 2013.
Q.3. What are the advantages of converting an OPC to a Private Limited Company?
Ans. Converting an OPC to a Private Limited Company offers various benefits, including:
● Ability to raise funds from multiple shareholders by issuing shares.
● Limited liability protection for shareholders.
● Perpetual existence and continuity even in the event of the owner's death or incapacity.
● Enhanced credibility and trust among customers, suppliers, and investors.
● Greater ease in attracting investors and raising capital.
Q.4. Are there any restrictions on the conversion of an OPC to a Private Limited Company?
Ans. Yes, there are certain restrictions on the conversion process. An OPC cannot be converted into any other kind of company if:
● Two years have not elapsed from the date of incorporation.
● The average annual turnover of the OPC exceeds the prescribed limit during the relevant financial years.
● The paid-up capital of the OPC exceeds the prescribed limit.
Q.5. What happens to the existing assets and liabilities of the OPC after conversion?
Ans. The existing assets and liabilities of the OPC become the assets and liabilities of the converted Private Limited Company. It is important to prepare a statement of assets and liabilities, certified by a Chartered Accountant, at the time of conversion to document the financial position of the OPC.
Q.6. Do I need to change the company name during the conversion process?
Ans. It is not mandatory to change the company name during the conversion process. However, if you wish to change the company name, you can do so by following the necessary procedures and obtaining approval from the RoC.
Q.7. What compliance requirements should I fulfill after the conversion?
Ans. After the conversion, you will need to fulfill various compliance requirements, such as issuing new share certificates, updating statutory registers, notifying authorities about the conversion, and ensuring compliance with ongoing regulatory obligations applicable to Private Limited Companies.
Q.8. Can the sole member of the OPC become a director in the Pvt. Ltd. company?
Ans. Yes, the sole member of the OPC can become a director in the Pvt. Ltd. company after the conversion. However, the Pvt. Ltd. company can also have additional directors as per the requirements and structure of the company.
Q.9. Do I need professional assistance to convert an OPC to a Pvt. Ltd. company?
Ans. While it is possible to handle the conversion process yourself, it is advisable to seek professional assistance from a company secretary or a corporate lawyer. They can ensure that you comply with all the legal requirements, complete the necessary paperwork accurately, and navigate any complexities involved in the conversion process.
Q.10. How long does it take to convert an OPC to a Pvt. Ltd. company?
Ans. The time taken for the conversion process can vary depending on the jurisdiction and the efficiency of the regulatory authorities involved. It typically takes a few weeks to a couple of months to complete the conversion process.
Q.11. What are the key differences between an OPC and a Pvt. Ltd. company?
Ans. The key differences between an OPC and a Pvt. Ltd. company include the number of shareholders (OPC has only one shareholder, while Pvt. Ltd. company can have multiple), compliance requirements, ability to raise capital, transferability of shares, and legal status.
Q.12. Can any OPC be converted to a Pvt. Ltd. company?
Ans. Yes, any OPC can be converted to a Pvt. Ltd. company, subject to compliance with the regulations and procedures set by the governing authority in the respective jurisdiction.
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