What is the Procedure to Convert the Private Company into an One Person Company?

One Person Company

The process for converting the private limited company (PLC) into OPC (one-person company). It is regulated by the rule seven of companies (incorporation) rules, 2014.

To convert the business structure, you would first need to ensure that your business has a Private Ltd company registration in India. Before going into the conversion process, it is crucial to understand the OPC and its advantages.

Defining the OPC as per section 3

It is a relatively new concept in the market. The companies act, 2013 has recognised this concept legally. The sole proprietor form of business might convert into a corporate form of business with fewer formalities and compliances.

Characteristics of the OPC are given below-

– Only one shareholder is needed to set up the OPC. Nonetheless, this one person should be the natural person with Indian citizenship.

– Only one director is needed to set up OPC. OPC can have a maximum of 15 directors.

– Director and shareholder can be the same person.

– Nominee appointment via memorandum is essential.

– Only the natural person, who is an Indian resident and citizen. It should be nominated for the sole member of the OPC.

– OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of the OPC.

– Nonetheless, in case paid-up share capital goes beyond Rs. Fifty lacs or average annual turnover exceeds Rs. Two crores, then OPC should cease to be the OPC and has to start the process to convert into a private or public company within six months.

Advantages of the OPC

Limited liability

According to the corporate form of business, any business loss will not impact the owner’s personal property, and it would be the company that would bear the burden or complete loss.

Complete control with legal status

It is one of the fascinating advantages of the OPC as it offers complete control to the business owner who can take the quick decision as and when required concerning the business of the company along with legal status.

Banking operations are easy

It is relatively easy for OPC to obtain the loan from banks than others. To sum up, OPC is the successful alternative of a proprietorship business.

Taxation relaxation

Companies act, 2013 has empowered OPC to run its business as a company and enter into a valid business contract with management and customers. Hence, all the provisions of tax planning are available to the OPC.

Less management and compliance

As mentioned earlier, one can understand that OPC is the most accessible form of business to manage currently as compliances are less compared to private or public company businesses.

Law concerning the conversion of private limited companies to OPC.

– The private company, other than the company registered under section 8 of the act, having paid-up share capital of Rs. Fifty lacs or less or average annual turnover during the relevant period is Rs. Two crores or less might convert into OPC by passing the special resolution in the general meeting. In other words, a private company with paid-up capital of more than Rs. Fifty lacs and an average annual turnover of Rs. Two crores or more cannot convert into OPC.

– Before passing the special resolution, the company should acquire no objection in writing from existing creditors and members.

The process to convert the private company into OPC

  1. Convey the board meeting – issue notice as per provisions of section 173(3) of the companies act, 2013, to convey a meeting of board directors. The agenda of the meeting should be;
  • To obtain the in-principal sanction of directors to convert the private company into OPC.
  • Fix time, date and place for holding EGM (extraordinary general meeting) to obtain approval of shareholders by special resolution to convert the private company into OPC.
  • To authorise company secretary or director to issue a notice of EGM as sanctioned by the board.
  1. Issue notice of EGM to all members, auditors and directors of the company as per provisions of section 101 of the companies act, 2013;
  2. Hold general meeting – hold EGM on the due date and pass a requisite special resolution for said conversion.
  3. Thus, submit form MGT-14 within a month of passing the special resolution with the concerned registrar of companies, with stated fees along with the following documents;
  • EGM notice.
  • Special resolution’s certified true copy.
  1. Since there is a difference between OPC and sole proprietorship, the former should file an application in form INC-6 for said conversion with fees and documents;
  • Company directors should give a declaration through an affidavit to confirm all creditors and members of the company have given their assent for conversion; it meets the criteria of paid-up share capital and annual turnover.
  • List of members and creditors.
  • Latest audited P&L account and balance sheet.
  • Copy of secured creditors’ no objection letter.
  1. Duty of RoC – concerned RoC would check the filed forms and attachment, and if satisfied with it, they would issue a certificate of said conversion.

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