Procedure of Conversion of Private Limited Company to OPC
A Private Limited Company tends to collapse when a Promoter or Co-founder withdraws from his position and resign the Company. In such a scenario, the best option is to convert the Private Limited Company into a One Person Company (OPC). Companies Act, 2013 enables the incorporation of OPC with a single shareholder; thereby, it provides the scope of conversion for existing Private Companies into OPC. This write-up entails all the prerequisites, advantages, procedure for the conversion of a Private Limited Company to OPC.
A brief about One Person Company
Unlike, Private Company, the One Person Company is a relatively new concept of business introduced by Companies Act 2013. As the name suggests, OPC is a business entity that can be registered with a single person. Often entrepreneurs misinterpret One Person Company as Sole Proprietorship while they share huge dissimilarities.
A notable difference between an OPC and Sole Proprietorship is the nature of liabilities they carry. As an OPC is a separate legal entity from its Promoter/shareholder, it has its own liabilities and assets. Thus, the Promoter is not liable to pay the debts of a One Person Company.
On the other hand, in Sole Proprietorship, the Promoter does not differ from the business entity. Therefore, in case of non-compliance of repaying liabilities, the Promoter’s assets are on stake.
Eligibility to convert into OPC
Any Private Limited Company that has a Paid-Up Share Capital of INR 50 Lakhs with its annual turnover not more than INR 2 Crores can convert in an OPC under following conditions:
- First, the Private Limited Company needs to get an approval from the shareholders by passing Special Resolution in Extra-ordinary General Meeting (EGM). Moreover, the Company is required to attain No Objection Certificate from the existing members and creditors before passing the Resolution.
- The shareholder of the proposed OPC shall only be a natural person with Indian citizenship.
- Further, an OPC’s shareholder must be a resident of India. Any individual becomes a resident if he stays for 180 days in India during the preceding calendar year.
- The Private Company must appoint a Nominee for proposed One Person Company through its Memorandum. It is essential to get the nominee’s consent before appointing him or her.
- A minor is not eligible to be a nominee or member of a One Person Company.
- The shareholder of the ensuing OPC must not have incorporated any other OPC or been a nominee of any other OPC.
Advantages of converting into a One Person Company
A Private Limited Company can leverage several benefits through conversion in an OPC. Let’s look at some of the significant advantages:
- Perpetual succession– Being a separate legal entity, an OPC sustains irrespective of the death, insolvency of its stakeholder/Director.
- Easier to File Annual Returns– The biggest perk of having a One Person Company is that there is less ROC and annual compliance. The Company’s Director can file the Annual Returns and eliminate the need for the approval of a Company’s Secretary.
- Swift decisions- When only one person is running a Company, it simplifies the decision-making process. OPC takes real-time decisions and makes the optimal utilization of resources.
- No Annual General Meeting required- The rules and regulations of a One Person Company are not stringent like a Private Limited Company. Therefore, there is no mandatory requirement to conduct an Annual General Meeting.
Prerequisites of Private Limited Company to OPC
Companies Act, 2013 has set some guidelines and conditions for Private Limited Companies to convert into One Person Company. Here are the legal compliances to fulfill before converting in an OPC:
- The applicant Company must ensure to prepare and audit its Balance Sheet, Profit & Loss A/c and books of Accounts.
- The Private Limited Company must file all the ROC Returns prior to undertaking the conversion procedure.
- A proof that the Company has paid Stamp Duty on the issue of Share Certificate. Therefore, Share Certificate should endorse the payment.
- The Private Company must have filed appropriate TDS Returns for all TDS deductions.
- Private Limited Company must file & pay the returns for GST, VAT and Service Tax.
- The company should have an updated register at its office that records the Minutes of the Meeting of shareholders & Board.
- Applicant Company must possess a Registration Certificate under Shops and Establishment Act of the concerned state to maintain the offices, warehouse, shops etc.
- The Company should have complied with the provisions of Professional Tax.
- If there are more than 20 employees in the Private Company, then it must register under PF. Similarly, it is compulsory to register with ESIC in case of more than 10 employees. The Private Limited Company must have filed the monthly returns under PF and ESIC.
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How to convert a Private Limited Company to OPC?
Follow the steps given below for the conversion of Private Limited Company to a One Person Company:
- Summon a Board Meeting– The Company’s Director should call a Board Meeting to decide upon the conversion. The purpose of the meeting is to fix time, date and place to conduct the Extra-Ordinary General Meeting of shareholders. Draft notice of EGM with its agenda and an Explanatory Statement.
- Issuance of Notice: After drafting the Notice, issue it to all the Directors, shareholders, members and Auditors of the Company. The date of issue of Notice must be 21 days before the date of EGM.
- NOC from the creditors: Before passing the Special Resolution, obtain the consent of creditors as No Objection Certificate. Besides, the consent has to be placed before EGM.
- Hold the EGM: The EGM shall be conducted on the stipulated date, time and place. It is required to pass a Special Resolution which helps in the conversion of Private Limited Company into OPC.
- File Form MGT-14: Companies Act, 2013 mandates to file Form MGT-14 with ROC for all the passed Special Resolutions within 30 days from its date of passing. Also, affix these documents with your Form:
- Altered MOA and AOA
- Notice of EGM with Explanatory Statement
- A certified copy of Special Resolution
- A certified copy of Board Resolution (Optional)
- File Application of conversion: Now file Form INC-6 for the conversion to ROC with the attachments mentioned below:
- An Affidavit/Declaration by all the Directors which states the consent of each member and creditor for the conversion into an OPC. The Declaration must also ensure that the Company’s Paid-Up Capital is less than INR 50 lakhs and has a turnover of less than INR 2 crores;
- A Certificate issued by a practising Chartered Accountant that conforms to the above statement;
- The latest audited reports of Profit &Loss Account and Balance sheet of the Company;
- No Objection Certificate/ consent of all the creditors;
- A detailed list of all the members and Directors;
- A copy of Board Resolution, Special Resolution, Agenda and Explanatory Statement;
- Lastly, provide an altered copy of MOA and AOA which incorporates relevant clauses essential for OPC.
- ROC issues the Certificate of Conversion: After receiving an Application and documents, the concerned Registrar of Companies will scrutinize the provided information. If he finds the Application to be complete, he will issue a Certificate to effect of conversion from Private Limited Company into One Person Company.
If you seek legal assistance to get the documents prepared and file the conversion Application, contact Swarit Advisors.