Information on Conversion of OPC to Private Limited Company, and Process of Converting OPC to PVT LTD

Want to convert your One Person Company to a Private Limited Company? This article includes information such as the conversion of OPC to Private Limited company, advantages of conversion of OPC to PVT Ltd, and other relatable information on Conversion of OPC into Private Limited Company.

Introduction 

Section 18 of the Companies Act, 2013 and the provisions of the Companies (Incorporation) Rules of 2014 (‘Rules’) allow a One Person Company (OPC) to be converted into a Private Limited Company. The OPC’s current debts, liabilities, commitments, or contracts will not be affected by the firm’s conversion to a private limited company.

Changes to the OPC’s Memorandum of Association (MOA) and Articles of Association (AOA) are required for conversion (As per the provisions provided in section 18 of the Companies Act, 2013, along with section 122 of the Act).

Different types of Conversion of OPC into PVT LTD

• Voluntary Conversion of OPC to Private Limited Company

When an OPC is implemented, the conversion must take place within two years. Section 18 of the Companies Act governs the process of converting an OPC into a Private Limited Company on a voluntary basis.

By amending the Memorandum of Association and Articles of Association in compliance with the provisions, the company can be converted into another company falling under the same legislation.

The company must submit an application for registration, together with the necessary documentation for the conversion. The registrar has the authority to issue a certificate of incorporation after receiving all necessary paperwork.

Any liabilities, debts, or obligations incurred before or after the conversion will be unaffected by the company’s registration under this act.

• Compulsory conversion of OPC into Private Limited Company

Provision for Compulsory conversion of OPCs upon exceeding the minimum paid-up capital and average annual turnover was repealed in the Budget 2021-22. Previously as per the OPC provision If the paid-up capital of an OPC company exceeds INR 50 lakhs and the average annual turnover of the previous three years exceeds INR 2 crores, the company must be converted, but now it is not mandatory for OPC.

A special resolution needs to be passed in a general meeting to convert the company. Before approving the resolution, it must check a No Objection Certificate signed by both creditors and other members.

Advantages of Conversion of OPC to Private Limited Company

• Limited liability

The company’s obligations or debts do not establish a charge against the owner’s personal assets. Their liability is limited to the unpaid subscribed capital amount.

• Easy to borrow funds

Raising cash as a Private Limited Company is a relatively simple operation because it allows for the sale of shares and offers a variety of funding options such as ESOPs, Private Equity, and more.

• Separate Legal Entity

When a Private Limited Company is formed, it becomes a legal entity apart from its owners and managers in the eyes of the law. From opening a bank account to owning assets and entering into contracts with third parties, the firm can operate in its own name. This also gives you the ability to sue other people.

• Tax Benefits

One Person Company is not considered as a legal separate entity thus the tax is calculated based on the individual tax slab while converting OPC to PVT LTD the tax slab will be fixed at 30%. This will help businesses in saving a certain amount from the tax.

Difference between OPC to Private Limited Company

Related read: OPC V/S Private Limited Company

Documents required for conversion of One Person Company (OPC) to PVT LTD

• The company’s directors would be given an affidavit confirming that all of the company’s members and creditors have given their consent for the conversion and that the company’s paid-up share capital is less than INR 50 lakhs rupees or its average annual turnover is less than INR 2 crores rupees, as the case may be;

• The list of creditors and members

• The most current audited balance sheet and profit and loss account

• A copy of the secured creditors’ No Objection Certificate.

Process of converting OPC to PVT LTD

• ROC needs to be notified about the conversion

It is mandatory for OPC to notify ROC (Registrar Of Companies) for converting itself into a Private Limited Company. For converting it is necessary to discuss it with ROC first and after that, a process needs to proceed.

• Board resolution needs to be passed

The OPC should organize a general meeting to pass a resolution appointing directors and members to meet the Private Limited Company’s standards. At least two members and two directors are required to convert an OPC into a Private Limited Company.

A board resolution should also be passed to approve changes to the OPC’s Articles of Association (AOA) and Memorandum of Association (MOA).

• File an application (e-Form INC-6)

After completing the preceding stages, the corporation must submit an application (e-Form INC-6) to the relevant ROC, together with the required documents

• Altered AOA and MOA

• Copy of high-resolution image

• The proposed members’ and directors’ list, as well as their permission

• Creditors’ list

• The most recent profit and loss account and balance sheet have been audited.

• With the application for conversion, include a copy of each creditor’s NOC.

• The nominee’s consent

• Proof of the nominee’s and member’s residence

• A copy of the member’s and nominee’s PAN cards

• Proof of the nominee’s and member’s identities

The ROC verifies that the application information is correct and that the registration fees have been paid. The Registrar Of Companies (ROC) then takes a decision after extensively reviewing the application and documents, if there is no error or issues with the conversion then ROC issues the certificate of conversion.

Conclusion

The One Person Company was created in the legal system to encourage entrepreneurs to enter the corporate sector. It will not only allow individuals to contribute to economic growth, but it will also create job prospects.

The abolition of the minimum capital and turnover thresholds allows the OPC to obtain international investments without conversion restrictions. It allows OPC to convert voluntarily rather than mandatory after capital requirements are met.