Conversion of One Person Company to Private Limited Company

Introduction

One Person company means

Under section 2 (62) of the company act 2013, One Person Company means a company incorporated under the company’s act 2013 having only one person as a member. It is a new form of business which is came into existence through companies act in the year 2013. It is a form of business having separate legal entities from its promoter just like another form of company.  The main advantage of OPC form of company is that there can be only one member with whom the company can get incorporated while a minimum of two members is required for incorporating and maintaining a private limited company or seven-member are required for incorporating and maintaining a public limited company.

Through this form of a business single person alone can operate a corporate entity with limited liability protection; an OPC does have a few limitations.

Under this form of company, the member needs to compulsory nominate one person as his/her as nominee for incorporating the company and that nominee will give his/her consent under form INC-3 for becoming the nominee of such person

Private Limited Company

Under section 2 (68) of company act, 2013 Private company mean company incorporated under company’s act 2013 having paid-up share capital as may be prescribed, and which by its articles, —

i. Restricts the right to transfer its shares:

ii. Except in case of OPC, limits the number of its member to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of this clause, be treated as a single member:

Provided further that-

1. A person who is in the employment of the company
2. persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and

iii. Prohibits any invitation to the public to subscribe for any securities of the company

It is a form of business which is came into existence through companies' act. It is the form of business having separate legal entities form its promoter just like another form of company.  The main advantage of a Private limited form of company is that the financial liability of a shareholder is limited to their shares.

One person company can convert itself into a private limited company after complying with the provision led down under company law 2013.

Types of Conversion

As per the law company has two ways of conversion:

1. Voluntary conversion
2. Compulsory/ mandatory conversion

Voluntary conversion: Voluntary conversion to a private limited company is not allowed until two years from the date of OPC incorporation have expired. However, if the paid-up share capital exceeds rupees 50 lakhs or if its average turnover exceeds INR 2 crores then the OPC will convert into a private limited company within two months from the date on which the capital or turnover exceeds.

Compulsory Conversion: It is a situation under which you must compulsorily convert an OPC to a private limited company. This is if an OPC has paid-up share capital that exceeds Rs. 50 lakhs and the annual turnover of the immediately preceding three consecutive financial years is more than 2 Crores rupees, then conversion is mandatory for everyone.  

Such a company is required to convert into a private or public limited company within 6 months of the date the paid-up share capital exceeded 50 lakhs rupees or the last date of the related period in which the average annual turnover exceeds 2 Crore rupees.

The conversion is done by actually passing a special resolution in the General Meeting. It is verified by the creditors for a No objection certificate in writing, and by the other members before the resolution is passed.

Procedure of conversion of OPC to Private Limited Company

➲ Where One Person Company has only one director, the director must sign and date the following resolutions and enter them in minute-book:

a. Take note, where applicable, of exceeding threshold limits.

b. Authorizing the Registrar to send notice in Form INC – 5

c. Notice with Explanatory Statement for Special Resolutions to be signed, dated and notified to the organization by the member regarding:

 i. Change of conversion Post, Example Regulations 27, 48, ad 76 for Table – F in Schedule – I where adopted;

ii. Alter the memorandum (name clause)

iii. Alteration of the Memorandum (Capital clause), to raise capital if necessary

iv. Alteration of Memorandum to amend the reference of the name of one person and its nominee

➲ Where there is more than one director in One Person Company, convene a Board meeting to:

a. Take note, where applicable, of exceeding threshold limits.

b. Board Resolution to Notify Registrar

c. Notice with Explanatory Statement for Special Resolutions to be signed, dated and informed to the organization by the member regarding:

i. Change of conversion Post, Example Regulations 27, 48, ad 76 for Table – F in Schedule – I where adopted;

ii. Alter the memorandum (name clause)

iii. Alteration of the Memorandum (Capital clause), to raise capital if necessary

iv. Alteration of Memorandum to amend the reference of the name of one person and its nominee

➲ A copy of the Special Resolutions along with the explanatory statements to be filed with the Registrar in Form MGT – 14 within thirty days and a copy of the altered Memorandum and articles is attached.

➲ Increase the number of members to a minimum of two if the converted enterprise is a private enterprise, or to a minimum of seven if the converted enterprise is a public enterprise and increase the directors as per the conversion if required

➲ Obtain a fresh Certificate of Incorporation from the Registrar of Companies after the conversion of the one person company into a private company or public company;