PROCESS FOR CONVERSION OF OPC INTO PRIVATE LIMITED COMPANY

CONTENT OF ARTICLES

A.  Background

B.    Method of Conversion of OPC into Private Limited Company.

C.   Process of Mandatory Conversion of OPC into Private Limited Company

D.  Penalty

E.    Process of Voluntary Conversion of OPC into Private Limited Company.

F.      Post Conversion Requirements.

BACKGROUND:

The Introduction of One Person Company into the legal system is a move that would encourage the entrepreneurs enters into corporate world. This will not only enable individual capabilities to contribute economic growth, but also generate employment opportunity. OPC of sole-proprietor and company form of business has been provided with concessional /relaxed requirements under the Companies Act, 2013.

The concept of OPC is still in its nascent stages in India and would require some more time to mature and to be fully accepted by the business world. With passage of time, the OPC mode of business organization is all set to become the most preferred form of business organization especially for small entrepreneurs. 

One most important feature of OPC is that the risks mitigated are limited to the extent of the value of shares held by such person in the company

There is TWO METHOD for conversion of OPC into Private Limited Company:

1.      Mandatory Conversion of OPC into Private Limited Company.

2.      Voluntary Conversion of OPC into Private Limited Company.

A.    Mandatory conversion of OPC into Private Limited:

As per Rule 6 of The Companies (Incorporation) Rules, 2014:- Conversion of One Person Company to Private Limited Company is mandatorily required under the Companies Act, 2013. Mandatory conversion of One Person Company to Private Limited Company is required in case a One Person Company meets certain parameters

 a) Effective date of increase in the paid-up share capital of a One Person Capital beyond rupees fifty lakhs AND

b) Increase of average annual turnover during the period of immediately preceding three consecutive financial years is beyond rupees two crores.

 In the above case, the One Person Company shall be mandatorily required to convert itself into either a private or a public company Within a Period of Six Months. In this article, we look at the procedure for conversion of one Person Company into a private limited company or limited company.

STEPS TO BE TAKEN FOR CONVERSION OF ONE PERSON COMPANY

Process for conversion is given in as Rule 6 of the Companies (Incorporation) Rules, 2014

S. No.	STEPS	ACTION
A.	BOARD MEETING	ISSUE NOTICE in accordance with the provisions of section 173(3) of the Companies Act, 2013, for convening a meeting of the Board of Directors. Main agenda for this Board meeting would be:
		AGENDA : Ø To discuss with directors that Company has crossed the Limits as given above and there is need to mandatory conversion of OPC into Company. Pass Board resolution for increase in No. of Directors. (Minimum 2 Directors) Pass a board resolution to get in principal approval of Directors for increase shareholder of the Company. (Minimum 2 Share holders) Ø Pass Resolution to get shareholders’ approval for Alteration in MOA & AOA of Company.
	There is required to pass Share holder resolution. But as per Section 122(1) there is no need to hold EGM by OPC, it shall be sufficient if, in case of OPC, the resolution is communicated by the member of the company and entered into the minutes books required to be maintained u/s 188 and signed and dated by member and such date shall be deemed to be the date of the meeting for all the purpose under this Act.
D.	ROC FORM FILING	For conversion of OPC in Company few E-forms will be filed with concerned Registrar of Companies at different stages as per the details given below:
	E- Form INC-5	As per Rule 6(4) The Companies (Incorporation) Rules, 2014: OPC within 60 days from the period when Condition as mentioned above attract give notice to ROC informing that it has ceased to be OPC and that it is now required to convert itself into a private company or public company.
		ATTACHMETN:    I.      Certified true copy of board resolution where person giving notice has been authorized  II.      Copy of the duly attested latest financial statements III.      Certificate from a Chartered Accountant in practice for calculation of average annual turnover during the relevant period – This certificate is mandatory to attach if the threshold limit is exceeded on account of average annual turnover. IV.      Any other information can be provided as an optional attachment(s).
	E- Form INC-6	As per Section 18 of CA-2013 OPC within 6 Month from the date of exceeding of threshold Limits.
		ATTACHMETN:    I.      Certified true copy of board resolution where person giving notice has been authorized  II.      Altered copy of MOA & AOA. III.      Copy of the duly attested latest financial statements IV.      Certified true copy of Special resolution where person giving notice has been authorized  V.      Any other information can be provided as an optional attachment(s).
	Duty of ROC: Concerned Registrar of Companies (ROC) will check the E-forms and attached documents filed by the Company for Conversion of Private Company into One Person Company (OPC). On being satisfied that Company has complied with prescribed requirements the Registrar shall issue the Certificate to the effect of Conversion of Private Company into One Person Company (OPC).

PENALTY:

If One Person Company or any officer of the One Person Company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

B.    Voluntary conversion of OPC into Private Limited:

Ø When a One Person Company gets incorporated, it cannot convert itself to Private or Public company for a period of not less than two years from the date of incorporation.

Ø If the time period has elapsed and two years time period is over, a One Person Company can apply for converting itself to  Private Limited Company or Public limited company.

Ø The Conversion process should be done as per the rules and regulations laid down by the Companies Act, 2013 under Section 18, and Rule 7(4) of the Companies (Incorporation) Rules, 2014.

Section 18 of the Companies Act, 2013:

Ø A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter.

Ø Where the conversion is required to be done under this section, the Registrar shall on an application made by the company, after satisfying himself that the provisions of this Chapter applicable for registration of companies have been complied with, close the former registration of the company and after registering the documents referred to in sub-section (1), issue a certificate of incorporation in the same manner as its first registration.

Ø The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done.

STEPS TO BE TAKEN FOR CONVERSION OF ONE PERSON COMPANY

Process for conversion is given in Section 18 of Companies Act, 2013 and Rule 7(4) of the Companies (Incorporation) Rules, 2014 which are reproduced for your reference:

S. No.	STEPS	ACTION
B.	BOARD MEETING	ISSUE NOTICE in accordance with the provisions of section 173(3) of the Companies Act, 2013 and SS-I for convening a meeting of the Board of Directors. Main agenda for this Board meeting would be:
		AGENDA : Ø To discuss with directors that Company want to convert into OPC into Private Limited Company. Ø Pass Board resolution for increase in No. of Directors. (Minimum 2 Directors) Ø Pass a board resolution to get in principal approval of Directors for increase shareholder of the Company. (Minimum 2 Share holders) Ø Pass Resolution to get shareholders’ approval for Alteration in MOA & AOA of Company.
	There is required to pass Share holder resolution. But as per Section 122(1) there is no need to hold EGM by OPC, it shall be sufficient if, in case of OPC, the resolution is communicated by the member of the company and entered into the minutes books required to be maintained u/s 188 and signed and dated by member and such date shall be deemed to be the date of the meeting for all the purpose under this Act.
E.	ROC FORM FILING	For conversion of OPC in Company few E-forms will be filed with concerned Registrar of Companies at different stages as per the details given below:
	E- Form INC-6	As per Section 18 of CA-2013 OPC within 30 days of passing of Special Resolution file form with ROC.
		ATTACHMETN: VI.      Certified true copy of board resolution where person giving notice has been authorized VII.      Altered copy of MOA & AOA. VIII.      Copy of the duly attested latest financial statements IX.      Certified true copy of Special resolution where person giving notice has been authorized  X.      Any other information can be provided as an optional attachment(s).
	Duty of ROC: Concerned Registrar of Companies (ROC) will check the E-forms and attached documents filed by the Company for Conversion of Private Company into One Person Company (OPC). On being satisfied that Company has complied with prescribed requirements the Registrar shall issue the Certificate to the effect of Conversion of Private Company into One Person Company (OPC).

                                                                 

POST CONVERSION REQUIREMETNS
A.	Arrange new PAN No. of the company
B.	Arrange new stationary with new name of the Company
C.	Update company bank account details
D.	Intimate all the concerned authorities like Excise and sales tax etc about the status change
E.	Printed copy of new MOA & AOA.

IMPORTANT POINT TO BE KEPT IN MIND WHILE CONVERSION

Ø  Only a natural person who is an Indian citizen and resident in India shall be eligible to act as a member and nominee of an OPC.

Ø  resident in India" means a person who has stayed in India for a period of not less than one hundred and eighty two days during the immediately preceding one financial year

Ø  A person can be member in only one OPC.

Ø  Where a natural person, being member in One Person Company becomes a member in another OPC by virtue of his being a nominee in that OPC, then such person shall meet the eligibility criteria of being a member in only one OPC within a period of one hundred and eighty days, i.e., he/she shall withdraw his membership from either of the OPCs within one hundred and eighty days.

This brief write up an attempt has been made to unlock the technicalities related to Conversion of Private Company into One Person Company prescribed under Companies Act, 2013. I believe that the procedure for Conversion of Private Limited Company into One Person Company through this article would be of some help for you all.

Conversion of status of company from private to OPC would become effective form the date of receipt of the approval of the Registrar through the change of name would become effective on the issue of fresh Certificate of Incorporation.

The Companies Act, 2013 was expected to simplify the provisions but on the contrary it brought lot of restrictions on doing business. Therefore the private companies are converting themselves into One Person Company.

A One Person company can be easily managed with less compliance to be followed, conversion of the Sole Proprietor firm or Partnership or Private Limited Company to One Person Company would benefit most people.

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(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

Disclaimer: This Document is a copyright of Divesh Goyal. The entire contents of this document have been developed on the basis of relevant statutory provisions. Thought the author has made utmost efforts to provide authentic information however, the author expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this documents.  This is only a knowledge sharing initiative and author does not intend to solicit any business or profession…