The conversion of a PLC to an OPC has no effect on the company's responsibilities or contractual commitments before conversion; such claims, liabilities, and obligations will be enforceable by law, and the subsequent OPC will be liable.
A Private Limited Company (PLC) is a popular business structure for entrepreneurs in India due to the limited liability protection it offers. However, as the business grows, the compliance requirements and governance structure of a PLC can become cumbersome for the owner.
In such cases, converting to a One Person Company (OPC) can be a smart move. OPCs offer several benefits such as reduced compliance burden, greater control for the owner, simpler legal structure, and access to funding. In this context, this article will explore the Benefits of Converting a Private Limited Company to OPC in detail.
What Is a Private Limited Company?
A private limited company (PLC) is a privately held company for small businesses. A member’s liability in a private limited company is limited to the number of shares that he or she owns. Shares in a private limited company cannot be exchanged publicly. The article covers all aspects of forming a private limited company.
A private limited company, or LTD, is a common corporate structure with a maximum of 50 shareholders and no publicly traded shares. Explore the definition of a private limited company and its benefits, such as restricted liability and tax deductions, as well as its drawbacks, such as limited expansion.
One of the primary Benefits of Converting a Private Limited Company to OPC is limited liability protection for the owner.
Overview
The structure of a private company tends to collapse when a promoter chooses to resign from his position. In this case, the professional recommends converting the private limited company to an OPC. An OPC is a corporate structure that can be formed with only one shareholder.
Benefits of Converting a Private Limited Company to OPC
Here are some potential Benefits of Converting a Private Limited Company to OPC:
Limited Liability
The majority of sole proprietors take out loans from individuals or financial institutions. As a result, they are personally accountable for all debts. If they are unable to return them through their business, they will have to reimburse them using personal assets such as their car, home, jewelry, and so on. This is not the case in a one-person company because the liability is limited and personal assets are not at risk.
Ease in Filing Annual Returns
In contrast to any other business structure, an OPC requires far less yearly and ROC compliance. The director does not need to get clearance from the company secretary before filing the annual returns.
Ease of Decision-Making
Operating an OPC is simple because it requires more rapid decision-making than any other business structure. Realize your entrepreneurial dream.
Continuous Existence
If the promoter had been a sole proprietor instead of a one person company, the business would have ended with the sole proprietor’s death. However, a one-person company has its own legal life, and it will pass to the nominee upon the death of the owner. This is something that will continue to exist.
Fewer Compliances
Because there is only one director and shareholder in a one-person company, there are fewer compliances, such as annual filings that are restricted to share certificates and statutory registers.
No AGM Required
The laws governing an OPC are less strict than those governing a private corporation. As a result, a one-person company is not required to hold an annual general meeting.
Taxation is also a benefits of converting a private limited company to OPC, as they are taxed at lower rates than private limited companies.
Conversion of Private Limited Company to OPC
Conversion of Private Company into OPC is possible. But it has some conditions to be fulfilled such as:
- One person company can be converted from a private limited company with a paid-up share capital of 50 lakhs and a turnover of fewer than 2 crores
- A special resolution in an extraordinary general meeting must first be passed by the shareholders of a private limited company (EGM). Before passing the resolution for company incorporation, it must get a no-objection certificate from the existing members and creditors.
- The proposed one person company’s shareholder must be a natural person and a resident of India, having spent at least 182 days in India in the previous calendar year
- Through its memorandum, the private limited company must appoint a nominee for the proposed one-person company. The nominee’s consent should have been obtained
- Before undergoing conversion, the applicant company must prepare and audit its profit and loss account, balance sheet, financial statements, and other books of account; the applicant company must file all returns and documents with the ROC, and the applicant company must file all returns and documents with the ROC before undergoing conversion
- A private company must pay stamp duty on the issue of share certificates; a private company must file TDS returns for all deductions; a private company must file GST returns, and a private company must file TDS Returns for all deductions
- All provisions of the professional tax should be followed by the organization.
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Currently, an OPC can convert to a private limited company voluntarily by passing a special resolution after increasing the minimum number of members and directors to two. For the benefits of converting a private limited company to OPC, a no-objection certificate (NOC) in writing from the creditors is required.
