An OPC has several hitches when it comes to purchasing or issuing shares. This is one major reason why the company is suitable only for businesses that do not target a high turnover. The concept of a OPC, although initiated by the Companies Act of 2013, had been in existence in other countries for a number of decades. OPC has been one of the most preferable company types in India, as it does not mandate the adherence to sophisticated procedures or cumbersome compliances. However, one of the major challenges in OPCs is the restrictions imposed when it comes to the transfer of shares.
An OPC is refrained from investing in securities by itself, in other companies. Yet, the member of an OPC is not prohibited from doing so. Additionally, unlike public companies, an OPC is restrained from issuing or allotting shares to anyone other than the sole member of the OPC. Learn more to know if the OPC Issue Shares.
An OPC, having only a single member, cannot raise funds by issuing shares or other convertible instruments. This can however be possible if the OPC gets converted into a public or private limited company. An OPC can ideally raise funds only through loans or by means of non-convertible debentures. This fact can be extended to sweat equity shares and employee stock options as well.
Therefore, it can be deduced that an OPC cannot purchase or invest in shares of any other company either. Furthermore, as per the provisions of the Companies Act, 2013, an individual can incorporate only one OPC. If the person should wish to incorporate another one, it can be accomplished only after resigning from the earlier one and after selling its shares.
Conversion of OPC into Private or Public Limited Company:
Despite the fact that an OPC has quite a few restrictions when it comes to purchasing and allotting shares, the company can still pursue it by getting itself converted to a public or private limited company. Once the conversion is done, the shares can be issued as per the norms of the company the OPC is being converted into.
The conversion is carried out either compulsorily or voluntarily by the OPC.
Compulsory Conversion:
An OPC undergoes compulsory conversion in the following scenario:
i) The paid-up share capital of the company is upraised beyond a sum of ₹50,000, or
ii) The average annual turnover during the said period is in excess of 2 crores rupees
Wherein the said period refers to 3 consecutive financial years immediately preceding the time of conversion.
Under the stated circumstances, within 6 months from the day on which the OPC accumulates a paid-up share capital of ₹50,000 or within 6 months from the day on which the annual turnover exceeds 2 crores, depending as the case may be, the OPC is converted and incorporated as a private company with a minimum of 2 members and 2 directors or into a public company comprising of at least 7 members and 3 directors as directed by the provisions of the Companies Act, 2013.
Voluntary Conversion:
If an OPC wishes to be converted into a public limited company or private limited company, then the same can be achieved by making an application through Form INC 6 after 2 years of its incorporation.
Procedure:
The following procedure is to be followed to convert an One Person Company to a public or private limited company:
Step 1: A resolution pertaining to the conversion is to be passed by the OPC and the related details have to be recorded in the minutes of the meeting book as per the provisions of the Companies Act, 2013
Step 2: Form MGT-14 is to be filed within a period of 30 days from the date of passing the resolution
Step 3: In the case of compulsory conversion, Form INC-5 is to be furnished
Step 4: An application has to be made through Form INC-6. When the conversion is done for mandatory reasons, the form has to be filed within 6 months from the date on which the threshold limit of the paid-up share capital or the average annual turnover of the OPC is exceeded.
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