If an OPC's turnover exceeds ₹2 crores and its paid-up share capital exceeds ₹50 lakhs, it loses its right to operate as a one-person company and must convert to a private or public limited company. Read on to know more.
Companies Act 2013 introduced the concept of an OPC. A single person registers an OPC. It Is a combination of self-employment and sole proprietorship. Only a natural person who is an Indian citizen can register a one-person company. There is one shareholder and one nominee in the company. Learn more about OPC turnover limit.
OPC is a separate legal organization from its members, with limited liability protection for its sole member. The Companies Act of 2013 imposed certain restrictions on a one-person company’s paid-up share capital and turnover. If a one-person firm exceeds the set limit, it loses its right to operate as a one-person company. It must be converted to a private limited company or a public limited company.
Legal Provision of Turnover & Paid-up Capital Limit of OPC
As per Rule 6 of the Company (Incorporation) Rules, 2014, OPC has a legal limit on OPC turnover and paid-up capital.
In some circumstances, a one-person company can convert to a public or private company:
1. A one-person company loses its right to continue as a one-person company if its paid-up share capital surpasses ₹50 lakhs or its average annual turnover for the relevant period exceeds ₹2 crores.
2. Such OPC shall be required to convert itself, within six months of the date on which it’s paid-up share capital exceeds ₹50 lakhs or the last day of the relevant period during which its average annual turnover exceeds ₹2 crores, as the case may be, into either a private company with two members and two directors or a public company with at least seven members and three directors, in accordance with the provisions of Section 18 of the Act
3. To give effect to the conversion and make changes to the memorandum and articles, the OPC must pass a resolution in accordance with subsection (3) of Section 122 of the Act.
4. Within sixty days of the effective date of sub-rule (1), the OPC shall notify the Registrar in Form INC-5 that it has ceased to be a one-person company and that it is now required to convert itself into a private or public company due to its paid-up share capital or average annual turnover exceeding the threshold limit set out in sub-rule (1).
Conversion of an OPC to a Private Limited Company
Converting a one-person company to a private limited company might provide opportunities for additional benefits, such as fundraising. Without meeting the conditions of paid-up share capital and average annual turnover, an OPC can convert to a PLC voluntarily. After the OPC’s MoA and AoA have been changed, the application for conversion is submitted to the central government.
Even after the conversion, the company’s legal existence, as well as its rights and responsibilities, continues. To meet the minimum criteria, it must be converted into a private company with at least two shareholders and directors. Conversion facilitates expansion opportunities, as well as new finance sources such as private placement investment, ESOP, and others. An OPC must be converted within sixty days of exceeding threshold limits.
Benefits of Conversion of an OPC to a Private Limited Company
- Easier to raise funds
- Limited liability of owners
- Taxation benefits
- Separate legal existence.
Documents Required to Convert OPC to Private Limited Company
- PAN card
- Identity proof
- Address proof
- Photograph
- NRI
- Financial statements
- OPC incorporation documents.
If you want help with the conversion process or want to do it the easy way, check out with Vakilsearch. From filling forms to drafting all the required documents, our experts will take care of everything for you.
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