Company IncorporationOPC

Are Private Limited Companies Convertible to OPCs?

When a private company's founder decides to step down, the company's structure tends to crumble. In this case, the experts recommend converting the private limited company to an OPC. Read on to know more about the conversion process.

According to Section 18 of the Companies Act, 2013 (‘Act’) and the provisions of the Companies (Incorporation) Rules of 2014 (‘Rules,’ a One Person Company (OPC) can be changed into a Private Limited Company (PLC). The conversion of the OPC into a private limited company has no effect on the OPC’s current debts, liabilities, commitments, or contracts.

The modifications to the OPC’s Memorandum of Association (MOA) and Articles of Association (AOA) are required for the conversion (As per the provisions provided in section 18 of the Companies Act, 2013, along with section 122 of the Act).

Conversion of a Private Limited Company to an OPC

The conversion of a private limited company into an OPC is provided as per the Companies Act, 2013, which implements a mechanism to convert one class of company into another. Section 18 of the Act, explicitly grants the conversion of an already registered private limited company starting from 1 April 2014.

The conversion of a private limited company to OPC would not affect the responsibilities and contractual obligations of the company before conversion, and such claims, liabilities, and obligations shall be enforceable by law, and the resulting OPC shall be liable for them.

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Prerequisites for Private Limited Company to OPC Conversion

The following conditions must be met in order to convert a private limited company into a one-person company:

  • The company’s books of accounts and balance sheet must have been properly maintained
  • All ROC returns must be listed and filed by the company
  • Examine whether the company has paid the required stamp duty on the share certificate’s outcome and that the share certificates are appropriately matched with the stamp duty payment
  • The company has deducted and filed all TDS (tax deducted at source) returns
  • Before beginning the conversion, the company has paid VAT and service tax, or GST, and submitted the necessary paperwork
  • To check if the company keeps updated registers at its registered office and keeps a record of meeting minutes for its board and shareholders
  • The company must be registered under the shop and establishment acts of the applicable state laws, and it manages offices, shops, warehouses, and other facilities
  • The company complies with the requirements of the professional tax, if applicable in the state where the registered office of the company is located and the states in which it has employees
  • If there are more than 20 employees, the company must be registered with PF, and if there are more than 10, the company must be registered with ESIC (employees state insurance corporation), and it is filing monthly returns and paying dues as expected under PF and ESIC.

A private limited company can be changed into a one-person company based on the following provisions:

  • The company’s provided capital is less than ₹50 lakhs
  • During the previous 3 financial years, the company’s yearly turnover should have been less than ₹2 crores. Furthermore, if the company is new and has not been in operation for three years, the turnover will be calculated from the date of formation
  • Only one individual of Indian nationality will be a stakeholder in the resulting OPC
  • The OPC’s shareholder is a person who spends 180 days of the calendar year in India
  • The shareholder of the resulting OPC must not be a candidate of any other OPC and must not have incorporated any other OPC
  • A minor is not permitted to join or be a part of an OPC.

Documents Required for Converting a Private Company to an OPC

The following attachments should be made with the Form MGT-14:

  • The EGM notice with the explanatory statement copy
  • A true certified copy of the special resolution
  • The altered MOA and AOA of the company
  • A certified copy of the board resolution.

The following attachments should be made with Form INC-6:

  • The total list of creditors and members
  • The latest balance sheet of the company
  • A copy of the NOC letter of secured creditors
  • The NOC of creditors and members
  • The company directors should give a declaration through a duly sworn affidavit confirming that all creditors and members of the company have given their consent for conversion.

Advantages of Converting a Private Company to an OPC

  • Because there is just one person to make the choice, it is simple and quick. The time saved on decision-making can be put to better use on other tasks
  • OPC has much lower annual and ROC compliance rates
  • One person company does less work relating to share certificates, annual filing, and so on
  • OPC is exempted from holding an Annual General Meeting and from many other regulatory obligations that must be met by a private limited company.

Post-Conversion Requirements By the One Person Company

  • Arrange for a new PAN card of the OPC
  • Arrange for new stationery with the name of the OPC
  • Update company bank account details
  • Intimate the concerned authorities like GST, Income Tax Department, etc., about the status change
  • Print the copy of the altered MOA and AOA.

Conclusion

A one-person company (OPC) can be easily managed and has significantly fewer compliances to follow than a private company. The majority of a private company’s employees will gain from its conversion to an OPC. Converting a private company to an OPC is a time-consuming and complicated process. At Vakilsearch, we have qualified specialists who can assist you with the process of changing a private company to an OPC.

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