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Why does One Person Company need to convert into a private limited company?

To get the various features of a company, a lot of OPCs decide converting themselves into a Private Limited Company.

The policy behind launching the idea of One Person Company includes encouraging small businesses. According to Company Act 2013, there is a need of conversion of One Person Company into private limited company when it produces certain criteria like :

If the paid-up share capital of the One Person Company exceeds Rs. 50 lakhs.

In the case, annual turnover exceeds Rs. 2 cores consecutively for last 3 consecutive years.

The maximum time limit for the conversion of the OPC that meets the above-mentioned criteria is 6 months.

Steps that are to be taken while converting OPC into Private Limited Company

To take a decision for conversion of an OPC, the said decision must be recorded in the minute's book.

The memorandum of association and the articles of association should be modified according to the following points :

The OPC must be subtitled with Private limited at the end of its name.

In the case of a Private Limited Company, there must be changes needed in the clause of capital if it is enhanced.

The clause of objectives requires to be modified if there is a need of additional objectives in the clause or there is a difference with the active clause.

The clause regarding subscribers needs to be changed because there is a need to include additional members in the memorandum.

The Registrar must be notified through the form no INC 5 within a time of 30 days that the active One Person Company is supposed to be converted into a Private company as the amount of Capital causes the need of conversion.

After getting the notification, a fresh notice of incorporation will be issued by the Registrar.

Converting an OPC Company into Private Limited Company

2 types of conversion are there :

Voluntary Conversion

According to voluntary conversion method :

The condition is that the OPC cannot be converted into a private limited company until the end of 2 years from the date of incorporation as an OPC.

An application should be filed in Form INC-6.

The number of shareholders and directors must be enhanced to the essential limit.

Compulsory Conversion

Under compulsory conversion method :

The OPC company must be converted mandatorily if its paid up capital becomes more than Rs 50 lakhs and average annual turnover of preceding 3 years crosses Rs 2 crores

Notice of conversion in Form INC-5

Application should be filed in Form INC -6

The number of shareholders and directors should be increased to the requisite limit

Process of Conversion

Step 1 - Notice is to be given to Directors with the agenda and notes to arrange the Board Meeting minimum 7 days before the date of the meeting in compliance with the Secretarial Standards I to deem the conversion.

Step 2 - Board Meeting should be arranged for the following :

Decision regarding day, date, time, and place to arrange extra ordinary general meeting ("EOGM")

Approval of draft notice for arranging Extra Ordinary General Meeting

Approving the preparation of memorandum of association

Approval to make articles of association

Vesting power in order to make sure the compliance

Step3 - The resolution shall be informed to the member and recorded in the minute book and signed and dated by the member and such date shall be considered to be the date of the meeting for all the reasons along with Section 122 of the Act.

Step 4 – Filing should be done in Form MGT-14 within a time of 30 days since passing the resolution.

Attachments :

CTC of signed and dated minutes

CTC of Board Resolution authorization offering the notice

Changed memorandum and articles of association of the Company

Step 5 – Filing of Form INC-5 should be done within 60 days since passing the resolution intimating the Registrar. It should be noted that this form needs to be filed only in the case of mandatory conversion.

Attachments :

CTC of Board Resolution approval offering notice

CTC of signed and dated minutes

Photocopy of most up-to-date financial statement properly attested

Step 6 - Filing of Form INC-6 within :

6 months of compulsory conversion

30 days of voluntarily conversion

Attachments :

CTC of Board Resolution approval offering notice

Changed memorandum and articles of association of the Company

CTC of signed and dated minutes

Photocopy of properly attested most up-to-date financial statement

Statutory Costing (If the capital is Rs. 50 Lakhs)

Serial Number Particulars Amount (in Rs.)
1 MGT-14 500
2 INC-5 500
3 INC-6 500
Total 1500

Important features

The One Person Company can be converted into private limited Company as it may appear suitable after compliance to the minimum number of Directors and member requisite.

Once e-Form MGT-14 is approved, e-Form INC-5 must be filed.

In the case of compulsory conversion, Form INC-6 must be filed within 6 months of issuing the resolution. In the case of voluntary conversion, it must be filed within 30 days of passing the resolution.

Section 18, Companies Act 2013

Section 18 of the Companies Act, 2013 includes the process to convert already registered companies. Following points are stated in this :

By modifying its memorandum and articles of association, the company can be converted on its own.

Depending on the application, the Registrar of companies can issue a fresh certificate of incorporation

The debts, liabilities, contracts or obligations entered by the company previously should not be affected by the new registration

Companies (Incorporation) Rules, 2014 should be followed also

Documents needed for the conversion of OPC to Pvt Ltd Company

Identity Proof - Voter ID/ Driving License/ Passport of Shareholders and Directors

PAN Card - PAN Card of shareholders and Directors. Foreign nationals require providing a passport.

Address Proof - Electricity Bill/Telephone Bill/ most recent Bank Account Statement of Shareholders and Directors

Photograph - Most recent Passport size photograph of Shareholders and Directors

Financial Statements - Properly certified photocopy of most up-to-date and audited financial statements

NRI - In the case of NRI or Foreign National, documents of partner should be notarized or apostilled

Incorporation documents of the OPC - Certificate of Incorporation, Memorandum of Association and Article of Association must be offered

Frequently Asked Questions

Ques: How can Extra Ordinary General Meeting be arranged in the case of One Person Company to issue special resolution when only 1 member is there?

In the case of One Person Company, there is no need to arrange an extra ordinary general meeting like private Companies. According to the provisions of Section 122 of the Companies Act, 2013, in the case of OPC, it shall be enough if the resolution is informed by the member to the Company and recorded in the minutes-book and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purpose.

Ques: Can Directors be appointed before in order to meet the minimum compliance requisite of private limited Company before conversion?

Yes, the Directors shall be appointed before as the same is asked by the e-Form INC-6.

Ques: Can Members be appointed before in order to meet the minimum compliance need of private limited Company before performing conversion?

No, the One Person Company can have only 1 member and consequently the members cannot be enhanced before conversion by the Company. Though, after conversion, it shall raise the number of members in order to meet the minimum compliance requisite.

Ques: What is needed to be performed by the company after converting one person company to private limited company?

Once the OPC is converted into a Private Limited Company, it is compulsory for the company to enhance its paid-up share capital to Rs. 50 Lakh or the annual turnover to Rs. 2 Crore or more. If the company cannot fulfil these provisions, it shall covert back itself to an OPC by issuing a special resolution.

Ques: What are the conditions for performing conversion of One Person Company into a Private Limited Company?

One Person Company must be converted into a Private Limited Company in the case of following situations :

If the paid-up share capital of the OPC exceeds Rs.  50 lakhs

If the annual turnover crosses Rs. 2 crores repeatedly for the last 3 years

Ques: Whether can an OPC willingly proceed for its conversion?

Yes, OPC may voluntarily convert itself into a Private Company depending on certain situations. The OPC may apply for voluntary conversion only if a time of 2 years has been passed from its incorporation.

Ques: Can an OPC be incorporated or converted as a non profit organization?

NO, an OPC cannot be incorporated or converted into a company for charitable or non-profit purpose and it cannot perform financial, non-banking, or investment operations including investment in securities of any corporate unit.

Ques: What is the effect after converting an OPC into a private limited company regarding the liability of the previous company?

After the conversion, the liabilities, debts or obligation of the company shall not be affected in any way. Hence, the company shall be liable for all its previous obligations.



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