Overview of Conversion of Private Limited Company to OPC

When the promoter of a private company chooses to resign, the structure of the company may face difficulties. In such cases, professionals often recommend converting a private limited company into a One Person Company (OPC). An OPC is a business structure that requires only a single shareholder for its formation.

Concept of Private Limited Company

A Private Limited Company (PLC) is a privately-owned business entity where members enjoy the benefit of limited liability, meaning their liability is limited to the extent of their shares. This business format is commonly chosen by individuals with ambitious goals.

Under the Companies Act, 2013, a private company must have at least two members and a maximum of 200 members. It also requires a minimum of two and a maximum of fifteen directors for its operations. Additionally, foreign nationals or Non-Resident Indians (NRIs) can serve as directors of a private company.

The Companies (Amendment) Act, 2015, removed the minimum capital requirement of Rs. 1,00,000 for private limited companies.

Concept of One Person Company (OPC)

The concept of One Person Company (OPC) is relatively new in the Indian corporate sector. Unlike a private limited company, an OPC only requires one individual for its incorporation. However, an individual cannot form more than one OPC.

An OPC differs from a sole proprietorship in a key aspect: while a sole proprietorship is not a separate legal entity, an OPC is a distinct legal entity. Additionally, a nominee for an OPC can only act as a nominee for one such company.

Benefits of Converting a Private Limited Company to OPC

The advantages of converting a Private Limited Company to a One Person Company (OPC) include:

1. Simplified Annual Filing
   An OPC requires fewer annual and ROC compliances compared to other business structures. There is no need for the director to seek approval from a Company Secretary for filing the Annual Returns.

2. Faster Decision-Making
   Running an OPC is simpler and more efficient, allowing for quick decision-making as there is only one shareholder and director, leading to more streamlined operations.

3. No Requirement for Annual General Meeting (AGM)
   OPCs are not subject to the same stringent requirements as private companies, meaning there is no obligation to hold an Annual General Meeting.

Minimum Requirements for Converting a Private Limited Company to One Person Company (OPC)

The key requirements for converting a Private Limited Company to an OPC in India are:

1. The paid-up capital of the private limited company must not exceed ₹50 lakhs.
2. The annual turnover of the private limited company should not exceed ₹2 crore.
3. A minimum of one shareholder is required.
4. A minimum of one director is needed, and the same individual can serve as both the shareholder and the director.
5. At least one nominee must be appointed.
6. There is no minimum capital requirement for an OPC.
7. The company’s name must include the suffix "OPC" or "One Person Company."
8. The directors of the private company must pass a special resolution to get approval from the shareholders.
9. Only a natural person with Indian citizenship can become the shareholder of the proposed OPC.
10. The shareholder must be an Indian resident, defined as a person who has stayed in India for at least 180 days in the preceding calendar year.
11. A minor is not eligible to become a shareholder or member of an OPC.
12. The shareholder of an OPC cannot be a nominee or shareholder in any other OPC.

Conditions for Conversion of Private Company to OPC

Before a private company can convert to an OPC, it must meet the following conditions:

1. The company must prepare and audit its Profit and Loss Account, Balance Sheet, Financial Statements, and other relevant books of accounts.
2. All returns and documents must be filed with the Registrar of Companies (ROC) before initiating the conversion process.
3. The private company must clear any outstanding stamp duty on share certificates.
4. The company must file its TDS returns for all deductions made.
5. GST returns should be filed.
6. The company must comply with all professional tax obligations.

Procedure for Converting a Private Limited Company to One Person Company (OPC)

The steps involved in converting a Private Limited Company to an OPC are as follows:

1. Convene Board Meeting
   The directors must send a notice for the Board Meeting at least seven days in advance. The notice should include the agenda of the meeting as an attachment.

2. Hold Board Meeting
   During the Board Meeting, the directors must pass a resolution to approve the conversion of the Private Limited Company to an OPC. Additionally, they should decide on the following business items:

   • Setting the date, time, place, and day for the Extraordinary General Meeting (EGM).
   • Approving the notice for the EGM.
   • Approving the explanatory statement and agenda for the EGM.
   • Authorizing the directors to issue the notice for the EGM.

3. Send Notice for EGM
   The directors should send a notice for the EGM to all the members, auditors, and directors of the company at least 21 days before the date of the meeting.

4. Obtain NOC from Creditors
   The company must obtain written No Objection Certificates (NOCs) from its creditors and shareholders.

5. Hold EGM
   During the EGM, shareholders must pass a special resolution to approve the conversion of the Private Limited Company to an OPC.

6. File Form MGT-14
   After passing the resolution, the directors must file Form MGT-14 with the Registrar of Companies (ROC) within 30 days. The following documents must be attached to the form:

   • Notice of EGM, along with the explanatory statement.
   • Certified copy of the special resolution.
   • Altered Memorandum of Association (MOA).
   • Altered Articles of Association (AOA).
   • Certified copy of the Board resolution.

7. File Form INC-6
   The next step is to file Form INC-6 as an application for the conversion. The following documents must be submitted with the form:

   • List of members and creditors.
   • Latest audited balance sheet.
   • Updated profit and loss statement.
   • NOCs from creditors and shareholders.
   • A declaration from the directors confirming:
     • All creditors have given their consent.
     • The paid-up share capital is ₹50 lakhs or less.
     • The annual turnover is less than ₹2 crore.

8. Issuance of Certificate
   After reviewing the documents, the ROC will issue a certificate confirming the conversion of the Private Limited Company into an OPC.

Post-Conversion Requirements

After converting to a One Person Company (OPC), the following actions are required:

1. Obtain a new PAN (Permanent Account Number) for the company.
2. Update company stationery and letterhead to reflect the new name.
3. Update the company's bank account details to reflect the name change.
4. Notify all relevant authorities regarding the conversion.
5. Ensure printed copies of the updated Memorandum of Association (MOA) and Articles of Association (AOA) are available.

Difference Between One Person Company (OPC) and Private Limited Company