What Is The Process to Convert Your Private Company Into A One-Person Company?

The process to convert the private company into a one-person company (OPC) is governed and regulated by rule 7 of companies (incorporation) rules, 2014. Before going into the details of the process, it is crucial to comprehend a one-person company’s concept and the benefits it can offer to your business. 

Prior to converting into OPC, it is crucial that your businesses possess a private ltd company registration in India as per Companies Act, 2013. Private limited company registration in India can be done via online mode with required documents.  

Defining one-person company under section 3

A one-person company (OPC) is a new concept when it comes to business structures. It has been incorporated under the companies act, 2013. Sole proprietor form of business might convert themselves into the corporate form of business with fewer formalities and compliances to follow.

Here are some of the characteristics of a one-person company form of business as given below;

– Only one shareholder is needed for the establishment of a one-person company. Nonetheless, this one person has to be a natural person with Indian citizenship.

– Only one director is needed for the establishment of a one-person company. The one-person company as a business form allows a maximum of 15 directors.

– Here, the director and shareholder both can be the same person.

– Nominee’s appointments are compulsory via memorandum.

– The said nominee will have to provide her/his approval before appointment as a nominee.

– Only a natural person, who is an Indian resident and an Indian citizen, can be allowed to be a nominee for the sole member of a one-person company.

– One-person company is not allowed to convert itself voluntarily into any other form of the company unless 2 years have expired from the one-person company’s incorporation date.

– Nonetheless, where paid-up capital exceeds the Rs. 50 Lacs or average annual turnover goes beyond Rs. 2 crores, then the one-person company will cease to be a one-person company and can start a conversion process into a public or private company within a period of six months.

Benefits of the one-person company as a business form.

– Limited liabilities.

There will be a challenging time ahead as well in the business, which is beyond our control, and some of them can have a detrimental effect on our business. It can also put the owner’s personal assets at risk when the form of business is a proprietorship. On the other hand, in the one-person company, liabilities will be limited to the shareholder concerning his/her shareholding in the business. According to the corporate form of business, any loss in the business would not impact the owner’s personal property, and it company will be liable to bear all the losses.

– Control and legality.

OPC is incorporated under the companies act 2013. As we all know, that company form of business is predominant and builds confidence among the parties doing business with the company. Simply, it helps to understand any suppliers, customers and dealers feel more comfortable dealing with private limited companies concerning others.

One of the primary benefits of the OPC business form is that the owner is only one person who can make a quick decision regarding the company’s business and will have complete control over its tasks.

– Makes banking operation easy.

Banks provide their services to companies very easily in comparison to proprietorships firms. Hence, it becomes easy for OPC to get loans from banks.

– Less tax burden.

Under the companies act, 2013, OPC registration has given enough powers to easily run the business and make a business contract with management and customers. All the provisions related to tax planning will be available to OPC.

– Less management and compliance.

From the aforementioned points, one can comprehend that the concept of OPC is one of the easiest of them all. It makes business operations easy in comparison to other business forms.

Law concerning the conversion of a private company into the one-person company.

Laws concerning the conversion of private companies into OPC are stated in rule 7 of companies (incorporation) rules, 2014. Main points of which are given below;

• Other than the private company registered under section 8 of the said act, having paid-up share capital of 50 lacs or less or average annual turnover during the specific period is 2 crores or less can convert itself into OPC through passing a special resolution in the general meeting. Otherwise, one cannot do so.

• Before passing such a special resolution, the company must acquire no objection in written from existing creditors and members.

Process for conversion of private company into OPC.

The secretarial process has been given below;

1.Notice for a board meeting – issuance of notice as per section 173(3) of the companies act, 2013, for arranging a board of directors’ meeting. Meeting’s agenda would be;

a. To obtain in-principal consent of directors to convert the private company into OPC.

b. Fix time, date and place for convening extraordinary general meeting (EGM) to obtain shareholders’ consent through a special resolution to convert the private company into OPC.

c. To authorize EGM’s notice and explanatory statement and agenda to be attached to notice of general meeting according to section 102(1) of the companies act, 2013.

d. To authorize the company secretary or director to issue a notice of the EGM as approved by the board.

2. Issuance of EGM’s notice to all directors, members and auditors of the company as per section 101 of the companies act, 2013.

3.Convening general meeting – arrange EGM on due date and time and pass the requisite special resolution to convert into OPC.

4. ROC form submission – according to rule 7(3), the company is obliged to submit a special resolution passed by shareholders to convert into OPC with the concerned registrar of the companies. Thus, submit form MGT.14 within 30 days of passing of special resolution with the concerned registrar of the company with fees and some documents given below;

– EGM’s notice.

– Special resolution’s certified true copy.

5. The company should submit an application in form no. INC 6 to convert into OPC along with fees as per the provision of the said Act with the following documents;

The directors of the company should give a declaration by way of an affidavit duly sworn to confirm that all creditors and members of the company have approved conversion. The company’s paid-up share capital is 50 lacs or less, or the average annual turnover is not more than 2 crores.

– Lists of creditors and members.

– Latest audited P&L account and balance sheet.

– No objection letter’s copy of secured creditors.

6. Duty of ROC – concerned ROC would verify E-forms and documents submitted by the company. If he/she is satisfied with it, it will grant you a certificate to convert into OPC.