Introduction

A Private Limited Company is a business with numerous benefits like – it is an entity that is privately held, have the liability of the directors/members limited to their shares only. Being a separate legal entity its shares are prohibited from being publicly traded, however, the company can purchase the property in its name and have a better credibility rate compared to other. A private limited company is an independent legal structure with the benefits like -

• Separate Legal Entity - This provides a benefit to the organization to acquire assets on its own name.
• Limited Liability - liability of the company’s shareholders is limited to the amount of unpaid value of the shares owned by them.
• Ease in share transfer
• Attracts investors

A One Person Private Limited Company (OPC) is registered under Section 2(62) of the Companies Act 2013. This concept was introduced in order to promote the individuals who want to operate their businesses on their own without the interference of any other director. This type of entity act as a bridge between a proprietorship frim and a private limited company, where a business owner can enjoy the benefits of a single owner as well as a private limited company.

Now the main question arises when both entities have almost similar benefits, then why there is a need for the conversion of One Person Company into a Private Limited Company? This can be understood in two ways. The conversion can be voluntary or mandatory. In first case, an individual can do the conversion process any time or for any reason like – if they want to add any director, or want to expand their business if they want to increase their paid-up capital etc. In the second case, it becomes mandatory to convert an OPC into a private limited company only if the OPC has no more status of a small company or has turn over more than INR 2CR for consecutive 3 years.

--------------Blog Contact Form-------------

Conversion of OPC into a Private Company:

The conversion of an OPC into a Private Limited Company is executed under Section-18 of the Companies Act of 2013, and the Companies (Incorporation) Rules of 2014 under Rule 7(4) of the Companies (Incorporation) Rules, 2014. The conversion can be voluntary or mandatory.

According to the regulations provided an OPC can be converted into a Private Limited Company in following of the two ways -

• Voluntary Conversion.
• Compulsory Conversion

Voluntary Conversion

In voluntary conversion into a private limited company, an OPC must have completed a minimum of two years of its incorporation.

Mandatory/Compulsory Conversion

If an OPC has attained any of the mentioned situations, then it must convert itself into a Private Company:

• If the paid-up capital of the OPC exceeds INR 50 Lacs.
• If the average turnover in three consecutive financial years is more than Rs. 2 crores.

Any OPC who has complied with any of the above-mentioned condition has to compulsorily convert themselves to a private limited company within a period of 6 months which is calculated from the date when the paid-up share capital exceeded INR 50 lakhs or when the average annual turnover surpasses INR 2 Crore.

Eligibility Requirements for the Conversion

• Minimum 2 directors and 2 members are required
• Audited balance sheet
• Director and shareholder consent for the conversion
• The decision for conversion of an OPC must be recorded in the minutes book
• OPC must  add Private limited as a suffix at the end of its name
• Clause of objectives are required to be modified
• The subscriber’s sheet and the clause is required to be modified as there will be the addition of the members in the memorandum

Procedure for OPC into a Private Company

Step 1- Intimate ROC

The concerned ROC must be communicated first through FORM INC 5, mentioning that the OPC is going to apply for converting itself into a private limited company.

Step 2- Passing the Board Resolutions

The shareholders of the OPC are required to hold a General Meeting in order to pass the resolution mentioning –

• raising the paid-up capital (if needed),
• no. of shareholders
• Appointment of additional directors
• Approval for the alteration of and of the OPC.

Step 3- Application for conversion of OPC to a Private Limited Company

• The company is now required to file an application to the registrar along with a copy of the resolution within fifteen days of passing the resolution.
• The registrar will give the approval on the application, only if the details filled to be correct and fees are being paid against the registration.
• Once the scrutiny of the documents is done, the Registrar will issue the Certificate of Incorporation

Conclusion

Private Limited Companies are considered as more convenient entity for running a business over a company in terms of the flexibility of the operations, funding procedure and better credibility compared to other entities. An OPC may have the benefit of lessor compliance and taxation but are required to get compulsory converted into a private limited firm. Private Limited Companies are more considered by new or small entrepreneurs. It is mostly suitable for professionals, manufacturing, retailers or consulting firms.

If anyone has an entity registered as OPC and wants to convert it into a private limited company, then they can free to do that with just filing of forms. The forms used for the conversion of the firms, require expertise. If you want to convert your One Person Private Limited Company into a Private Limited Company, feel free to contact us.