Want of Capital is a factor that can arise anytime and One Person Company lacks this factor, being a One Person Company, the capital needs cannot be solved because it can only issue shares to the only shareholder/owner it has. This is just one situation, there are so many other disadvantages that makes people convert their One Person Company into Private Limited Company. Therefore in order to grow bigger and expand its business, One Person Company usually shifts to Private limited company.
But the question arises is it possible to convert OPC to Pvt ltd and if yes, then how is it done?
This article provides you all the possible details and answers of your questions that might arise in your head when you are planning for conversion of OPC to Private Company.
- 1 Is conversion of OPC into private company Possible or Not?
- 2 Advantages of conversion of OPC to Private Ltd.
- 3 TYPES OF CONVERSION
- 4 How to convert OPC into Private Limited Company?
- 5 CONCLUSION
- 6 Need Help? Please fill below form to Get in touch
Is conversion of OPC into private company Possible or Not?
There are two approaches for conversion of OPC to Private Limited. As per the provisions of the act, OPC to private limited conversion can be a voluntarily one or mandatory one, but in both situations, a proper procedure is to be followed.
OPC can be converted in to Private Limited after two years of setup, or even before that if its turnover is more than Rs 2 crore and paid share capital surpasses Rs 50 lakhs in a financial year.
Advantages of conversion of OPC to Private Ltd.
There are many Advantages of conversion of One Person Company into Private Limited Company, few of them are listed below:
1. Easy Fund Raising
Funding is considered as the most essential step for starting, maintaining, and growing a business. Private Limited Company can raise their shares from different investors. Thus, a private limited company is the ideal type of business entity for growing businesses.
2. Improve Business Credibility
In today’s time customers, vendors and investors etc. look for credibility in the businesses they deal with. When the credibility is not available it makes it hard to acquire reputed customers, or acquire credit from dealers. In a private limited company, the information relating to the company is made accessible in a widely searchable database. This feature makes it easy to validate the existence of the business, improving business credibility.
3. International Expansion
Investments and collaborations with foreign industries play a significant role in the expedition to become a multinational corporation. Private limited companies are allowed Foreign Direct Investment of up to 100%. Thus incorporating a Private Limited Company can be fruitful.
4. Taxation Benefits
The concept of One Person Company is not recognized under the Income Tax Act and hence it has been put in the same category as other companies for taxation purpose. Private companies have been placed under the tax bracket of 30% on total income. Thus, from the perspective of taxation, the concept of One Person Company becomes a less profitable concept as it imposes heavy financial load. So when the taxation procedure is same and Private Companies are offering so many other benefits a person must choose private Limited Company over One Person Company.
TYPES OF CONVERSION
If an OPC fulfills any of the conditions given below, then it must get converted to a Private Limited Company:
1. Compulsory Conversion:
Compulsory Conversion of OPC takes place when a One Person Company has a paid-up capital of more than or equal to Rs. 50 lakhs or the Annual turnover during the relevant period exceeds Rs. 2 crore, then in such cases, the company has to forcibly convert itself into Private Limited Company or Public Limited Company.
2. Voluntary Conversion:
When OPC gets incorporated, it cannot convert itself into any other form of company for two years from the date of incorporation. If the time period gets elapsed, it can convert as per the Companies act.It is much more advantageous to convert it into Private Limited Company voluntarily after two year because most of the companies which opt for One Person Company generally tend to exceed the threshold limit within these two years.
How to convert OPC into Private Limited Company?
STEP I- Intimation of Conversion to Registrar of Companies
The first step of conversion involves intimation to the registrar of Company regarding conversion. The Registrar of Companies must first be informed through the prescribed procedure that the One Person Company is now transforming itself into a private limited company or a limited company.
STEP II- Passing of Resolutions
The second steps involves passing of resolutions by the members of the Company in a General Meeting for:
1. Conversion of OPC to Private Limited.
2. Alteration of MOA and AOA of the Company.
3. Appointment of additional directors of the Company.
4. Approval for increase in capital of the Company, if required.
STEP III- Filing of form MGT-14
The next step towards the process of conversion is Filing of Form MGT-14 with Registrar of Companies within 30 days of passing the special resolution, along with certified copies of minutes and resolution passed.
STEP IV- Filing of Form INC-6
The next step requires a form named Form INC-6 which has to be filled properly with all the details of particulars and thereafter it has to be submitted along with the fees and the documents that are required with the concerned Registrar within 30 Days from Passing the Resolution. Within fifteen days an application shall be filed to the Registrar along with the copy of the resolution regarding the conversion of the company into a Private company.
Documents / Attachments to be attached along with the form:
1. Notice to board of directors
2. Copy of board resolution authorizing giving of notice
3. Copy of Altered Memorandum of Association
4. Copy of Altered Articles of Association
5. Declaration from directors
6. List of Members
7. Copy of NOC from Secured Creditors
8. Copy of NOC from directors and shareholders
9. Last Audited Financial Statements
10. It is mandatory to attach a certificate from Chartered Accountant if the conversion is, because of exceeding average annual turnover
Registrar of Companies after getting all the required documents on being satisfied that Company has complied with prescribed requirements the Registrar will then issue the Certificate certifying the conversion of One Person Company (OPC) to a Private Limited Company.
The article gave detailed information regarding conversion process. Person who decides for conversion of One Person Company to Private Limited Company has to be patient while doing the submission work, because mistakes in compliances can lead to penalties in the later stage. So be careful while filing various forms and altering Memorandum of Association and Articles of Association. After the conversion is done all you get from the above process is profits and more advantages.
Hope that this article helped you to understand why it is important to convert One Person Company into Private Limited Company.
In case of any further queries or you want to get your One Person Company converted, feel free to contact us.
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