Conversion Of Private Limited Company to One Person Company

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Conversion Of Private Limited Company to One Person Company

A private limited company can convert itself into a one-person company (OPC) if it has a paid-up capital of less than Rs. 50 lakh and an annual turnover of less than Rs.2 crore. The reason for converting the private limited company into an OPC may be certain private, commercial or managerial.

One Person Company is a business entity run by a sole owner with the benefit of limited liability as that of Private Limited Company. In addition to this, One Person Company is a separate legal entity from its members, offering protection to its shareholders and can be formed by only one director. Following points should be kept in mind while converting a Private limited company into OPC:

• Rule 7 of Companies (Incorporation) Rules, 2014 should be followed.
• No objection certificate from existing members & Creditors.
• The special resolution passed by shareholders.

Advantages of One Person Company

SINGLE OWNER There is only one owner who can act both as a shareholder as well as the director.
LIMITS DIRECTOR'S LIABILITY If a promoter were to operate as a Sole Proprietorship, rather than an OPC, the business would come to an end on his/her death. As an OPC has a separate legal identity, it would pass on to the nominee director and, therefore, continue to exist.
EASY COMPLIANCES OPC OPC is one of the easiest forms of corporate entities to manage. Very few ROC filing is to be filed with the Registrar of Companies (ROC). No need to conduct the Annual General Meeting (AGM), so lesser compliance cost.
STATUS OF PRIVATE COMPANY As per S. 3 of the Companies Act, 2013, OPC is given the status of Private Companies.
VARIOUS EXEMPTIONS FROM An OPC enjoys various statutory exemptions from holding annual or extraordinary general meetings; signature on annual returns can be done by Director himself, restriction on voting rights, demand for the poll, notice for the meeting, Signature on financial statements, etc.
COMPLETE CONTROL This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.
LEGAL STATUS & SOCIAL RECOGNITION OPC is a Private Limited Structure in the eyes of law, which gives suppliers and customers a sense of confidence in business.
SEPARATE LEGAL ENTITY OPC is a legal entity and a juristic person established under the Act. Therefore a company form of organization has a wide legal capacity and can own property and also incur debts. The members (Shareholders/Directors) of a company have no liability to the creditors of a company for such debts.
BORROWING CAPACITY OPC enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.
EASY TRANSFERABILITY Shares of an OPC limited by shares are transferable by a shareholder to any other person. Filing and signing a share transfer form and handing over the buyer of the shares along with a share certificate can easily transfer shares.
OWN PROPERTY OPC being a juristic person, can acquire, own, enjoy and alienate, property in its name. No shareholder can make any claim upon the property of the company so long as the company is a going concern.

Company Registration Process

Documents Required for Conversion

1. List of all members and creditors

2. Latest balance sheet

3. Letter of ‘No Objection’ from the members and creditors

4. Letter of Consent from the Directors by way of affidavit

5. Notice of Extra General Meeting (EGM), which is held to gain the approval of Directors for the conversion of the Private Limited Company to One Person Company.

6. A certified true copy of Special Resolution

7. Altered Memorandum of Association

8. Altered Articles of Association

9. A certified true copy of Board Resolution is optional

Frequently Asked Questions

One Person Company cannot be converted into any other kind of Company until after two years from the date of incorporation of the OPC. However, in case the capital increases beyond Rs.50 lakhs or the annual average turnover exceeds Rs.2 crores. The OPC will cease to exist and then it must be converted to Private Limited Company within six months.

A Private Limited Company cannot convert itself into a One Person Company until the capital is more than Rs.50 lakhs or annual turnover is more than Rs.2 crores in the relevant amount of time.

The following steps must be taken care of after the conversion:

• Arrange a new PAN card for the company
• Update Company account details
• Make the necessary changes in Altered Memorandum and Articles of Association

Compare your options

Private Limited Company Limited Liability Partnership One Person Company Partnership Firm
Preferred for Start-ups Professional Services Firms Sole Proprietors Small-medium sized businesses
Limited Liability Protection Yes Yes Yes No
Minimum Requirement 2 Shareholders 2 Designated Partners 1 Director
1 Nominee
2 Partners
Fund Raising Options High Low Low Low
Tax Advantage Few Most Few Minimal
Statutory Compliance's High Low High Minimal
Compliance Cost High Medium Medium Low
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