conversion
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In this article, Sandip Ghosh, a student pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata discusses on conversion of an OPC into a Public/Private company

Introduction

What is a One person Company?

A One Person Company (OPC) is basically a hybrid structure which combines the benefits of sole proprietorship and a company form of business. A single person acts as a Director and also as the shareholder.  

Introduced under the Companies Act, 2013, Section 2(62) defines that the OPC is a Company which should have one person as its member.

A One person company is registered in the same manner as a private limited company, thereby the same provisions are followed by both.

Benefits of incorporating an OPC

One Person Company is a new structure of the business model that has been introduced. The following are the benefits regarding the same:

  1. Unlike that of the sole proprietorship, there is only a limited liability of a director in an OPC.
  2. The complete control of the company will be in the hands of the owner
  3. Helps startup entrepreneurs to test their business model which they, later on, carry forward by converting their business with the help of venture capitalists.
  4. There are also provisions for tax flexibility and concessions.

Why does an OPC need to convert into a public/private company?

In order to obtain the various features of a company, many OPCs after a while choose to convert itself into either a Private Limited Company or a Public Limited Company.

Conversion of OPC into Public or Private Limited Company

The policy behind introducing the concept of OPC is to encourage small businesses. As per Company Act 2013,  there is a requirement of conversion of OPC into public or private limited company when it triggers certain criteria such as:

  1. If the paid-up share capital of the OPC hits more than INR 50 lakhs.
  2. If the annual turnover exceeds INR 2 cores consecutively for last three (3) years.

The maximum time limit provided for the conversion after the OPC meets the above-mentioned criteria is of six months.

An OPC has the choice to convert itself into either a public limited or a private limited company. However, the most common mode of conversion is into a private limited company.

Steps that are to be taken during the conversion of OPC into Public or Private Limited Company

The following steps are to be followed:

On reaching a decision to convert, the said decision of conversion of an OPC must be recorded in the minute’s book.

  1. The memorandum and the article of association should be amended as per the following points are given under:
    • The OPC should be subtitled with Private limited or Limited company at the end of its name.
    • In case of Private Limited Company, there should be changes required in the clause of capital if it is increased.
    • The clause of objectives should be amended if there is a requirement of additional objectives in the clause or there is a difference with the existing clause.
    • The clause in respective to subscribers need to be altered as there is a requirement of inclusions of additional members in the memorandum.
  2. The Register has to be notified through the form no. INC 5 within a time limit of 30 days that the existing OPC is getting converted into either a Public or Private company as the amount of Capital (mentioned above) has triggered the requirement of conversion.
  3. After receiving the notification the Register will issue a fresh notice of incorporation.

Conversion of an OPC into Private Limited Company

There are two modes of conversion:

  • Voluntary Conversion

Under Voluntary Conversion, the criteria that the OPC is not allowed to convert itself into a private limited company until the expiry of two years from the date of incorporation as an OPC. The OPC must communicate its intent to convert into a private limited company within 60 days in accordance with Form INC 5 to the registrar of companies.

  • Mandatory Conversion

Under mandatory conversion, if the OPC crosses the threshold limits mentioned above, it must mandatorily convert itself within two months.

Section 18, Companies Act 2013

Section 18 of the Companies Act, 2013 gives the procedure for conversion of companies already registered. It states the following points:

  • The company can convert itself by altering its memorandum and articles of association.
  • The Registrar of companies based on the application can issue a fresh certificate of incorporation
  • The new registration shall not affect the debts, liabilities, obligations or contracts entered into previously by the company.

Also to be followed is the Companies (Incorporation) Rules, 2014.

Conversion of OPC into a Public company

The provisions mentioned under the following rules in Company Act 2013 should be kept in mind before the conversion:

  • Voluntarily conversion

Key Considerations

  • This type of conversion can only happen if the OPC has completed its two years of operation from the date of incorporation under Rule 3 (7) of the Companies (Incorporation) Rules, 2014.
  • The name clause should be amended to exclude the name of “Private”.
  • Adequate steps to increase the number of members and Directors to 7 and 3 as per the prescribed rules. (Rules from 6(6)of Company Incorporation Rules, 2014)
  • The Articles of the company is required to be amended for the removal of restrictive provisions that are applicable to a private company. A new set of articles to be followed in case of Public Company.
  • The Company should not be a defaulter in terms of timely submission of the financial statement or any other documents due for filing with the Registrar. (Rules 29 (1)of Companies (Incorporation) Rules, 2014)
  • The Company should not be a defaulter in terms of repayment of matured deposits or debentures or interest on the deposits or debentures. (Rules 29(1) of Companies (Incorporation) Rules, 2014)
  • Mandatory Conversion

 Key Considerations

  • The member of the OPC must approve the conversion of OPC into Public Company.(Rule 6(3) of Companies (Incorporation) Rules,2014)
  • The clause of the name which states it as “Private” is to be excluded from the memorandum.
  • The number of directors is to be increased to 7 and 3 in addition to a minimum paid capital as prescribed in ( Rule 6(6) of Companies (Incorporation) Rules,2014)
  • The Articles of the company is required to be amended for the removal of restrictive provisions that are applicable to a private company. A new set of articles to be followed in case of Public Company.
  • The Company should not be a defaulter in terms of timely submission of the financial statement or any other documents due for filing with the Registrar.(Rules 29 (1) of Companies (Incorporation) Rules, 2014)
  • The Company should not be a defaulter in terms of repayment of matured deposits or debentures or interest on the deposits or debentures. (Rules 29(1) of Companies (Incorporation) Rules, 2014).

For example, one such successful OPC in India is that of a tour and travels services firm registered as an OPC under the name of Delhi-based businessman Ankur Sharma. Mr Sharma had stated in 2014 that he looked forward to turning his company into a Private Limited Company in six-eight months. (available here )

Conclusion

As the new system of OPC has been introduced in the legal system, it aims not only to encourage young entrepreneurs to enter into the corporate world but also enhances the individual capabilities to contribute in the economic growth of the country by generating employment opportunity.

The mandatory points that are to be kept in mind during conversion

  • Only a natural person who is a citizen of India is eligible to work as the member and nominee of the OPC.
  • A resident of India means a person should not be residing in the country less than 182 days during the immediately preceding one financial year.
  • The person should be a member of one OPC.
  • The natural person as termed, if a member of one OPC becomes a member of another OPC by virtue of his being a nominee of the previous one, then he/she have to withdraw the nominee from the OPC within 180 days.

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