Instances When OPC Must be Compulsorily Converted into a Private or Public Company

Introduction

One Person Company (OPC) is defined under Section 2(62) of the Companies Act, 2013 (hereinafter CA,2013) as- “One Person Company means a company which has only one person as a member”. As per Section 3(1)(c) of CA,2013 it is a company which is formed for any lawful purpose by one person. It is a private company. Proviso to Section 3 requires OPC to have two individuals, one as a subscriber and the other as a nominee who shall in the event of subscriber’s death or incapacity to contract become member of the company.

Pre-requisite for a One Person Company- It is pertinent to decide the authorised and paid-up capital of the proposed OPC which cannot be more than 50 Lakhs. However, as per Rule 6 of the Companies (Incorporation) Rules, 2014, in cases where the paid-up share capital of an OPC exceeds Rs. 50 Lakh then it is mandatory for it to convert itself into a private or a public company within a period of 6 months of the date when paid-up share capital increased beyond Rs 50 Lakhs.

Another instance when the OPC can be forced to convert itself into a private or a public company within a period of 6 months is when the average annual turnover of an OPC exceeds Rs 2 crore during the relevant period, i.e., immediately preceding 3 consecutive financial years.

To convert into a private company, it needs to fulfil the requirement of minimum 2 directors in case of private company and at least 3 directors in case of a public company. Further, in order to convert to a private company at least one more member need to added and if OPC is being converted into a public company, at least six more members need to be added to fulfil the minimum requirement of 2 and 7 respectively.

Procedure

Step 1: Board Meeting

1. A meeting of the board (if there is more than one director) is convened in accordance with the Sections 18 and 173 and Secretarial Standards-1. It is done to consider and authorize one of the directors with the power to file intimation about the company ceasing to be an OPC and to further consider converting the company into a private or public company.
2. Further, decisions would be taken to consider and approve transfer of shares to increase members to fulfil minimum requirement of 2 or 7 as the case maybe and to also comply with the minimum directors’ criteria.
3. Thereafter, alteration to AOA/MOA are discussed and approved.
4. Decisions relating to the day, date, time, and agenda for the general meeting for passing special resolution to effect the changes is decided.
5. The board meeting will approve a draft notice of the general meeting and provide for the explanatory statement for the need to pass a special resolution. Also, at the meeting a director will be authorised to issue the notice of a general meeting.
6. In case if there is only one director on the Board of Directors of an OPC, then it is sufficient if the resolution passed by such a director is entered into the minutes book.

Step 2: Forms and Documents filing stage

• Thereafter, in accordance with Section 3 read with rule 6(4) of the Companies (Incorporation) Rules, 2014 a notice has to be given to the ROC within 60 days of breaching the threshold limit to inform that it has ceased to be an OPC in Form INC-5.
• Later, upon appointment of additional directors a return of appointment has to be filed with the ROC in 30 days in Form DIR-12 along with requisite documents and fees.
• Further, reflect changes in the register of directors and key managerial personnel (KMP) and their shareholding and register of contracts or arrangements in which directors are interested through Form MBP-4.

Step 3: Register of Members

1. Also, make relevant entries in the register of members in Form MGT-1 within 7 days of the board meeting where the increase in number of members to a minimum of 2 or 7 was approved.

Step 4: Calling a General Meeting

1. As per Section 18 and 100 and Secretarial Standards-2 (on General Meeting), a general meeting will be called wherein the special resolution with following effect would be passed-
   1. Convert company into a private or a public company.
   1. Consider and approve the alteration in MOA/AOA of the company.
   1. To regularize additional directors (if any) by ordinary resolution.
2. MCA issued a circular No. 14/2020 dated 8^th April, 2020 which gives clarification related to ordinary and special resolution by companies under the CA Act. MCA encouraged the companies to take all decisions of urgent nature which requires approval of members through the mechanism of postal ballot or e-voting in accordance with the Companies Act, 2013 without holding a general meeting which required physical presence of members.
3. Forms and documents that needs to be filed are-
   1. Form DIR-12 to file a return containing details of appointment of directors with ROC within 30 days of general meeting and also register directors and key managerial personnel and their shareholding.
   1. Form MGT-14, a copy of the special resolution passed along with an explanatory statement with the ROC in 30 days of passing it.
   1. Form INC-6 company to file an application with ROC for its conversion into a private or public company.

Step 5: Receiving the Certificate from ROC

1. Thereafter, the ROC, if satisfied, as per Section 18 read with Rule 7(5) of the Companies (Incorporation) Rules, 2014.

Step 6: Post-compliances

1. It should be ensured that the alterations made in the AOA/MOA are noted in every copy of the AOA/MOA
   1. Further, as per section 12(3) of CA, 2013, the company is required to paint or affix new name on the outside of every office or place in which business is carried on;
   1. Print the new name on all business letters, billheads, letter papers and notices and other official publications
   1. Engrave the new name on official seal if the company has it
   1. Inform all the statutory authorities wherever the company is registered about the change in the nature of the company.

Estimated time required

The overall timeline to complete the compulsory conversion of OPC into a private or public company can take somewhere between 13 days to 86-90 days. This comprises of:

• Board meeting- Minimum 1 day to a maximum of 8-10 days
• General meeting- Minimum 1 day to a maximum of 23-25 days
• Filing copy of the Special resolution with the ROC- Minimum 1 day to 30 days
• Filing of an application for conversion with the ROC- Minimum 5 days and Maximum 5 days

Conclusion

One person is a company which has only one person as a member. It is a private company which requires license from government under Section 8 of the Companies Act, 2013 before incorporating. Generally, such companies can convert to any other type of company only after a lapse of two years since incorporation. However, in cases where the authorised and paid-up capital crosses Rs. 50 Lakhs or that the average annual turnover of an OPC exceeds Rs. 2 crore during the relevant period, i.e., immediately preceding 3 consecutive financial years, then it has to mandatorily convert into a private or public company within a period of 6 months.