What is the Procedure for Conversion of a Private Company into an OPC?

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”. It was introduced through the 2013 Act. It was recommended by an expert committee headed by Dr. JJ Irani in 2005. 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 conversion to One Person Company-

• It is important to ensure the authorized and paid-up capital of the proposed OPC which cannot be more than 50 Lakhs and average annual turnover, immediately preceding the 3 consecutive financial years of Rs 2 crore or less.
• In order to convert to an OPC the company has to get a no-objection in writing from members and secured creditors.
• An OPC can only be formed by a sole member who is a natural person and a citizen of India and resident in India. Further, nominee of an OPC should also be natural person, Indian citizen, and a resident in India.
• Further, as per Rule 3(2) of the Companies (Incorporation) Rules, 2014 provides that the natural person shall not be a member of more than one OPC at any point of time.

Procedure

Step 1: Board Meeting

• In conformity with the Sections 18 and 173 and Secretarial Standards- I, hold a board meeting wherein relevant factor such as the-
  • Consider and approve conversion of the private company into an OPC
  • Authorize a director of the company to obtain consent of members and creditors for conversion of the private company to an OPC.
  • Consider alterations in MOA/AOA (Memorandum of Association/ Articles of Association).
  • Consider transferring of shares to reduce the number of members to 1 to form an OPC.
  • Then ascertain the day, date, time and agenda for the general meeting for passing the special resolution to give effect to the change.
  • Then a draft notice for the general meeting will be drafted and a director will be authorised to issue notice for the general meeting.

Step 2: Register of Members

• As per Section 88 read with rule 5(1) of the Companies (Management and Administration) Rules, 2014, 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 3: NOC in writing

• Before the special resolution is passed, a no-objection is to be secured in writing from all members and the secured creditors as per Section 3(1) read with Rule 7(2) of the Companies (Incorporation) Rules, 2014.

Step 4: General Meeting

• As per Section 18 and 100 read with Rule 7(1) of the Companies (Incorporation) Rules, 2014 and Secretarial Standards-2, hold a general meeting to pass a special resolutions for conversion of private company into an OPC and approve the alterations proposed in AOA/MOA of the company.

Step 5: Form and Documents Filing

• The copy of the approved special resolution has to be filed along with an explanatory statement with ROC (Registrar of Company) in 30 days of the passing of Special Resolution in Form MGT-14 along with other relevant documents.
• The single member remaining would determine the name of the nominee and obtain consent of the nominee in Form INC-3 along with necessary documents.
• Then file with the ROC an application for the conversion of the company into an OPC through Form INC-6 along with the necessary documents.

Step 6: Receive Certificate from ROC

• ROC upon being satisfied shall issue Certificate of Incorporation (COI) to the company as per Section 18 read with Rule 7(5) of the Companies (Incorporation) Rules, 2014.

Step 7: Post Compliances that Should be followed

• Section 15(1)- ensure that the amendments to the MOA/AOA are reflected in all the copies of MOA/AOA.
• Section 12(3)- paint or affix name outside the building, business letters, bill heads, engrave name on seal, etc.
• Inform the concerned statutory authorities about the change in the nature of the company.

Frequently Asked Question:

What is the relevance of an OPC?

1. OPC is a ‘one man show’ as the present Finance Minister Nirmala Sitharaman calls it, it is a new creation of category of companies under Companies Act, 2013. It is primarily intended to encourage entrepreneurship in the country and aid formation of small and marginal business firms by giving them status of a corporate body.
2. The government has recognized more than 41,000 startups in India. The sector is growing rapidly as more and more unicorns are emerging.

What are the benefits of forming an OPC?

1. Certain exemptions are given such as – Exempted from making cash flow statement as per Section 2(40) of the Company Act, 2013.
2. It is exempted from complying with rotation of auditors under Section 139(2) of CA, 2013.
3. It is exempted from holding the Annual General Meeting (AGM).
4. One director can sign the financial statement and board’s report.
5. OPC is not required to file any audit report on internal financial controls.

What are the OPC related provisions in Union budget 2021-22?

1. Has reduced compliances to further promote the entrepreneurial talent in the country.
2. This is to give boost to the economy deeply damaged by the covid-19 pandemic.
3. Government has reduced the residency limit for an Indian citizen to set up and OPC from earlier 182 days to now 120 days.
4. Further, it has also allowed Non-Resident Indians (NRIs) to incorporate OPCs in India.
5. Conversion of OPC in private limited or public limited is made easier.
6. The requirement for conversion of OPC to private or public limited company is made easier as the restriction of 2 years waiting period has been removed. Now OPC can be converted to private or public limited anytime.
7. The threshold of having a paid-up share capital of Rs. 50L or less and average annual turnover during the relevant period Rs. 2 crore or more is also not required for OPC to convert itself into another company under the Act.

Conclusion

One person Company is a company which only has one person as a member. It requires to have a subscriber and a nominee who will take over in case of death of the subscriber. It is essential to note that an OPC cannot have a paid-up share capital more than Rs. 50 Lakhs or an average annual turnover cannot be more than Rs. 2 crore or less.