How Does Converting A Private Limited Company Into A One Person Company Work?
Converting from PLC to OPC would have one director and share holder while retaining
the status of a separate legal entity and enjoy the restricted liability.
You need to file form MGT-14 within 1 month. The Registrar of Companies (ROC) will verify the E-forms and attached documents filed by the company for the conversion of private limited company into one person company (OPC).
Convert PLC to OPC
The conversion of PLC (Private limited company) into an OPC (One Person Company) is provided as per the Companies Act, 2013, which implements a mechanism to convert one class of company into another. Section 18 of the Act, explicitly grants the conversion of an already registered private limited company starting from 1 April 2014.
The conversion of PLC to OPC would not affect the responsibilities and contractual obligations of the company before conversion, and such claims, liabilities, obligations shall be enforceable by law, and the resulting OPC shall be liable for them.
Benefits of conversion from PLC to OPC
Limits Director’s Liability
Businesses often need to borrow money. With sole proprietorships, proprietors are personally liable for all the debt. So if it cannot be repaid by the business, the proprietor would have to sell his/her car, house or jewellery to do so. In an OPC, only the amount invested in starting the business would be lost; all personal property would be safe.
If a promoter were to operate as a sole proprietorship, rather than an OPC, the business would come to an end with his/her death. Since an OPC has a separate legal identity, it will pass on to the nominee director and, therefore, continue to exist.
An OPC can only have one director and one shareholder, so annual filings are limited to share certificates and statutory registers.
Checklist requirements for the conversion of PLC to OPC
Here are some requirements to be followed to convert the private limited company into a one-person company:
- The company should have suitably prepared its books of accounts as well as its balance sheet.
- The company has listed and filed all ROC (Registrar of Companies) returns.
- To examine whether the company has paid requisite on the result of the share certificate and that the share certificates are properly matched with the payment of stamp duty.
- The company has deducted all TDS (Tax Deducted at Source) and filed relevant TDS returns.
- The company has paid VAT and Service Tax, or GST, and filed suitable returns before initiating the conversion.
- To check whether the company is maintaining a record of minutes of the meeting, for its board and shareholders, and keep updated registers at its registered office.
- The company is registered under the shop and the establishment acts as per the applicable state laws, where they control offices, shops, warehouses, etc.
- The company complies with the requirements of the professional tax, if applicable in the state where the registered office of the company is located and the states in which it has employees.
- The company is registered under PF, if the number of employees is more than 20 and with ESIC (Employees State Insurance Corporation), if the number of employees is more than 10, and if its listing monthly returns and paying dues as expected under PF and ESIC.
A private limited company can be changed into the one-person company based on the following provisions:
- The provided capital of the company is less than Rs. 50 lakhs.
- The annual turn over of the company should be less than Rs. 2 crores during the past three progressive financial years. Additionally, if the company is new, and has not completed three years, then the turnover shall be considered from the date of its incorporation.
- The shareholder of the resulting OPC shall be only one individual of Indian nationality.
- The shareholder of the OPC is a person residing in India for 180 days of one calendar year.
- The shareholder of the resulting OPC must not have incorporated any other OPC, or he/she is not a candidate of any other OPC.
- A minor cannot be a member or part of an OPC.
Registering a company offers many benefits. A registered company makes it genuine and increases the authenticity of your business.
- Shields from personal liability and protects from other risks and losses.
- Attracts more customers
- Procures bank credits and good investment from reliable investors with ease.
- Offers liability protection to protect your company’s assets
- Greater capital contribution and greater stability
- Increases the potential to grow big and expand
- You will also get Zero Balance Current Account – Powered by DBS Bank *
- Shareholders have a right to appoint the directors to act on behalf of him.
- Unlike a sole proprietorship, even after the death of directors/ shareholders company will exist without any discrepancies.
- The shareholders and the directors will get complete immunity from being sued by the third party except personal issues.
- It attracts lower tax rates and subsidies under the Income Tax Act, 1961.
- The profit of the private limited company is subjected to the tax rate of 30% + surcharge & cesses as applicable.
How to convert a private limited company to a one-person company?
Gather A Board Meeting
- The directors of the company must meet and decide on a date for calling the meeting of the shareholders. Additionally, known as an Extraordinary General Meeting (EGM).
- The notice must be drafted to shareholders along with draft resolution. This must be passed as a special resolution to be adopted by the shareholder concerning the conversion of private limited to OPC.
Issue Notice Of EGM
- The notice of EGM is expected to be given to all the members, directors and auditors of the company. The date of issue of the notice must be 21 days before the date of EGM.
- Simultaneously, along with the notice and the agenda, the draft resolution is to be given as a special resolution, and an informative statement shall be included.
No Objection Form All Creditors
- Initially, before the date of EGM, the No Objection Certificate (NOC) from all the creditors of the company has to be obtained.
- A copy of the approval from creditors is to be settled before the EGM.
Conduct Of EGM
- The EGM must be handled as per the notice, on the assigned date, time and place. The EGM can pass a special resolution concerning the approval of altered MOA (Memorandum of Association) and AOA (Articles of association)
Filing Of Resolution With The ROC
- As per Companies Act, 2013 all the resolutions declared as a special resolution by the members must be registered with the ROC in Form No MGT-14, along with directed attachments within 30 days from the approaching date.
- After the endorsement of the MGT-14, the ROC records the resolution on its record.
The Issue Of The Certificate Of Conversion
- On acceptance of the application for conversion, the Registrar of Companies having jurisdiction examines the application, and if complete, it is approved and issues a certificate of Private Limited company into One Person Company.
How to apply for conversion?
The application of the conversion of private limited company into a one-person company is filed using Form-INC-6 with the following statements.
- A declaration of the form with an affidavit by all the directors that all members and creditors of the company have given consent to the conversion of company into an OPC, and that the paid-up capital of the company is less than Rs. 50 lakhs and that the turnover is less than Rs. 2 crores.
- Affidavits from the members confirming the paid-up capital is less than Rs. 50 lakhs and the average turnover is less than two crores in the past three consecutive financial years.
- A certificate from a practising Chartered Accountant to confirm that the paid-up capital of the company is less than Rs. 50 lakhs and the turnover is less than two crores.
- The latest audited profit and loss account and balance sheet of the company.
- No Objection Certificate from all creditors.
- List of members and directors of the company.
- Copy of the board resolution and the specific resolution taken at the EGM, along with its notices, agenda, and informative statement.
- A modified copy of MOA and AOA, including related clauses, required for OPC.
Documents required to convert PLC to OPC
- Notice to the board of directors.
- Copy of board resolution approving delivery of notice.
- Copy of Altered Memorandum of Association.
- Copy of Altered Articles of Association.
- Declaration from directors.
- List of members.
- Copy of NOC from secured creditors.
- Copy of NOC from detectors and shareholders.
- Last audited financial statements.
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