CONVERT YOUR BUSINESS
PRIVATE LIMITED COMPANY TO ONE PERSON COMPANY
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OVERVIEW
PRIVATE LIMITED COMPANY TO ONE PERSON COMPANY
Private Limited Companies and One Person Companies are two popular types of business models in India preferred by most small businesses. Both have their pros and cons of their own, and the size of the business, nature of the business, investment requirement, tax implications, and compliance requirements determine the preference of a particular type of business model.
In this article, we will discuss in detail the step-by-step conversion of a Private Limited Company to a One Person Company.
CIRCUMSTANCES
CIRCUMSTANCES IN WHICH A PLC IS CONVERTED TO AN OPC
Simplified compliance requirements:
OPCs have fewer compliance requirements than PLCs. For example, OPCs do not need to hold an Annual General Meeting (AGM) or have a board of directors. If the management of the PLC is finding it difficult to comply with these requirements, they may consider converting to an OPC to simplify their compliance obligations.
Restructuring of ownership:
If the shareholders of a PLC decide to transfer their shares to a single owner, they may convert the company to an OPC. This can happen, for example, if one of the shareholders wants to buy out the other shareholders or if the company wants to be owned and managed by a single individual.
Cost savings:
OPCs have lower compliance costs compared to PLCs. If a PLC is facing financial difficulties or wants to reduce its operational costs, it may consider converting to an OPC to save on compliance costs.
Limitation of liability:
OPCs provide limited liability protection to their sole owner, similar to PLCs. If the owner of a PLC wants to limit their personal liability, they may consider converting the company to an OPC.
Ease of management:
OPCs are easier to manage than PLCs since they have fewer compliance requirements and do not require a board of directors. If the owner of a PLC is finding it difficult to manage the company due to complex compliance requirements or disagreements with the board of directors, they may consider converting the company to an OPC.
It is important to note that the conversion of a PLC to an OPC is subject to certain conditions and regulatory requirements, and professional advice should be sought before making any such decision.
ADVANTAGES
ADVANTAGES ENJOYED BY AN OPC IN COMPARISON WITH A PRIVATE LIMITED COMPANY.
Here are some advantages of a One Person Company (OPC) in comparison to a Private Limited Company (PLC):
Single Ownership:
OPC is owned by a single person, which means that decision-making is faster and there is no need for consultations or approvals from others, unlike in a PLC.
No Minimum Capital Requirement:
Unlike PLCs, there is no minimum capital requirement for an OPC, which means that it can be started with a nominal capital of Rs.1.
Lower Compliance Requirements:
OPCs have lower compliance requirements compared to PLCs, which means less paperwork and lower compliance costs.
Tax Benefits:
OPCs are eligible for tax benefits available to small businesses, such as a lower tax rate, exemption from dividend distribution tax, and deductions under various sections of the Income Tax Act.
Easy Transfer of Ownership:
In an OPC, the ownership can be easily transferred by transferring the shares of the company to another person, unlike a sole proprietorship.
THE CONVERSION PROCESS
PRIVATE LIMITED COMPANY (PLC) TO ONE PERSON COMPANY (OPC)
A Private Limited Company (PLC) can be converted to a One Person Company (OPC) as per the provisions of the Companies Act, 2013, under certain circumstances. Below is the step-by-step procedure to convert a PLC to an OPC:
Step 1: Check Eligibility Criteria
- The PLC must meet the following eligibility criteria to be converted into an OPC:
- The paid-up capital of the PLC should be less than Rs. 50 lakhs
- The average turnover of the PLC should be less than Rs. 2 crores for the three immediately preceding financial years
- The PLC should not have any outstanding loan or borrowing from any bank or financial institution
- The PLC should not have any dispute with its creditors or shareholders
Step 2: Obtain NOC
The consent of all shareholders is required for the conversion of a PLC to an OPC. Hence, an NOC (No Objection Certificate) must be obtained from all the shareholders of the company.
Step 3: Obtain Director Identification Number (DIN) and Digital Signature Certificate (DSC)
The director of the OPC must obtain a DIN and a DSC, which are required for the digital signature of e-forms.
Note: This step is done only when a new person is appointed as the Director of the OPC. If an existing director of the Private Limited Company takes charge as the Director of the OPC, this step can be ignored.
Step 4: Board Meeting or Directors Meeting
A board meeting must be held to pass a resolution for the conversion of the PLC to an OPC. The notice of the board meeting must be given to all directors of the company at least seven days prior to the meeting. The resolution must be passed by a majority of the directors.
Step 5: Shareholder Meeting (or) Extraordinary General Meeting (EGM)
A shareholder meeting must be held to pass a special resolution for the conversion of the PLC to an OPC. The notice of the shareholder meeting must be given to all shareholders of the company at least 21 days prior to the meeting. The resolution must be passed by a majority of not less than 75% of the shareholders.
Step 6: Filing of Forms
The following forms must be filed with the Registrar of Companies (ROC):
- Form MGT-14 for filing special resolution
- Form INC-6 for application for the conversion of the PLC to an OPC
- Form DIR-12 for intimating the ROC about the change in the number of directors
- Form INC-22 for intimating the ROC about the registered office of the OPC
Step 7: Issue of Fresh Certificate of Incorporation
Upon receipt of the application in form INC-6, the ROC will issue a fresh certificate of incorporation in the name of the OPC. The conversion is effective from the date mentioned in the certificate.
Step 8: Closing of Bank Account
After receiving the new certificate of incorporation, the PLC must close its bank account and open a new bank account in the name of the OPC.
Step 9: Other Compliances
The OPC must comply with all the legal and regulatory requirements applicable to it, such as maintaining proper accounting records, filing of annual returns, and complying with tax laws.
It is important to note that the entire process of conversion must be completed within 30 days from the date of filing of form INC-6. Also, it is advisable to consult a professional before proceeding with the conversion process to ensure compliance with all legal and regulatory requirements.
PLC TO OPC
FORMS NEEDED FOR CONVERSION
For the conversion of a Private Limited Company (PLC) to a One Person Company (OPC), the following forms need to be filled and filed with the Registrar of Companies (ROC):
Form MGT-14: This form is required to be filed with the ROC within 30 days of passing a special resolution for the conversion of the PLC to an OPC. The form includes details of the special resolution, including the date of the resolution, the number of votes cast, and the result of the vote.
Details furnished
- Name and CIN of the PLC
- Details of the directors and key managerial personnel of the PLC
- Details of the shareholding pattern of the PLC
- Details of the meetings of the board of directors and shareholders held during the last financial year
Form INC-6: This form is used for the conversion of a PLC to an OPC. It includes details such as the name of the OPC, the address of the registered office, the name of the nominee, and the consent of the nominee.
Details furnished:
- Name and CIN of the PLC
- Proposed name of the OPC
- Details of the proposed director of the OPC, including DIN, PAN, and address
- Details of the nominee of the OPC, including name, address, and consent
- Details of the shareholders of the PLC, including name, address, and shareholding
- Declaration by the proposed director and nominee of the OPC
Form DIR-12: This form is required to be filed for the appointment of a nominee director for the OPC. The form includes details such as the name and address of the nominee director, their date of birth, and their PAN and DIN details.
Details furnished
- Name and CIN of the PLC
- Details of the directors of the PLC, including their DIN, PAN, and address
- Details of the proposed director of the OPC, including DIN, PAN, and address
- Resignation letter of the directors of the PLC
Form INC-22: This form is required to be filed for the change of registered office address of the OPC, if applicable.
Details furnished
- Name and CIN of the OPC
- Address proof of the registered office of the OPC
- Details of the proposed director of the OPC, including DIN, PAN, and address
In addition to these forms, the SPICE+ form can be used for the conversion process, which includes all the necessary information and documents required for the incorporation of an OPC.
NECESSARY DOCUMENTS
NECESSARY DOCUMENTS FOR CONVERSION
The following is a list of the necessary documents that are required during each stage of the conversion of a Private Limited Company (PLC) to a One Person Company (OPC) using the SPICE+ Form:
Application for Name Availability (RUN):
Identity and address proof of the proposed director(s)
Digital signature certificate (DSC) of the proposed director(s)
Proposed company name
SPICE+ Form:
- DSC of the proposed director
- DIN of the proposed director
- Passport-sized photo of the proposed director
- Identity and address proof of the proposed director
- Address proof of the proposed company
- Memorandum of Association (MOA)
- Articles of Association (AOA)
- Special resolution passed by the board of directors approving the conversion of the PLC to OPC
- No objection certificate (NOC) from the creditors of the PLC
- Copy of the latest audited financial statements of the PLC
- Copy of the board resolution approving the financial statements of the PLC
- Statement of accounts and solvency of the PLC certified by a chartered accountant
Filing of form MGT-14:
- Copy of the special resolution passed by the board of directors approving the conversion of the PLC to OPC
- Certificate of Incorporation of OPC:
- Certificate of Incorporation of the OPC
- PAN and TAN of the OPC
Filing of form INC-22:
- Proof of registered office address of the OPC
- Copy of the utility bill of the registered office
- NOC from the owner of the registered office
It is important to note that the exact documents required may vary based on the specific circumstances of the PLC and the OPC, and it is recommended to consult a professional for guidance on the specific requirements.
(FAQS)
FREQUENTLY ASKED QUESTIONS (FAQS)
Will an existing director in a Private Limited Company should acquire new DSC and DIN after the conversion of the business to an OPC
No, the existing director in a Private Limited Company (PLC) does not need to acquire a new Digital Signature Certificate (DSC) or Director Identification Number (DIN) after the conversion of the business to a One Person Company (OPC). The director’s DSC and DIN will remain the same and can be used for the OPC.
However, if the director wishes to resign from the OPC or if a new director is appointed, then a new DSC and DIN may be required for the new director. Additionally, if the existing director does not have a DSC or DIN, they will need to obtain them before submitting any forms or documents to the Registrar of Companies (ROC).
Should we change the GST number of the Private Limited Company after converting it into an OPC
Yes, it is necessary to obtain a new GST registration number for the One Person Company (OPC) after converting it from a Private Limited Company (PLC) in India. This is because a PLC and an OPC are considered as separate legal entities under the Goods and Services Tax (GST) law, and therefore, require separate GST registration numbers.
As per the GST law, a change in the constitution of a business, such as conversion from a PLC to an OPC, requires a new registration. The new OPC will need to apply for a fresh GST registration by submitting the necessary documents and information, including PAN card, identity proof, address proof, bank account details, and other relevant information.
The old GST registration of the PLC will need to be surrendered within 30 days of the conversion, and all pending GST returns and payments will need to be completed before the surrender. Once the new GST registration is obtained, the OPC can start conducting business under the new registration number.
It is important to note that failure to obtain a new GST registration after conversion may lead to penalties and legal issues, and therefore, it is advisable to ensure compliance with GST requirements during the conversion process.
What are the compliances a One Person Company does not have in comparison to a Private Limited Company
One Person Company (OPC) is a type of company that has only one shareholder. Compared to a Private Limited Company (PLC), OPC has some compliance relaxations. Here are some of the compliances that OPCs do not have in comparison to PLCs:
Annual General Meeting (AGM):
OPCs do not have to hold an AGM every year, unlike PLCs. This means that OPCs do not need to pass resolutions related to the appointment of directors or auditors, among other things.
Board Meetings:
OPCs are not required to hold board meetings as frequently as PLCs. While PLCs need to hold a minimum of four board meetings in a year, an OPC can have only one board meeting.
Board of Directors:
OPCs need to have a minimum of one director, while PLCs need to have a minimum of two directors. Additionally, OPCs can have a maximum of 15 directors, while PLCs can have an unlimited number of directors.
Statutory Auditor:
OPCs are not required to appoint a statutory auditor until their turnover exceeds Rs. 40 lakhs, unlike PLCs that are required to appoint a statutory auditor from the date of incorporation.
Cash Flow Statement:
OPCs do not need to prepare a cash flow statement as part of their financial statements, unlike PLCs.
However, it is important to note that OPCs still need to comply with many of the other legal and regulatory requirements that are applicable to PLCs, such as filing of annual returns, maintaining proper accounting records, and complying with tax laws. Additionally, some of the above-mentioned compliances may vary depending on the size, turnover, and nature of the business of the OPC. It is always advisable to consult a professional before making any decisions regarding compliance requirements.
What are the new Official Documents that should be modified after the conversion of my PLC to an OPC?
When a Private Limited Company is converted into a One Person Company (OPC), there are no new documents that the OPC needs to acquire. However, there are certain changes that need to be made to the existing documents of the Private Limited Company:
Memorandum of Association (MOA):
The MOA needs to be altered to reflect the change in the company’s status from a Private Limited Company to a One Person Company. The details of the sole member need to be mentioned in the MOA.
Articles of Association (AOA):
The AOA also needs to be altered to reflect the change in the company’s status. The details of the sole member need to be mentioned in the AOA.
Certificate of Incorporation:
The Certificate of Incorporation needs to be updated to reflect the new status of the company as a One Person Company.
PAN Card:
The PAN Card of the company needs to be updated to reflect the new status of the company as a One Person Company.
Bank Account:
The bank account of the company needs to be updated with the new details of the sole member.
GST Registration:
The GST Registration of the company needs to be updated to reflect the new status of the company as a One Person Company.
These changes need to be made within a certain period of time after the conversion, as per the rules and regulations set by the Ministry of Corporate Affairs.
TAXKEY HELP
HOW CAN TAXKEY HELP?
The conversion of your Private Limited Company (PLC) to a One Person Company (OPC) involves several steps and is being constantly updated by the Ministry of Corporate Affairs (MCA). Hence it is hard for a common business person to keep track of all the processes and updates made in the MCA portal to carry out the conversion himself.
Taxkey has helped hundreds of businesses in the successful conversion of their PLCs to OPCs, and our experts have become highly proficient in this domain. Thus, approaching Taxkey will shift a huge load off your shoulders as all the legal compliance and regulation stuff is carried out for you by our experts.
Hence why wait? Let’s convert your Private Limited Company to a One Person Company. Give us a call, and our experts will lead you in the right direction.
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