A step-by-step guide to voluntarily Convert a One Person Company into a Private Limited Company under Indian company law
Converting a one person company (OPC) into a private limited company (Pvt Ltd) can give your business more credibility, funding options, operational freedom and growth potential.
In this comprehensive guide, we cover everything you need to know about voluntarily converting your OPC to a Pvt Ltd company in compliance with Section 18 of the Companies Act 2013 and Rule 6 of the Companies (Incorporation) Rules 2014.
Table of Contents
Introduction
A one person company, as the name suggests, is a type of private limited company with only one member/shareholder and director. The concept was introduced in India through the Companies Act 2013 to support entrepreneurs and sole proprietors.
However, as your business grows, you may want to convert your OPC into a multi-shareholder private limited structure for greater funding access and operational flexibility.
The good news is the conversion process is relatively straightforward and can be initiated voluntarily at any time. There is no minimum capital or turnover threshold you need to cross anymore after Budget 2020 relaxed the norms.
So if you feel your OPC’s growth is constrained due to regulatory requirements or fundraising limitations, transforming it into a Pvt Ltd company could be a strategic move at the right time.
Overview of One Person Company
Here are some key characteristics of an OPC before we get into the conversion process:
- Has only one director and member
- Director has to be an Indian citizen and resident in India(182days reduced to 120 days or more)
- Member can be Indian or foreign citizen
- Paid up share capital of 50 lakhs rupees or less and average annual turnover during the relevant period is 2 crore rupees or less has be omitted ( Companies (Incorporation) Second
- Time constraint of minimum 2 years from date of incorporation of OPC needed before conversion has been removed. Conversion to any other company is possible anytime.
- lesser compliance burden compared to private limited
While the OPC structure offers simplicity and flexibility to solo founders, you may crave the greater credibility and fundraising potential that comes with converting to a private limited status.
Why Convert an OPC into a Private Limited Company?
Here are some of the key motivations for converting to a Pvt Ltd company:
1. Access to More Funding Options
An OPC cannot raise external funding through debt or equity markets. Venture capitalists prefer the private limited structure to invest in startups. This cuts off important funding avenues for high-growth startups.
Conversion to a pvt ltd opens doors to VC/angel funding, bank loans, easier access to partnerships and collaborative projects etc.
2. Greater Credibility
The “one person” tag of an OPC portrays the impression of a small-scale business to customers. This can limit your credibility and trust in B2B markets.
A pvt ltd company commands much greater trust and authority owing to compliance requirements and multi-founder structure. This facilitates business partnerships and sales.
3. Transferring Ownership Easier
Selling or transferring ownership of an OPC entails greater complications than a pvt ltd company. Conversion facilitates leadership changes, employee stock options and gives your company an exit value.
4. No Limit on Number of Directors
OPCs capped at 1 director whereas pvt comps can appoint 2-15 directors to create a multi-founder structure and diversified leadership. Benefits decision-making and innovation.
5. Operational Flexibility
More directors in pvt ltd allows greater flexibility in operations, decision-making and strategy changes compared to single-director OPC structure.
So if you feel like the OPC structure is throttling your company’s growth, conversion to a private limited company can prove to be a game-changer in scaling your business to new heights.
Eligibility Criteria for Conversion from OPC to Private Limited
Before 31st March 2021, there were certain turnover and capital thresholds an OPC had to cross before mandatory conversion to a pvt ltd.
However, OPCs can now voluntarily convert into pvt limited companies without meeting any eligibility criteria. The entire process is facilitative and not restrictive anymore.
Here’s an overview of the key requirements:
Members & Directors
To convert, an OPC needs to increase members and directors to:
- Minimum 2 directors
- Minimum 2 members/shareholders
This meets the mandatory requirement of a multi-shareholder structure for private limited companies.
Alter MOA & AOA
The OPC’s Memorandum of Association and Articles of Association have to amended during conversion to reflect the operational framework of a pvt ltd company.
NOC from Creditors
You need to obtain a No Objection Certificate (NOC) from all creditors and submit it with your application for conversion to the RoC. This ensures settlement of pending dues beforehand.
That’s it! As long you as meet the above requirements, voluntarily converting your OPC to a pvt ltd is a smooth and facilitated process according to Indian company law.
Documents Required for OPC to Pvt Ltd Conversion
Here is a checklist of documents needed for incorporating conversion of an OPC into a private limited company:
- Application Form INC-6 with proposed pvt ltd name
- Altered Memorandum of Association
- Altered Articles of Association
- Declaration from director/member for compliance with rules
- Copy of special resolution approving conversion
- Consent of new members/directors to act as such
- Proof of identity & address of new members/directors
- Statement of assets & liabilities of the company latest financial year
- Income tax returns of the OPC for last 3 years
- Copy of PAN and passport of foreign members (if any)
- NOC from the company’s creditors
- List of creditors with amount payable to each of them
- Consent letter from nominee
- Optional attachments – declarations, affidavits, certificates etc
So while the process seems lengthy on paper, much of this documentation would already be available with your OPC. The key additions would be NOC letters, consent from new members/directors and altered MOA/AOA.
Step-by-Step Process for Voluntary Conversion of OPC to Private Limited
Here is a step-by-step breakdown of the conversion process as per the law:
Step 1) Increase Directors and Members
Start off by taking the following internal actions:
- Appoint minimum 1 new director
- Admit minimum 1 new member
- Pass ordinary resolution to increase members/directors
This creates the multi-shareholder structure needed to form a private limited company.
Step 2) Obtain NOC from Creditors
Take NOCs from all creditors of the OPC clearly stating no objection to the proposed conversion. This is an important compliance prerequisite.
Step 3) Alter MOA & AOA
- Make necessary changes in MOA and AOA to reflect conversion from OPC to pvt ltd framework
- The new MOA/AOA should meet requirements of Section 3(1)(iii) for private limited companies
- Pass special resolution adopting the altered MOA & AOA
Step 4) Obtain Member/Director Consent
Take consent letters from the newly joined member(s) and director(s) to act in their respective capacities after conversion.
Step 5) File Form INC-6
Now comes the actual application filing for conversion to the Registrar of Companies:
- Prepare FORM INC-6 along with attachments/annexures
- Digitally sign the eForm and attachments
- Pay the requisite fees and file form on MCA portal
Step 6) Issue Certificate of Incorporation
Finally, the RoC will:
- Scrutinize your INC-6 application along with supporting documents
- Ensure all requirements under Rule 6 have been fulfilled
- Seek clarifications or additional documents if needed
- Finally approve and a new Certificate of Incorporation (COI) as private limited company.
And that completes the process! By following all rules and statutory compliances, you can smoothly upgrade your OPC to a private limited structure.
Compliances After Converting OPC to Private Limited
Once conversion is done, your private limited company must ensure the following compliances:
- Follow memorandum & articles of pvt company
- Board meetings, shareholder meetings and other requirements under the Companies Act 2013
- File financial statements i.e. annual returns, balance sheets etc
- Income tax returns filing and tax payments
- Appointments of KMPs and mandatory committees
- Other regulatory compliances as applicable
So while compliance burden increases, it also makes your company more structured, professionally managed and builds stakeholder confidence.
Consult experts like Filingwala to stay updated with post-conversion compliance requirements applicable to private limited companies based on annual turnover.
Difference Between an OPC and a Private Limited Company
Now that you understand the conversion process, let’s also quickly summarize some key differences in operational structure between OPCs vs Pvt Ltd Companies:
Parameter | One Person Company | Private Limited Company |
---|---|---|
No. of Members | Minimum 1 | Minimum 2 |
No. of Directors | 1 | 2-15 |
Authorized Capital | No minimum capital | Minimum ₹1 Lakh |
Transfer of shares | Restricted | Can be freely transferred |
Fundraising options | No equity funding, limited debt funding | External equity, debt funding allowed |
Compliances | Lower | Higher |
Credibility & Trust | Lower | Higher |
Decision Making | Concentrated | Shared between multiple directors |
So while OPC offers flexibility to sole founders, conversion to a pvt ltd structure can be beneficial from compliance, fundraising and scaling perspective at a later stage.
Pros and Cons of Converting from OPC to Private Limited
Before taking a decision, also weigh some key advantages and limitations involved:
Pros of Conversion
- Access to more fundraising channels
- Gain operational flexibility
- Opening ownership to more shareholders
- Transferring ownership/leadership easier later
- Enhanced trust and credibility amongst stakeholders
- Stronger corporate governance standards
Cons of Conversion
- Involves complex procedures & documentation
- Higher compliance requirements
- Increased filing fees and costs
- Surrendering concentration of power
So based on your priorities around growth, funding needs and operational flexibility, you can decide if conversion is the right strategic choice for your business at the current stage.
FAQs on Converting OPC to Private Limited Company
Here are answers some top queries on the conversion process:
Q1. Is written approval of creditors required for OPC conversion?
Yes, you need to obtain a No Objection Certificate (NOC) from all creditors of the OPC before applying for conversion. Their consent is mandatory.
Q2. Does OPC need minimum paid-up capital for conversion?
After 31ts March2021[Companies (Incorporation) Second
Amendment Rules, 2021.] there is no threshold capital or turnover requirement for voluntary conversion from OPC to private limited company.
Q3. Can foreign nationals become directors after OPC conversion?
Yes, foreign citizens can be appointed as directors in a private limited company after conversion.
Q4. Is shareholder approval needed for OPC to Pvt Ltd conversion?
Yes, you need to pass both a board resolution (ordinary resolution) and a special resolution by the member approving alteration of MOA/AOA and conversion application.
Q5. Does OPC incorporation date change after conversion?
No, the original date of incorporation as an OPC remains the same even after conversion. There is no change.
Q6. Can an OPC convert directly into a public limited company?
No, an OPC has to first convert into a private limited company. Only thereafter can it convert into a public limited provided it meets eligibility criteria.
Q7. Will the OPC’s tax registration get changed after conversion?
Yes, you will have to apply for new PAN and TAN registration in the name of the private limited company post conversion. Other indirect tax registrations also need to updated.
I hope this article has given you clarity on the exact process and requirements for voluntarily converting your OPC into a private limited company under Indian company law.
While the documentation can seem extensive, the right consulting partner like Filingwala can help fast-track the conversion seamlessly without any procedural hassles or delays.
How Can Filingwala Help in Your OPC to Private Limited Conversion?
Filingwala is a trusted online platform that enables end-to-end company registration, compliance and filing services for startups and small businesses.
Here’s how we can support your OPC’s smooth transition into a private limited company:
Dedicated Manager – Get a relationship manager for one-on-one guidance across preparation, application, tracking and post-conversion advisory.
Digital Documentation – We help accurately prepare and organize all requisite documents including altered MOA/AOA, special resolutions, consent letters etc.
Application Filing – Our experts handle form filing with MCA portal including document upload, DSC formalities, fee payment and real-time tracking.
ROC Compliance – We ensure responses and clarifications for ROC queries, furnishing additional details sought to obtain approval.
Post Approval Support – Our team assists with new PAN/TAN application, GST conversion, bank account upgradation and other post-conversion formalities.
So why struggle with procedural complexities and delays when India’s #1 online compliance platform Filingwala can manage your entire OPC to private limited conversion seamlessly.
Dedicated managers ensure 100% accuracy of documents and proactive tracking for early approval. We believe in being a one-stop-shop support ecosystem for your firm through key business transitions.
Conclusion
I hope this detailed guide has clarified the nuances around voluntary conversion of a one person company into a private limited company in India, especially after liberalization of norms in the recent past.
The multi-shareholder and multi-director structure of private limited unlocks fundraising options, enhances trust and paves the growth runway for startups compared to OPCs – but at the cost of higher compliance burden.
So do consult experts to assess if conversion is the right strategic inflection point based on your priorities around financing needs, operational flexibility and growth ambitions.
Filingwala can support end-to-end documentation, government application submission and post-approval compliance guidance for your OPC conversion journey with complete peace of mind!