Gone are the days when one person could not form a private limited company. With the introduction of One Person Company as per section 2 (62) under the Companies Act, 2013; many solopreneurs fulfilled their dream of running a private limited company without diluting the share capital. For your information, OPC does not mean one director but one member (shareholder). An OPC company can have more than one director on its board of directors for smooth functioning. However, when this OPC needs funding from the investor community like angel investors or VC firms, they are required to convert itself into a full-fledged private limited company under Section 2(68) of the Companies Act, 2013. The conversion of an OPC into a Private Limited Company is a strategic decision for many business owners as their enterprises grow and require additional resources, capital, and legal flexibility. In India, the Companies Act, 2013, governs this conversion process, offering a streamlined mechanism for OPCs to evolve into Private Limited Companies. This GrowthX article covers the process in detail, discussing the key requirements, legal provisions, forms to be filed, and frequently asked questions to offer a guide to entrepreneurs. Also, if you are looking for company incorporation, we have got you covered.

Overview of OPC and Private Limited Company

A One Person Company (OPC) is a relatively new legal structure in India, introduced by the Companies Act, 2013, which allows an individual entrepreneur to start a business with a single shareholder. It is particularly suited for small businesses or startups operated by one person. However, as the business grows, the need for more shareholders, better access to capital, and scalability often necessitate the conversion of the OPC into a Private Limited Company.

A Private Limited Company is a more robust structure that offers limited liability to its shareholders and allows for multiple shareholders, directors, and greater flexibility in raising funds from investors or banks.

Differences between OPC and Private Limited Company:

• OPC: Single shareholder, limited capital, less compliance, and no mandatory need to have a co-founder by your side.
• Private Limited Company: Minimum two shareholders, easier access to funding, more compliance obligations, and higher growth potential.

Reasons to Convert OPC into a Private Limited Company

Several compelling reasons can prompt an OPC to convert into a Private Limited Company:

• Need for External Funding: A Private Limited Company is ideal for raising funds through equity, attracting investors like venture capitalists or private equity firms.
• Expansion Opportunities: Expanding operations often require additional directors or shareholders, which can be easily accommodated under a Private Limited Company structure.

Note: Earlier for an OPC, it was mandatory to convert into a private limited company, if their capital and turnover crossed 50 lakhs and 2 Crores respectively. However, this provision has been done away and now you can convert you OPC anytime after its incorporation.

3. Documents Required for Conversion

Before initiating the conversion process, several documents need to be prepared. The documents required are essential for filing with the Ministry of Corporate Affairs (MCA) and ensure that the conversion is legally valid.

Mandatory Documents:

• MoA and AoA: The existing MoA and AoA of the OPC need to be revised to reflect the new structure.
• Board Resolution: A resolution from the Board of Directors approving the conversion of the company.
• List of Creditors and Members: A complete list of creditors and shareholders as of the conversion date.
• NOC from Creditors: Written consent from creditors if applicable, confirming that they have no objections to the conversion.
• Audited Financial Statements: The latest audited balance sheet and profit and loss statements of the OPC.
• PAN & Aadhar: Self-attested KYC documents of the directors and shareholders for new persons.

Additional Documents:

• Affidavit: A sworn affidavit from the sole shareholder stating that the conversion is voluntary and that no undue advantage is being sought.
• Copy of Income Tax Return: Recent tax filing of the OPC.
• Digital Signature Certificates (DSC) and Director Identification Numbers (DIN): Valid DSC and DIN of the directors.

Legal Procedure for Converting OPC to Private Limited Company

1. Pass a Board Resolution: The sole director must call a board meeting and pass a resolution for conversion, authorizing the necessary steps.
2. File Form INC-6: Submit Form INC-6 (Application for conversion of OPC into Private Company) with the MCA, attaching the requisite documents like the revised MoA, AoA, and Board Resolution.
3. Alter Memorandum and Articles of Association: Draft a new MoA and AoA reflecting the changes to the capital, shareholders, and directors. These documents must conform to the requirements of a Private Limited Company.
4. Approval from MCA: After reviewing the application and documents, the Registrar of Companies (RoC) issues a certificate of incorporation, which officially converts the OPC into a Private Limited Company.

Features of a Private Limited Company after Conversion

Once the conversion is completed, the newly formed Private Limited Company will enjoy several features:

• Multiple Shareholders: Minimum of two shareholders and a maximum of 200 shareholders.
• Separate Legal Entity: It will continue to exist as a separate legal entity from its shareholders and directors.
• Limited Liability: The liability of shareholders is limited to the unpaid amount on their shares.
• Ease of Capital Raising: You can raise capital by issuing shares to shareholders or seeking funds from investors.
• Compliance Requirements: ROC reporting, tax filing, and auditing requirements laid out by the Companies Act, 2013.

6. Relevant MCA Forms for Conversion

The conversion process involves the filing of the following forms with the Ministry of Corporate Affairs:

• Form INC-6: To apply for conversion of OPC into a Private Limited Company.
• Form MGT-14: To file a copy of the special resolution passed by the OPC for the conversion process.
• Form INC-22: For the change of registered office address, if applicable.

Key Provisions under the Companies Act, 2013

Some of the relevant provisions in the Companies Act, 2013 governing the conversion of an OPC to a Private Limited Company include:

• Section 18: Discusses the conversion of companies.
• Section 2(68): Defines the criteria for a Private Limited Company.
• Rule 6 of the Companies (Incorporation) Rules, 2014: Details the conversion process for OPCs.

Important FAQs

Do I need to appoint new directors during the conversion process?

Yes, a Private Limited Company must have at least two directors, so an additional director needs to be appointed if there was only one in the OPC.

What happens to the liabilities of the OPC during the conversion?

The liabilities of the OPC transfer to the new Private Limited Company. The conversion does not absolve any pre-existing obligations or liabilities.

Is it mandatory to change the company's name during conversion?

The company name must end with "Private Limited" after conversion. You can retain the main part of the name, but the suffix will change.

What happens to the existing contracts and licenses after conversion?

The contracts, licenses, and agreements entered into by the OPC will continue in the name of the converted Private Limited Company without requiring fresh agreements.

GenZCFO Advice

If your business has scaled further where you need external funding to grow it further, converting an OPC into a Private Limited Company becomes an essential step for businesses. If you are looking to scale and access more financial resources, you can contact us and our team of GenZCFO will help you with the end-to-end process including the advisory you require. Our team will follow the legal process outlined in the Companies Act, 2013, and ensure compliance with the necessary MCA forms and documentation.