Conversion of OPC into Private Limited: Law, Compliance Checklist and Stepwise Procedure

Conversion of OPC into Private Limited: Law, Compliance Checklist and Stepwise Procedure. Introduction:
The Companies Act 2013 introduced the concept of One Person Company (OPC) to boost small entrepreneurs/sole proprietorship firms to form small and marginal companies which will have the advantage of corporate structure with minimal legal compliance. OPC is a short term used for One Person Company. As the name reflects, OPC is a type of Company in which one sole person can hold the entire share capital of OPC as its member; however it can have more than one director. As per Section 2(63) of the Companies Act 2013 "One Person Company” means a company which has only one person as a member. Only a natural person (not being a minor) is eligible to form OPC in India. It is not allowed to carry out Non-Banking Financial Investment activities including investment in securities of any body corporate. A OPC can convert itself anytime into company of other class i.e a private or public limited company except Section 8 Company
We shall discuss in this Article MCA Update on recent amendments in OPC, Governing laws, Benefits, Checklist, Procedural aspects for Conversion of OPC into Private Company.
MCA Update on Recent Amendments on OPC: (Amendment effective from 1st April 2021)
MCA has notified the following amendments for catering the growth of OPCs.

Now NRIs can form OPC in India.

The period of 120 days shall be counted instead of 182 days for residence status in India.

Requirement of expiry of 2 years from the incorporation for voluntary conversion of OPC into any class of company has been done away with.

Threshold Limit of Paid-up Capital exceeding Rs 50 Lakhs or Turnover exceeding Rs 2 Crores for Compulsory Conversion of OPC into any class of company has been deleted.

E-Form INC-5 for intimation of Notice to ROC that it has ceased to be OPC has been deleted.

Now only Form INC-6 can be used for both-Conversion from OPC to Private/Public or Private/Public to OPC.

Governing Sections for Conversion of OPC into Private Limited

SECTION

PARTICULARS

EXPLANATION

Section 18 of the Companies Act 2013

Conversion of Companies Already Registered.

A company of any class registered under the Companies Act 2013 may convert itself as a company of other class under this Act by altering Memorandum and Articles of the company.

Rule 6 of the Companies (Incorporation) Rules,2014 [Amended as per Companies (Incorporation) Second Amendment Rules, 2021 dated 1st February 2021]-
Effective from 1st April 2021

Conversion of One Person Company into a Public Company or a Private Company

A OPC can convert itself into a Private or Public Company, other than section 8  after increasing the minimum number of members and directors to 2 or 7 members and 2 or 3 directors, as the case may be, and maintaining the minimum paid-up capital as per the requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.
The Company has to file application in E -Form No.INC-6 for its conversion into Private or Public  Company.

Benefits of Conversion of OPC into a Private Company:

The number of Members can be increased from one (1) up to the maximum limit of Two Hundred (200)

Easy to get Funding from Large Investors/Entrepreneurs

Better Management

Global Expansion of Business

Favorable Taxation Benefits

Trust/Credibility in eyes of Bankers, Suppliers, Customers and other Stakeholders

Easier to get Loan from Bank

Attractive mode of receiving Foreign Investments

No mandatory requirement of appointment of Nominee

Easy Transferability of shares to other persons

Compliance checklist and procedural aspects:

Sr. No

PARTICULARS

REQUIREMENTS

DRAFT ALTERED MEMORANDUM OF ASSOCIATION

Prepare a draft of new Memorandum of Association considering the changes required for Conversion of OPC into Private Company.

DRAFT ALTERED ARTICLES OF ASSOCIATION

Make necessary alterations in Articles of Association:
a.       Addition of restrictions applicable to a private limited Company as per Section 2(68)
b.       Addition/Deletion of other points as may be required for private limited Company

NOTICE OF BOARD MEETING

Draft and issue Notice Calling Board Meeting atleast 7 days before the Board Meeting [Sec 173 (3) of the Companies Act 2013]

CONVENE A BOARD MEETING

Convene a Board Meeting for
a.       Considering the conversion of OPC into Private Company & Alteration of Memorandum and Articles of Association
b.       Increasing the number of Directors to Minimum Two (2) (in case of shortfall in minimum number of directors as required to be maintained by Company subsequent to its conversion into private Company)
c.       Increasing the number of Members to Minimum two (2) by allotment of shares or transfer of shares to the prospective members

CONDUCTING A BOARD MEETING FOR DISCUSSING CONVERSION

·       Where there is a Single Director
Enter the resolution in Minutes Book of the Director’s Meeting, which should be signed and dated by the director  and such date shall be the date of meeting for all purpose of Act [Section 122(4)]
·       Where there are 2 or more  Directors
Hold a Board Meeting for transacting the business for conversion

PASSING OF A RESOLUTION

The resolution for alteration of its Memorandum and Articles of Association shall be communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act. [Rule 6(3) read with Section 122(3) of the Companies Act 2013]

COMMUNICATION FROM SHAREHOLDER

Where the Board of Directors is different than a Shareholder of the Company, a Shareholder shall communicate about approval of conversion of OPC into Private Company

CONDUCTING A BOARD MEETING FOR APPOINTMENT OF ADDITIONAL DIRECTORS

·       Where there is a Single Director
Enter the resolution in Minutes Book of the Director’s Meeting regarding appointment of additional directors on the Board.
·       Where there are 2 or more  Directors
Hold a Board Meeting for appointment of additional directors

FILING OF RESOLUTION

Filing of resolution with the Registrar of Companies in E-Form MGT 14 within 30 days of passing the said resolution

10.

FILING OF APPLICATION

Filing of application in E-Form INC-6 with the Registrar of Companies for its conversion into Private Company within 30 days of passing special resolution.
·       Note: SRN of E-Form MGT 14 is mandatory field in E-Form INC-6

11.

FILING OF APPOINTMENT OF DIRECTORS

Filing of a resolution with the Registrar of Companies for appointment of additional directors within 30 days of appointment.

12.

CERTIFICATE OF CONVERSION

Upon being satisfied with the Application, the Registrar will issue Certificate of Conversion.

STEPS TO BE TAKEN POST CONVERSION

a.       Printing of Altered Memorandum and Articles of Association
b.       Arrange for New Pan Card of the Company
c.        Arrange for new printed stationary
d.       Arrange for new Name Board/Sign Board of the Company
e.       Arrange for new Common Seal, if any
f.         Update Company bank account details
g.       Intimation to all concerned Statutory Authorities.
h.       Make correction to the extent the same mentions the New Name of Company on all records, registers including the register of members, charges registered with ROC, share certificates etc.

Documents required for application of conversion:

Altered copy of MOA & AOA

Certified Copy of Board resolution authorizing giving of Notice

Certified Copy of Special resolution

List of proposed Members and its Directors along with consent

List of Creditors and their NOC

Latest Audited Balance Sheet and Profit & Loss A/c

Copy of Minutes

Certificate of Incorporation of OPC

Identity and Residential Proof of Proposed Members and Directors

Any other information can be provided as an optional attachment(s).

NOTE: Conversion of OPC into Private Limited Company shall not affect any previous debts, liabilities, obligations or contracts entered into, by or on behalf of the OPC and such debts, liabilities, obligations and contracts may be enforced in the manner as if such conversion into Private Company had not been done.
How can Compliance Calendar help?
There are recent amendments in the procedure for Conversion of OPC into Private Company which requires requisite legal knowledge of Companies Act 2013. Conversion procedure involves proper steps to be followed and Application for Conversion is to be made in compliance with the provisions of Companies Act 2013 so as to enable Ministry of Corporate Affairs (MCA) to issue Certificate to the effect of Conversion upon being satisfied with the Application and documents required for conversion. Hence it is advisable to seek proper professional guidance from experienced professionals. Compliance Calendar LLP has a team of skilled Legal Professionals who can assist and guide you in complying with process of Conversion of OPC into Private Company in a timely manner.

Introduction:

The Companies Act 2013 introduced the concept of One Person Company (OPC) to boost small entrepreneurs/sole proprietorship firms to form small and marginal companies which will have the advantage of corporate structure with minimal legal compliance. OPC is a short term used for One Person Company. As the name reflects, OPC is a type of Company in which one sole person can hold the entire share capital of OPC as its member; however it can have more than one director. As per Section 2(63) of the Companies Act 2013 "One Person Company” means a company which has only one person as a member. Only a natural person (not being a minor) is eligible to form OPC in India. It is not allowed to carry out Non-Banking Financial Investment activities including investment in securities of any body corporate. A OPC can convert itself anytime into company of other class i.e a private or public limited company except Section 8 Company

We shall discuss in this Article MCA Update on recent amendments in OPC, Governing laws, Benefits, Checklist, Procedural aspects for Conversion of OPC into Private Company.

MCA Update on Recent Amendments on OPC: (Amendment effective from 1st April 2021)

MCA has notified the following amendments for catering the growth of OPCs.

Now NRIs can form OPC in India.
The period of 120 days shall be counted instead of 182 days for residence status in India.
Requirement of expiry of 2 years from the incorporation for voluntary conversion of OPC into any class of company has been done away with.
Threshold Limit of Paid-up Capital exceeding Rs 50 Lakhs or Turnover exceeding Rs 2 Crores for Compulsory Conversion of OPC into any class of company has been deleted.
E-Form INC-5 for intimation of Notice to ROC that it has ceased to be OPC has been deleted.
Now only Form INC-6 can be used for both-Conversion from OPC to Private/Public or Private/Public to OPC.

Governing Sections for Conversion of OPC into Private Limited

SECTION

PARTICULARS

EXPLANATION

Section 18 of the Companies Act 2013

Conversion of Companies Already Registered.

A company of any class registered under the Companies Act 2013 may convert itself as a company of other class under this Act by altering Memorandum and Articles of the company.

Rule 6 of the Companies (Incorporation) Rules,2014 [Amended as per Companies (Incorporation) Second Amendment Rules, 2021 dated 1st February 2021]-

Effective from 1st April 2021

Conversion of One Person Company into a Public Company or a Private Company

A OPC can convert itself into a Private or Public Company, other than section 8 after increasing the minimum number of members and directors to 2 or 7 members and 2 or 3 directors, as the case may be, and maintaining the minimum paid-up capital as per the requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.

The Company has to file application in E -Form No.INC-6 for its conversion into Private or Public Company.

Benefits of Conversion of OPC into a Private Company:

The number of Members can be increased from one (1) up to the maximum limit of Two Hundred (200)
Easy to get Funding from Large Investors/Entrepreneurs
Better Management
Global Expansion of Business
Favorable Taxation Benefits
Trust/Credibility in eyes of Bankers, Suppliers, Customers and other Stakeholders
Easier to get Loan from Bank
Attractive mode of receiving Foreign Investments
No mandatory requirement of appointment of Nominee
Easy Transferability of shares to other persons

Compliance checklist and procedural aspects:

Sr. No	PARTICULARS	REQUIREMENTS
1.	DRAFT ALTERED MEMORANDUM OF ASSOCIATION	Prepare a draft of new Memorandum of Association considering the changes required for Conversion of OPC into Private Company.
2.	DRAFT ALTERED ARTICLES OF ASSOCIATION	Make necessary alterations in Articles of Association: a. Addition of restrictions applicable to a private limited Company as per Section 2(68) b. Addition/Deletion of other points as may be required for private limited Company
3.	NOTICE OF BOARD MEETING	Draft and issue Notice Calling Board Meeting atleast 7 days before the Board Meeting [Sec 173 (3) of the Companies Act 2013]
4.	CONVENE A BOARD MEETING	Convene a Board Meeting for a. Considering the conversion of OPC into Private Company & Alteration of Memorandum and Articles of Association b. Increasing the number of Directors to Minimum Two (2) (in case of shortfall in minimum number of directors as required to be maintained by Company subsequent to its conversion into private Company) c. Increasing the number of Members to Minimum two (2) by allotment of shares or transfer of shares to the prospective members
5.	CONDUCTING A BOARD MEETING FOR DISCUSSING CONVERSION	· Where there is a Single Director Enter the resolution in Minutes Book of the Director’s Meeting, which should be signed and dated by the director and such date shall be the date of meeting for all purpose of Act [Section 122(4)] · Where there are 2 or more Directors Hold a Board Meeting for transacting the business for conversion
6.	PASSING OF A RESOLUTION	The resolution for alteration of its Memorandum and Articles of Association shall be communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act. [Rule 6(3) read with Section 122(3) of the Companies Act 2013]
7.	COMMUNICATION FROM SHAREHOLDER	Where the Board of Directors is different than a Shareholder of the Company, a Shareholder shall communicate about approval of conversion of OPC into Private Company
8.	CONDUCTING A BOARD MEETING FOR APPOINTMENT OF ADDITIONAL DIRECTORS	· Where there is a Single Director Enter the resolution in Minutes Book of the Director’s Meeting regarding appointment of additional directors on the Board. · Where there are 2 or more Directors Hold a Board Meeting for appointment of additional directors
9.	FILING OF RESOLUTION	Filing of resolution with the Registrar of Companies in E-Form MGT 14 within 30 days of passing the said resolution
10.	FILING OF APPLICATION	Filing of application in E-Form INC-6 with the Registrar of Companies for its conversion into Private Company within 30 days of passing special resolution. · Note: SRN of E-Form MGT 14 is mandatory field in E-Form INC-6
11.	FILING OF APPOINTMENT OF DIRECTORS	Filing of a resolution with the Registrar of Companies for appointment of additional directors within 30 days of appointment.
12.	CERTIFICATE OF CONVERSION	Upon being satisfied with the Application, the Registrar will issue Certificate of Conversion.
13	STEPS TO BE TAKEN POST CONVERSION	a. Printing of Altered Memorandum and Articles of Association b. Arrange for New Pan Card of the Company c. Arrange for new printed stationary d. Arrange for new Name Board/Sign Board of the Company e. Arrange for new Common Seal, if any f. Update Company bank account details g. Intimation to all concerned Statutory Authorities. h. Make correction to the extent the same mentions the New Name of Company on all records, registers including the register of members, charges registered with ROC, share certificates etc.

Documents required for application of conversion:

Altered copy of MOA & AOA
Certified Copy of Board resolution authorizing giving of Notice
Certified Copy of Special resolution
List of proposed Members and its Directors along with consent
List of Creditors and their NOC
Latest Audited Balance Sheet and Profit & Loss A/c
Copy of Minutes
Certificate of Incorporation of OPC
Identity and Residential Proof of Proposed Members and Directors
Any other information can be provided as an optional attachment(s).

How can Compliance Calendar help?

There are recent amendments in the procedure for Conversion of OPC into Private Company which requires requisite legal knowledge of Companies Act 2013. Conversion procedure involves proper steps to be followed and Application for Conversion is to be made in compliance with the provisions of Companies Act 2013 so as to enable Ministry of Corporate Affairs (MCA) to issue Certificate to the effect of Conversion upon being satisfied with the Application and documents required for conversion. Hence it is advisable to seek proper professional guidance from experienced professionals. Compliance Calendar LLP has a team of skilled Legal Professionals who can assist and guide you in complying with process of Conversion of OPC into Private Company in a timely manner.