The Companies Act, 2013 (“Act”) has introduced the concept of a One Person Company (“OPC”) in India, which transformed the corporate laws so much so as to provide a new way of setting up a business. OPC registration has provided a platform for sole proprietors to enter into the corporate sector.
This article discusses what an OPC is, how it can be converted into other types of companies under the Act, the process and advantages of conversion.
What is an OPC?
An OPC means a company, duly incorporated under the Act, which has only one (1) person as its member. The member of a company is a subscriber to its memorandum of association. So, an OPC is a company that has only one shareholder as its member.
Salient Features of an OPC
- An OPC can be registered with a minimum authorised share capital of Rs.1 lakh only.
- An OPC needs to have a minimum of one director and can have a maximum of up to 15 directors.
- An OPC cannot have more than 1 shareholder i.e. only 1 member can form an OPC.
- A person cannot incorporate more than one (1) OPC or be the nominee of more than one (1) OPC.
Conversion of an OPC
Section 18 of the Act allows for the conversion of a company registered under the Act into another company registered under the Act, except for a section 8 company. Accordingly, an OPC can be converted into either a public or a private limited company, at any time at their own will without any sort of restriction.
Process of Conversion
The brief process of conversion of an OPC into a company is as follows:
- The OPC needs to formally intimate the Registrar of Companies (ROC) of its intention of converting the OPC into either a private or a public company.
- The OPC needs to hold a board meeting and pass following resolutions with necessary approvals:
- approval for such conversion from OPC into a company
- appointment of directors to the board to meet the minimum requirements for the converted company
- appointment of shareholders to meet the minimum requirements for the converted company
- raising the share capital to meet the minimum requirements for the converted company
- approving of the alteration of the Memorandum and Articles of Association
- approving the notice for convening an extra-ordinary general meeting
- Once approved by the board, a general meeting is to be held for taking members’ approval for the conversion and other related agendas approved in the board meeting.
- An application in eForm MGT-14 is to be filed with the ROC informing about the approvals obtained for the conversion along with relevant affidavits from the management.
- An application in eForm DIR-12 to be filed with the ROC for the appointment of new director(s) and issue shares to the new shareholders, as a pre-compliance to the conversion.
- An application in eForm INC-6 to be filed with the ROC mentioning the Service Request Number of eForm MGT-14 along with the following documents, wherever applicable:
- Altered Memorandum of Association and Articles of Association
- Copy of Board Resolutions and Special Resolutions
- List of proposed members and directors along with consent
- List of creditors
- Duly attested latest audited Balance Sheet and Profit & Loss Statement
- Copy of NOC of every creditor with the application for conversion
- Consent of the nominee
- Copy of PAN card of the nominee and member
The ROC thereafter verifies if the information submitted through the application is accurate and if the applicable registration fees have been paid. The ROC then takes a decision after extensively reviewing the application and documents to see if there are no errors or issues with the conversion and then upon its satisfaction, issues the certificate of conversion.
Advantages of conversion from OPC into a company
The conversion of an OPC into either a private or a public company comes with various benefits for such converted company, a few of which are as listed below:
- Ease of borrowing funds – Raising funds as a public or a private limited company is a relatively simpler operation because it allows for the sale of shares and offers a variety of funding options such as ESOPs, Private Equity etc. OPC being allowed to have only one (1) shareholder cannot raise funds against equity which makes it difficult to raise funds.
- Taxation Benefits – The concept of OPC is not recognized under the Income Tax Act, 1961 and hence it has been put in the same category as other companies for taxation purpose i.e., under the tax bracket of 30% on total income. Thus, from the perspective of taxation, the concept of OPC becomes a less profitable concept as it imposes heavy financial load. Given that the taxation load is same for companies as well as OPC, it is preferable to choose a private/public company over an OPC as there are other benefits available to companies which are not available to OPCs.
- International Expansion – Investments and collaborations with foreign industries play a significant role in the expedition to become a multinational corporation. Private and public limited companies are allowed Foreign Direct Investment of up to 100% as against an OPC. Thus, incorporating a private or a public company can be fruitful.
The introduction of OPC into the legal system brought in encouragement for young entrepreneurs to enter into the corporate world, given its minimum compliance requirements. Setting up more and more OPCs will create more employment opportunities which in turn will help contribute to economic growth.
While an OPC provides the benefit of overall less compliance burdens, it may not be suitable for expansion and fundraising processes. At such a time, conversion into a company may bring about various benefits to add momentum to such business. However, to take a well-informed decision, it is advisable to take a professional opinion.
