A One Person Company (OPC) is a type of business entity that was introduced in the Companies Act, 2013. As the name suggests, an OPC is a company that has only one person as its member and shareholder. The concept of OPCs was introduced to encourage entrepreneurs who are willing to start a business on their own without involving any other person as a partner.
If you are currently running a private company and wish to convert it into an OPC, there are certain legal and financial considerations that you must take into account. In the following sections, we will discuss the advantages of OPCs, eligibility criteria for conversion, procedure for conversion, compliance requirements for OPCs, and tax implications of conversion.
What is an OPC?
An OPC is a company that has only one person as its member and shareholder. This means that the entire ownership of the company is vested in one person, who is also responsible for managing the affairs of the company. The Companies Act, 2013, introduced the concept of OPCs to encourage entrepreneurship and provide a separate legal entity to small business owners.
Advantages of OPCs
There are several advantages of converting a private company into an OPC, some of which are listed below:
- Limited liability protection: The liability of the member of an OPC is limited to the extent of his/her shareholding. This means that the personal assets of the member are not at risk in case of any legal liabilities of the company.
- Tax advantages: OPCs are taxed at a lower rate as compared to other forms of companies. Additionally, OPCs are exempt from certain taxes such as dividend distribution tax.
- Separate legal entity: An OPC has a separate legal entity, which means that it can own assets, incur liabilities, and sue or be sued in its own name.
- Easy to manage: Since an OPC has only one member, it is easy to manage and make decisions. This results in faster decision-making and more efficient management.
Eligibility criteria for conversion
Not all private companies are eligible for conversion into an OPC. The following are the eligibility criteria for conversion:
- The company should have only one member.
- The company should have a turnover of less than Rs. 2 crores.
- The company should not have any outstanding loans or borrowings.
If your company meets the above eligibility criteria, you can proceed with the conversion process.
Procedure for conversion
The conversion process involves several steps, as listed below:
The first step is to convene a board meeting of the private company and pass a resolution for conversion into an OPC. The board must also approve the proposed memorandum and articles of association of the OPC.
After the board meeting, a shareholder meeting must be convened to obtain their approval for the conversion. A special resolution must be passed by the shareholders with a 3/4th majority, approving the conversion and the new memorandum and articles of association.
Filing with the Registrar of Companies (ROC)
Once the shareholder approval is obtained, the company must file the necessary documents with the Registrar of Companies (ROC). The documents to be filed include a copy of the board resolution and shareholders’ special resolution approving the conversion, the new memorandum and articles of association of the OPC, and any other relevant documents.
Issuance of new certificate of incorporation
After the ROC receives the documents, it will verify and approve the conversion. Once approved, a new certificate of incorporation will be issued with the new name and status of the OPC. The private company will be deemed to be dissolved, and all its assets and liabilities will be transferred to the OPC.
Compliance requirements for OPCs
Once the conversion is complete, the OPC must comply with certain requirements as per the Companies Act, 2013. Some of these requirements are listed below:
Appointment of nominee director
An OPC must appoint a nominee director who will take over the management of the company in case the sole member is incapacitated or dies. The nominee director must be appointed at the time of incorporation and must give his/her consent in writing.
Annual compliance requirements
Like any other company, an OPC must comply with the annual compliance requirements such as filing of annual returns, financial statements, and other documents with the ROC. Failure to comply with these requirements can result in penalties and fines.
Conversion to Private Limited Company
If the OPC exceeds a turnover of Rs. 2 crores or its paid-up capital exceeds Rs. 50 lakhs, it must be converted into a private limited company. The conversion process is similar to that of conversion to an OPC, and the company must follow the necessary procedure and comply with the requirements of a private limited company.
Tax implications of conversion
Conversion to an OPC can result in tax savings for the member, as OPCs are taxed at a lower rate than other forms of companies. Additionally, OPCs are exempt from certain taxes such as dividend distribution tax. However, it is important to consult with a tax expert before proceeding with the conversion to understand the tax implications and benefits.
Conversion of Private Company into OPC can provide several benefits such as limited liability protection, tax advantages, and easy management. However, the conversion process involves several legal and financial considerations, and it is important to ensure that the company meets the eligibility criteria and complies with the requirements of the Companies Act, 2013. By following the procedure and complying with the requirements, you can successfully convert your private company into an OPC and enjoy the benefits it offers.