Entrepreneurs may choose to convert their Private Limited Company to an OPC due to various reasons, including the ease of managing an OPC, lower compliance requirements, and reduced liability. However, converting a PLC to an OPC involves legal formalities and procedures. In this article, we will discuss the process of converting a private limited company to an OPC, the legal requirements involved, and the benefits and disadvantages of doing so.
What is an OPC?
An OPC is a type of company that has only one shareholder or owner. This business structure was introduced in India in 2013, allowing entrepreneurs to set up a company with limited liability without the need for a minimum number of shareholders. OPCs have lower compliance requirements compared to PLCs, making them an attractive option for small business owners and solo entrepreneurs.
Reasons to Convert from PLC to OPC
There are various reasons why entrepreneurs may want to convert their Private Limited Company to an OPC, including:
- Ease of managing the company: OPCs have a single shareholder, making it easier to manage the company’s affairs and take decisions.
- Reduced compliance requirements: OPCs have lower compliance requirements compared to PLCs, making them a cost-effective option for small business owners.
- Reduced liability: OPCs offer limited liability protection to the sole owner, protecting them from personal liability in case of company debts or legal issues.
Legal Requirements for Conversion
Converting a Private Limited Company to an OPC involves legal formalities and procedures. The process includes the following:
Board Meeting and Director’s Report
The conversion process starts with a board meeting, where the directors of the PLC pass a resolution to convert the company to an OPC. The board also needs to prepare a Director’s Report, which includes the reasons for the conversion and the expected impact on the company’s operations.
Special Resolution and Shareholder’s Approval
The next step is to pass a special resolution to approve the conversion. This requires the approval of at least 75% of the shareholders. Once the resolution is passed, the shareholders need to sign a consent form agreeing to the conversion.
Application for Conversion
After obtaining the necessary approvals, the company needs to file an application with the Ministry of Corporate Affairs (MCA) for the conversion. The application should include the following documents:
- Memorandum of Association (MoA) and Articles of Association (AoA) of the OPC
- Consent of the sole shareholder
- Consent of the nominee
- Copy of the board resolution and special resolution
- Copy of the Director’s Report
- NOC from the creditors
Advantages and Disadvantages of Conversion (continued)
Advantages
Some of the advantages of converting a Private Limited Company to an OPC are:
- Lower compliance requirements: OPCs have lower compliance requirements compared to PLCs, making them an attractive option for small business owners who want to reduce their compliance costs.
- Ease of management: OPCs have a single shareholder, making it easier to manage the company’s affairs and take decisions.
- Reduced liability: OPCs offer limited liability protection to the sole owner, protecting them from personal liability in case of company debts or legal issues.
- Continuity of business: Converting a PLC to an OPC ensures the continuity of the business, even if the number of shareholders reduces to one.
Disadvantages
Some of the disadvantages of converting a Private Limited Company to an OPC are:
- Reduced access to funds: OPCs cannot raise funds from the public, which may limit their ability to raise capital.
- Limited growth potential: OPCs cannot have more than one shareholder, which may limit their growth potential compared to PLCs.
- Nominee requirement: OPCs are required to appoint a nominee in case the sole shareholder is unable to manage the affairs of the company. This may result in additional costs and legal formalities.
Conclusion
Conversion of Private Company into OPC is a legal process that involves several formalities and procedures. While it has its advantages and disadvantages, entrepreneurs should consider their business needs and growth potential before making a decision. It is advisable to seek professional guidance to ensure compliance with legal requirements.