Converting an OPC Into a Private Limited Company: Process, Forms and Timeline

A One Person Company is a good way to start alone, but most growing businesses eventually outgrow it. A co-founder joins, an investor wants shares, or a bank or client prefers dealing with a conventional private limited company. Converting an OPC into a private limited company is a well-defined process with the ROC, and the company keeps its identity, its assets and its contracts throughout. This guide explains when to convert, how the process works, and what changes once it's done.

Is Conversion Compulsory?

Until 2021, an OPC had to convert into a private or public company once its paid-up capital exceeded ₹50 lakh or its average annual turnover exceeded ₹2 crore. Those limits were removed with effect from 1 April 2021, so an OPC can now grow to any size without being forced to convert.

The same change removed the rule that an OPC had to wait two years from incorporation before converting voluntarily. An OPC can now convert whenever its member chooses.

Why OPCs Convert

• A second founder or investor needs to hold shares. An OPC can only ever have one member.
• The business wants to raise equity funding, issue shares to several investors, or set up an employee stock option plan.
• Banks, large clients or government tenders prefer, or require, a private limited company.
• The sole member wants to set up another OPC. A person can only be a member of one OPC at a time.

What the Converted Company Will Need

A private limited company must have at least two members and at least two directors, and at least one director must be resident in India. Before the conversion can be filed, the OPC has to bring in a second member and, if it has only one director, a second director.

A second member is usually brought in by one of two routes:

• Allotting new shares to them, which brings fresh money into the company. This is reported to the ROC in Form PAS-3.
• Transferring some of the existing member's shares to them, using a share transfer deed in Form SH-4, with stamp duty paid.

The Conversion Process, Step by Step

1. Hold a board meeting to approve the proposal to convert, the changes to the memorandum and articles of association, and the appointment of any new director.
2. Get a DIN for any new director who doesn't have one, along with their consent to act.
3. Pass a special resolution to convert the OPC into a private company and alter its memorandum and articles. In an OPC, the sole member passes this by signing it in the minute book.
4. File Form MGT-14 with the ROC within 30 days of the special resolution.
5. Bring in the second member through an allotment or transfer of shares, and file the related forms.
6. File Form INC-6 with the ROC to apply for the conversion, attaching the altered memorandum and articles, the list of members and directors, and their consents.
7. Once the ROC is satisfied, it issues a fresh certificate of incorporation in the company's new name. The words "(OPC)" are dropped from the name, so "Example (OPC) Private Limited" becomes "Example Private Limited".

What Changes After Conversion

The company keeps its CIN, PAN, bank accounts, assets, liabilities and contracts. Only its form and compliance obligations change.

• The company must now hold an AGM each year, within six months of the end of the financial year, normally by 30 September.
• AOC-4 becomes due within 30 days of the AGM, and the annual return within 60 days. A small company can keep filing MGT-7A; otherwise it moves to MGT-7.
• Board meetings: a private company must hold at least four a year, with no more than 120 days between them. A small company can hold just two, one in each half of the calendar year.
• The financial statements must be signed by two directors, and a cash flow statement is needed unless the company is a small company.
• The OPC-specific rules about the nominee and contracts with the sole member no longer apply.

Updating Your Registrations

Because the company's name changes, the new certificate of incorporation has to be shared with everyone who holds the old name on record:

• the bank, including authorised signatories if a new director has joined
• the income tax department, for PAN and TAN records
• GST, through an amendment to the registration
• state registrations such as professional tax and shops and establishments
• licences, contracts, invoices, letterheads and the company's website

Common Mistakes

• Filing INC-6 before the second member has actually been brought in.
• Forgetting MGT-14 for the special resolution, which the ROC needs to see before approving the conversion.
• Not paying stamp duty on a share transfer to the new member.
• Allotting shares at a price that doesn't follow valuation rules, which can have income tax consequences, and FEMA ones for a foreign investor.
• Keeping the old name on invoices and bank records after the new certificate is issued.

Getting Help

Think Filing handles OPC conversions from start to finish: structuring how the new member comes in, drafting the resolutions and altered memorandum and articles, filing MGT-14, the share forms and INC-6, and updating your bank, tax and GST records once the new certificate is issued.