CONVERSION OF ONE PERSON COMPANY TO PRIVATE COMPANY AND VICE VERSA

[Mr. M. GOVINDARAJAN]

Conversion of companies

Section 18 of the Companies Act, 2013 (‘Act’ for short) provides for conversion of companies already registered. Section 18(1) of the Act provides that a company of any class registered under this Act may convert itself into a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions contained in Chapter II of the Act.  Section18(2) of the Act provides that where the conversion is required to be done under this Section, the Registrar shall on an application made by the company, after satisfying himself that the provisions of Chapter II applicable for registration of companies have been complied with, close the former registration of the company and after registering the documents issue a certificate of incorporation in the same manner as its first registration.   Section 18(3) of the Act provides that the registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done.

Conversion of OPC to private company

Rule 6 of the Companies (Incorporation) Rules, 2014 provides for conversion of One Person Company into a public company or a private company.   According to this rule there are two types of conversion – one is voluntary and another is on change in paid up share capital or annual turnover.

Rule 6(6) provides that a One Person Company can get itself converted into a private company or a public company after increasing the minimum number of members and directors to two or minimum of seven members and two or three directors as the case may be, and by maintaining the minimum paid up capital as per requirements of the Act for such class of company and by making due compliance of section 18 of the Act for conversion.

Rule 6(1) provides that when the paid up share capital of an OPC exceeds ₹ 50 lakhs or its average annual turnover during the relevant period exceeds ₹ 2 crores, it shall cease to be entitled to continue as an OPC.  The ‘relevant period’ means the period of immediately preceding three consecutive financial years.

Rule 6(2) provides that such OPC shall be required to convert itself, within 6 months of the date on which the paid up share capital is increased beyond ₹ 50 lakhs or the  last day of the relevant period during which its aver turnover exceeds ₹ 2 crores, as the case may be, into either a private company with minimum number of two members and two directors or a public company with at least  of 7 members and 3 directors in accordance with the provisions of Section 18 of the Act.

Rule 6(3) provides that the OPC shall alter its memorandum and articles by passing a resolution in accordance with Section 122(3) of the Act to give effect to the conversion and to make necessary changes incidental thereto.

Rule 6(4) provides that the OPC shall within period of 60 days from the date of applicable of Rule 6(1) give a notice to the Registrar in Form No. INC-5 informing that it has ceased to be a OPC and that it is now required to convert itself into a private company or a public company by virtue of its paid up share capital or average annual turnover, being exceeded the threshold limit laid down in Rule 6(1).  The following documents are to be attached with INC – 5:

• Copy of the board resolution authorizing giving of notice;
• Copy of the duly attested latest financial statement;
• Certificate from a Chartered Accountant in practice for calculation of the average annual turnover during the relevant period in case of conversion is on the basis of such criteria;
• Optional attachment(s), if any.

If there is any false statement punishment would be attracted under Section 448 of the Act and if there is any false evidence it would attract penalty under Section 449 of the Act.

Rule 6(5) provides for punishment for contravention of the provisions of these rules.   This rule provides that if OPC or any officer of the OPC contravenes the provisions of these rules the company or any officer of the company shall be punishable with fine which may extend to ₹ 10,000/- and with a further fine which may extend to ₹ 1,000/- for every day after the first during which such contravenes continues.

Conversion of private company into OPC

Rule 7 provides for conversion of private company into One Person Company. This rule allows only private company to convert itself into a OPC but not for public company.  Rule 7(1) provides that a private company, other than a company registered under Section 8 of the Act having paid up share capital of ₹ 50 lakhs or less or average annual turnover during the relevant period is ₹ 2 crores or less may convert itself into OPC by passing a special resolution in the general meeting.

Rule 7(2) provides that before passing such resolution, the company shall obtain No objection in writing from members and creditors. Rule 7(3) provides that the OPC shall file copy of the special resolution with the Registrar of Companies within 30 days from the date of passing such resolution in Form No. MGT-14.

Rule 7(3) provides that the company shall file an application in Form INC-6 for its conversion into OPC along with fees as provides in the Companies (Registration Offices and fees) Rules, 2014. The following documents are to be attached along with the said form:

• The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion, the paid up share capital of the company is ₹ 50 lakh or less or average annual turnover is less than ₹ 2 crores, as the case may be;
• The list of members and list of creditors;
• The latest Audited Balance Sheet and Profit and Loss Account; and
• The copy of No Objection letter of secured creditors.

The Form No. INC-6 has three parts viz., Part A, Part B and Part C.  Part A deals with giving information relating to the paid up share capital and average annual turnover and declaration to be given by the Director of the Company.  In Part B the following particulars are to be furnished:

• Existing number of directors of the company;
• Particulars of special resolution;
• Capital structure of the company and number of members;

In Part C the following particulars are to be furnished:

• Particulars of the person  who will be the sole member of the OPC subsequent of the conversion;
• Particulars of the nomination of the person subsequent of the conversion.

Besides the following documents are to be attached:

• Altered Memorandum of Association;
• Altered Articles of Association;
• Copy of the duly attested latest financial statement;
• Copy of the board resolution authorizing giving of notice;
• Certificate from a Chartered Accountant in practice  for calculation of the average annual turnover during the relevant period if the conversion is on the basis of such criteria;
• Copy of PAN card of nominee and the member;
• Proof of identity of nominee and the member;
• Residential proof of nominee and the member; and
• Optional attachment(s), if any.

Rule 7(5) provides that on being satisfied with requirements stated herein the Registrar shall issue Certificate.