According to section 2(68) of the Companies Act, 2013 a private limited company cannot trade shares in public for any reason. It is a privately held company whose shares cannot be traded. In accordance with Articles of Association, there is a limit placed on the transfer of shares. There is a limit of 200 members. Each member is solely responsible for his or her share price. In this case, the liability of the shareholders is limited to their shares. In the event that the company incurs a loss, shareholders are able to sell their own shares.
A One Person Company is defined as an entity with a single member under Section 2(62) of the Companies Act, 2013. Under this Act, there is no requirement for the company to comply with any legal requirements other than that for the other companies. As a unique feature of One Person Company, the sole member of the company has to mention at the time of registration that a nominee is to be selected for the company. Consequently, if a sole member dies, the nominee can choose whether or not they wish to become a member of OPC. A company with one shareholder benefits from a number of privileges and exemptions under the Companies Act, 2013.
It is possible to convert a Private Limited Company into a One Person Company. However, there are some conditions to be met, such as:
- Private Limited Companies can be converted into One-Person Companies if they have a paid-up share capital of 50 lakhs, and if their turnover does not exceed 2 crores.
- Private Limited Companies must first seek shareholder approval by passing a Special Resolution in Extra-Ordinary General Meetings (EGMs). This Company needs to obtain a No Objection Certificate from its existing members and creditors before passing a Special Resolution.
- A shareholder of the proposed One Person Company must be a natural person and resident of India, i.e., they should have lived in India for at least 182 days in the previous year.
- A Private Limited Company must appoint a Nominee in accordance with its Memorandum and obtain his or her consent before appointing the nominee.
- It is not possible for a minor to become a nominee of a One Person Company.
- One Person Company shareholders cannot be the incorporators or nominees of any other One Person Companies.
Benefits of conversion from Private Limited Company to OPC
Liability limited to:
Most of the sole proprietors borrow money from a person or a financial institution. As a result, they are personally responsible for all of their obligations, so if they are unable to repay the debt through the business, then the debt would be repaid using their personal assets such as a car, house, jewelry, etc. However, there is no need for them to repay them through the business. There are no personal assets involved in a One Person Company, because their liability is limited and their personal assets are not at stake.
As a sole proprietorship, rather than a one-person company, the business would end upon the death of the promoter. A One Person Company, on the other hand, has a separate legal existence and will continue to exist even after the death of its founder.
Compliances are lower:
One-Person Company has only one director and shareholder, therefore it has fewer compliances such as filing annual reports and statutory registers, as there is only one director and shareholder.
Decision making on the spot:
An organization that is run by only one person can make decisions quickly. One Person Company takes real-time decisions and maximizes resource utilization. It does not need to consult another person for approval before making a decision. It saves a lot of time.
Annual General Meetings are not required:
One Person Companies do not need to conduct Annual General Meetings since their rules and regulations are less stringent than those of Private Limited Companies.
Know more: Conversion of Private Limited Company to OPC
Which companies can be converted into OPC?
In order to convert a private company into an OPC, there are a number of conditions: The paid-up share capital of the company must be less than 50 lakh rupees. In the previous 3 consecutive years, the Company should have generated an annual revenue of at least 2 crore rupees and the Shareholders of the new OPC must be Indian citizens.
What are the restrictions on the business carried on by OPC?
OPC, as a non-banking financial institution, cannot engage in non-banking financial investment activities, including the investment in securities of corporate bodies or become a company with charitable objects as provided in section 8 of the Companies Act, 2013.