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Both a Private Limited Company and a One Person Company (OPC) are popular forms of business entities registered with the Ministry of Corporate Affairs (MCA) under the provisions of the Companies Act, 2013. A Private Limited Company requires a minimum of two shareholders for incorporation. On the contrary, an OPC can be formed with only one shareholder. It cannot have more than one shareholder at any time. Converting from one type of company to another is not unusual. In fact, it is quite common.
Many entrepreneurs initially establish a Private Limited Company but at a later stage, they decide to convert it into an OPC as their business evolves and demands change in business structure.
In this blog post, we will explain the key reasons why individuals choose to convert their Private Limited Company into a One Person Company. But before we jump into all the essential reasons for pvt ltd to OPC conversion, first, let's understand both the company structures in brief.
A Private Limited Company is a registered corporate structure model with limited liability features, separate legal identity and share transferability among company members.
This ‘private’ affair of shares transition among the exclusive members is what makes the company a ‘private’ company.
A private limited company can be registered with just two shareholders. It can have up to a maximum of 200 shareholders. Every company registered as a ‘private limited company’ must have a minimum of 2 directors and a maximum of 15 directors.
Sometimes, the scope of pvt ltd companies become concise with the advent of new industrial advancements, partner exits or for other personal reasons. Such companies can then alter their structure to a smaller version to concise their engagement in the market. For such purposes, we have a One Person Company model in India.
A One Person Company, shortened as OPC, is a company model in which a single owner fully owns, manages and controls the company. The sole owner may also act as the OPC’s sole director; however, this is not a mandatory legal requirement. Therefore, the director may be a different person.
Legally, the appointment of one director in an OPC is sufficient, although it may have up to a maximum of 15 directors if the business so requires. An OPC is essentially the “registered” version of a sole proprietorship, offering limited liability protection to the sole owner.
Before the enactment of the Companies Act, 2013, the concept of an OPC was unheard of in India. It was the introduction of this Act that led to the formal recognition of OPCs in the country.
There are several reasons for Private Limited Company owners as well as stakeholders to consider converting to a One Person Company model. Some of the common reasons are detailed below for your reference.:-
In the case of a pvt ltd where all the shareholders exit and only one shareholder is left, that single shareholder can move ahead to convert the company into an OPC. Such a move will simplify the ownership structure and ensure the business gets continued legally. Additionally, the single shareholder will get to enjoy full control over the business.
As the sole shareholder, the OPC owner takes home 100% of the profits and eliminates the need to divide earnings with other shareholders, which is quite common in case of a private limited company.
Compared to pvt ltd and public ltd companies, the OPCs have much lesser compliances. For instance, the OPCs are exempt from holding AGMs under Section 96(1) of the Companies Act, 2013.
If only one director exists, then the provisions of the board meetings do not apply to the OPC. However, such rules are applicable to the pvt ltd companies and public ltd companies. These companies must ensure adherence to the rules at all times.
An OPC, in comparison to a Private Limited Company, has lesser operational as well as administrative costs. This one-person business structure helps the business save money for running operations.
An OPC is relatively easier to manage than a pvt ltd because it comes with far lesser compliance requirements. Also, an OPC needs to maintain only a few stakeholders. Therefore, businesses with reduced reach and capability can convert into an OPC model as a more convenient option with a single owner at its pivot.
In an OPC, the ultimate authority lies with the sole shareholder as he owns 100% of the shares. Therefore, to make business decisions, the sole shareholder usually does not need to consult with anyone. As a result, it is much quicker to make business decisions for the OPCs compared to pvt ltd companies in India.
An OPC has far lesser compliance requirements and is much cheaper to operate compared to a private ltd company. The OPC’s owner, being the sole shareholder, does not need to divide the profits with anyone. If you decide to convert your pvt ltd company to an OPC, then you must first carefully consider all your needs and circumstances as a company owner. We recommend seeking the legal advice of a business incorporation professional before making such instrumental changes to your business structure. For assistance, you can reach out to Registrationwala.
Q1. Is it possible to convert a private ltd company into a one person company?
A. Yes, it is possible to convert a private ltd company into a one person company in India while strictly adhering to the provisions of the Companies Act, 2013.
Q2. How many directors can be appointed at an OPC?
A. A minimum of 1 director and a maximum of 15 directors can be appointed at an OPC. Quite often, the sole shareholder of the OPC is also its sole director. However, it isn’t mandatory by law. A director may be any other person who is qualified for the role.
Q3. Does an OPC need to conduct board meetings?
A. An OPC needs to conduct board meetings if it has more than one director. However, in case of a sole director, conducting board meetings is not required by an OPC.
Q4. Do pvt limited companies need to conduct board meetings?
A. Yes, it is mandatory for the pvt limited companies in India to conduct board meetings. At least four such meetings must be conducted by them per calendar year.
Q5. Does OPC offer perpetual succession like a pvt ltd company?
A. Yes, an OPC offers perpetual succession. It is mandatory for such a company to appoint a nominee who can take over the business in case of owner’s demise, resignation or incapacity to contract. Therefore, an OPC continues to exist regardless of any changes in its membership.
Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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