Convert One Person Company to Private Limited Company

One Person Company is a business entity run by a sole owner with the benefit of limited liability. One Person Company is a separate legal entity from its members, offering protection to its shareholders. Every One Person Company must nominate a member for the Directorial position in the MOA/AOA, in case of absence of the prime Director.

A private limited company or famously known as LTD is a privately held company. This implies that the business limits owner liability to its shares and limits number of shareholders to 50. It also restricts shareholders from trading shares publicly.

Advantages of Private Limited Company 

• The liability of shareholders is limited to their shares. Financial risks are a part of business but to be able to minimize them and sustain the business progress is imperative. In an LTD, if due to any reason the company were to be shut the shareholders would not risk losing their personal assets.
• Risk of takeovers is minimized when two shareholders trade shares as the selling and buying of shares is possible only when both parties have given their consent.
• Private limited companies are incorporated; hence it continues to exist even if the owner dies.
• The capital or options of raising investment in business is not restricted to one person, which is the case in Sole Proprietorship.
• Private limited companies pay corporate tax on their profits. Dividends that the shareholders receive are not taxed. Taxes are determined as per their personal income tax rate.
• Private limited companies can attract high-caliber employees that offer great help in the growth of the company.

Documents required to convert One Person Company to Private Limited Company 

Mandatory Conversion: The conversion of One Person Company to Private Limited Company becomes mandatory when

• The paid capital of a One Person Company exceeds Rs.50 lakhs
• Increase the average annual turnover during the period of three consecutive financial years is Rs.2 crores.

The following documents are then required for the conversion.

1. E-Form INC 5 – Copy of the Resolution is needed to be filed with Registrar of Companies with the following attachments:

• Certified true copy of Board Resolution
• Latest balance sheet with other financial statements
• Certificate from a Chartered Accountant for calculation of average turnover during the relevant period

2. E-Form INC 6 – Application for the conversion of Private Limited Company to One Person Company with the following necessary attachments:

• List of all members and creditors
• Latest balance sheet
• Letter of ‘No Objection’ from the members and creditors
• Letter of Consent from the Directors by way of affidavit

Voluntary Conversion: The conversion of One Person Company to Private Limited Company can be voluntarily done when the One Person Company completes two years from the date of incorporation.

The following documents are then required for the conversion.

1. E-Form MGT 14 – Copy of the Special Resolution is needed to be filed with Registrar of Companies with the following attachments:

• Notice of Extra General Meeting (EGM), which is held to gain the approval of Directors for the conversion of the Private Limited Company to One Person Company.
• Certified true copy of Special Resolution
• Altered Memorandum of Association
• Altered Articles of Association
• Certified true copy of Board Resolution is optional

2. E-Form INC 6 – Application for the conversion of Private Limited Company to One Person Company with the following necessary attachments:

• List of all members and creditors
• Latest balance sheet
• Letter of ‘No Objection’ from the members and creditors
• Letter of Consent from the Directors by way of affidavit