Conversion of OPC into LLP

Q: How can XYZ Private Limited (OPC) be converted into LLP?

A:No, OPC cannot be directly converted into LLP as the company should have atleast 2 members who shall on conversion become partners/ DP of LLP.

*However, if we act smart, another way to Convert OPC into LLP is by conversion of OPC into Private Company (Step I) and then Private company into LLP(Step II).

What Companies Act 2013, says;

As per Section 18 of Companies Act 2013,

 (1)A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter.

(2) 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 this Chapter applicable for registration of companies have been complied with, close the former registration of the company and after registering the documents referred to in sub-section (1), issue a certificate of incorporation in the same manner as its first registration.

(3) 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.

What Companies (incorporation)Rules 2014, says;

Rule 6 : One Person Company to convert itself into a public company or a private company in certain cases.-

(1) Where the paid up share capital of an One Person Company exceeds fifty lakh rupees and its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

 (2) Such One Person Company shall be required to convert itself, within six months of the date on which its paid up share capital is increased beyond fifty lakh rupees or the last day of the relevant period during which its average annual turnover exceeds two crore rupees as the case may be, into either a private company with minimum of two members and two directors or a public company with at least of seven members and three directors in accordance with the provisions of section 18 of the Act.

(3) The One Person Company shall alter its memorandum and articles by passing a resolution in accordance with sub-section (3) of section 122 of the Act to give effect to the conversion and to make necessary changes incidental thereto.

(4) The One Person Company shall within period of sixty days from the date of applicability of sub-rule (1), give a notice to the Registrar in Form No.INC.5 informing that it has ceased to be a One Person Company 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, having exceeded the threshold limit laid down in sub-rule (1).

Explanation.-For the purposes of this rule,- “relevant period” means the period of immediately preceding three consecutive financial years;

(5) If One Person Company or any officer of the One Person Company contravenes the provisions of these rules, One Person Company or any officer of the One Person Company shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.

 (6) A One Person company can get itself converted into a Private or 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.

Condition Precedent

·         No OPC can convert voluntarily into a private company unless two years is expired from the date of incorporation;

 Exception

●       An OPC can convert into a private company within two years of its incorporation only if threshold limit (paid up share capital) is increased beyond fifty lakh rupees or its average annual turnover during the relevant period exceeds two crore rupees.

Our View:

A One Person Company (OPC) can convert itself into a private company by complying the procedure laid out under the Companies Act, 2013. By converting an OPC to a private company, the ownership of the company is getting transferred from the sole member to minimum two shareholders. The number of directors also to be increased to minimum two. The Registrar shall on an application made by the company, after satisfying himself that the relevant provisions of for registration of companies have been complied with, register the documents for conversion and close the former registration of the company and issue a fresh certificate of incorporation.

Procedure for conversion

●       Company shall obtain No objection in writing from creditors.

●       Pass a resolution for conversion of OPC to private company

●       An affidavit by the director(s) of the company confirming that all creditors of the company have given their consent for conversion,

●       file copy of the special resolution with the Registrar of Companies within thirty days

●       The company shall file an application in Form No.INC.6 for its conversion into private limited

Documents required

●       Altered Memorandum of Association

●       Altered Articles of Association

●       Copy of latest audited balance sheet and Loss Account

●       Copy of board resolution authorising giving notices to creditors

●       List of creditors; and

●       Copy of No Objection letter from secured creditors.

Effect of conversion

●       On approval of the application, the registrar will issue fresh certificate of incorporation.

●       The ownership will be transferred from sole member to multiple members.

●       The new company have no restriction on the capital or turnover.

●       The conversion shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and it may be enforced in the manner as if such registration had not been done.

Step II : Conversion of Private company into LLP;

What LLP Act , 2008 says,

Any existing private company or existing unlisted public company can be converted into LLP by complying with the Provisions of clause 58 and Schedule III and IV of the LLP Act. Form 18 needs to be filed with the registrar along with Form 2 for such conversion.

CHECKPOINTS FOR CONVERSION OF COMPANY INTO LLP

• In case of conversion of Private Limited Company into LLP, all the shareholders of the Company to be partners in the LLP. No one else can be partner in LLP
• Also there will be NO SECURITY INTEREST subsisting or in force at the time of application in the assets of the Company.
• Every Designated Partner is required to obtain a DIN from the Central Government.
• All the E-FORMS which are required for the purpose of incorporating the LLP are filed electronically through the medium of Internet, it is not possible to sign them manually. Therefore, for the purpose of signing these forms, the Designated Partner of the proposed LLP needs to obtain a Digital Signature Certificate (DSC) from government recognized DSA’S.
• Whether up to date Income-tax return is filed under the Income-tax Act, 1961.
• Whether any prosecution initiated against or show cause notice received by the company for alleged offences under the Companies Act, 2013.
• Whether any proceeding by or against the company is pending in any Court or Tribunal or any other Authority.
• Whether any conviction, ruling, order, judgment of any Court, Tribunal or other authority in favour of or against the company is subsisting.
• Whether any clearance, approval or permission for conversion of the company into limited liability partnership is required from anybody/ authority. etc

 For more details, contact CS Neha Seth at csnehaseth.cp@gmail.com or call us at 9871903449

Conversion of a Society into Section 8 Company

Conversion of a Society into Section 8 Company

What is SOCIETY?

A society may be defined as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Cooperatives may include:

·         Non-profit community organizations

·         businesses owned and managed by the people who use their services (a consumer cooperative)

·         Organisations managed by the people who work there (worker cooperatives)

·         Organisations managed by the people to whom they provide accommodation (housing cooperatives)

·         Hybrids such as worker cooperatives that are also consumer cooperatives or credit unions

·         Multi-stakeholder cooperatives such as those that bring together civil society and local actors to deliver community needs

·         Second- and third-tier cooperatives whose members are other cooperatives

COMPARISON BETWEEN SECTION-8 COMPANY & SOCIETY

Basis of Difference	Section 8 Company	Society
Governed by	Companies Act 2013	The Societies registration Act, 1860
Introduction	Section 8 company is a registered entity and has recognition all over India.	Societies are registered at DGM locally and have recognition state wise.
Reliance	Section 8 companies are treated more trust worthy because they have license.	They are registered with local state authorities hence, lacks trust factor initially.
Compliance	Compliances are high here and even need to comply in case of no revenue	There are very few compliances to be made in comparison to section 8.
Governing Document	Section 8 company is governed by MOA and AOA of the company.	Societies are governed by their trust deed or bye laws.
Closure	Section 8 Company can be closed within the parameters of law	The irrevocable trust cannot be closed.
Cost	The maintenance cost is high in section 8 company.	Cost is very low as compared to the section 8 company.

STRUCTURE OF A SOCIETY

WHY NEED OF CONVERSION TO SECTION-8 ARISES?

Many times, queries are raised by the members of Society to convert themselves to Section 8 Company considering the advantages of it.

Let us discuss the Advantages of Section 8 Company

No minimum capital requirement

Income Tax exemption

Best form to start your NGO/NPO

Can accept donations

PROCEDURE OF CONVERSION

As per the provisions of COMPANIESACT, 2013 and notification of its enabling provision Section 366, a Co-operative society or a society registered under the provisions of Society Registration Act, 1860 or any other legislation framed by various state governments or any community benefit society may convert itself into a Section 8 company.

A.    Special Resolution

Section 366 of the Companies Act, 2013 and rules framed under the Companies Act, 2013 set out the requirements for a special resolution. These requirements state that at least three – fourth of the qualified members of the society must vote in favour of the special resolution to convert, either in person, where proxies are allowed, by proxy to be passed by the majority of members, which should not be less than three-fourth of the total members present and voting.

Who is Qualified Member?

A qualified member is a member of society who is qualified to vote on a resolution under the Bye-Laws of Society.

Before making a conversion application, the society and its management committee must ensure the followings:

Ø   There shall be seven or more members;

Ø  Consent from all the secured and unsecured creditors must have been obtained;

Ø  A notice in newspaper about such conversion, one in English and in vernacular language seeking objections must be published;

B.     Obtaining Digital Signatures & DIN and applying for Name Approval

Once the above conditions are satisfied, and a special resolution is passed in the meeting of members of society for such conversion, all the proposed Directors of the Section 8 Company must obtain Digital Signature Certificate and DIN (Director Identification Number) and make an application in Form No. RUN to the Registrar of Companies for the reservation of proposed name

NOTE: The entity has to get the name reservation by applying in eForm RUN and file this eForm along with INC-32 (Application for Incorporation of Company (Part I Company And Company with more than Seven Subscribers)) within 20 days from the date of filing eForm RUN

 Upon receipt of name reservation application, the Registrar of Companies shall examine the application and in case the proposed name is available for registration, then the same shall be approved.

C.    File Conversion Application in eForm URC 1

After Obtaining Name Approval, The next step is to prepare and file Conversion application in eForm No. URC – 1 with the Registrar of Companies accompanied by the following documents: –

ü  A list showing the names, addresses, and occupations of all persons named therein as members with details of shares held by them respectively, who on a day, not being more than six clear days before the day of filing this application, were members of the Society;

ü  A list showing the particulars of persons proposed as the first directors of the Company, their names, including surnames or family names, the DIN, passport number (if any) with expiry date, residential addresses and their interests in other firms or bodies corporate along with their consent to act as Director of the Company;

ü  An affidavit from each of the persons proposed as the first directors, that he is not disqualified to be a director under section 164(1) and that all the documents filed with the Registrar for registration of the Company contain information that is correct and complete and true to be best of his knowledge and belief;                                                                   

ü  A list containing the names and addresses of the members of the society;

ü  A Copy of Society’s Bye-Laws and Certificate of Registration issued by the Registrar of Societies duly verified by members of Managing Committee of the Society;          

ü  A statement specifying the following particulars; a) the nominal share capital of the company and the number of shares into which it is divided; b) the number of shares taken and the amount paid on each share; c) the name of the company, with the addition of the word ‘Association’ or ‘Foundation’ ‘Federation’ etc as the case may require, as the last word or words thereof;

ü  Written consent or No Objection Certificate from all the secured creditors of the applicant;          

ü  Written consent from the majority of members whether present in person or by proxy at a general meeting agreeing for registration under section 366 of the Companies Act, 2013;

ü  An affidavit duly notarized, from all the members or partners providing that in the event of registration as a company under Part I Chapter XXI of the Companies Act, 2013, necessary documents or papers shall be submitted to the registering or other authority with which the company was earlier registered, for this dissolution as Society;                               

ü  Statement of accounts of the company, prepared not later than 6 days preceding the date of application duly certified by auditor, if applicable;

ü  Declaration of two or more directors verifying the particulars of all members/partners;      

ü  Copy of Newspaper advertisement & said advertisement shall be in form URC-2

ü  Certificate from a Company Secretary in Practice/Cost Accountant in Practice/Chartered Accountant in Practice certifying the compliance with all the provisions of Stamp Act, to the extent applicable;  

ü  No objection certificate from the concerned Registrar of Societies

.

D.    File INC 32 & INC 33, INC 34 

•          Once the application for conversion in eForm URC – 1 shall be approved by the registrar of companies, An application in Form No. INC – 12 for issuance of license under Section 8 of the Companies Act, 2013 shall be made before the Regional Director, Ministry of Corporate Affairs.

•           After issuance of license under 8 of Companies Act, 2013 another application for the incorporation of company in Form No. INC – 32 along with Form No. INC 33, 34 ,&

•           Notice of situation or change of situation of registered office shall be made and

•           upon its approval, a Certificate of Incorporation shall be issued by the Registrar of Companies in form INC-11

•          At last a Certificate of Conversion shall be issued by the Registrar under Section 367 of the Companies Act, 2013 and

•          After obtaining a Certificate under Section 367 of the Companies Act, 2013, intimation to this effect shall be given, within fifteen days of such registration to the concerned Registrar of Societies under which the society was originally registered, along with necessary papers for its dissolution as Society.

                                                                                    .                                               .                      

CHECKLIST FOR eForm URC-1

S.No.	Information required
1.	Number of members in the entity Enter the number of members in the entity as on the date of application. The number should be greater than or equal to 7.
2.	Date & description of the instrument constituting the entity
3.	Date of general meeting passing the resolution assenting to registration with limited liability
4.	Whether entity has any secured debt outstanding as on the date of application (Mention the total outstanding amount )
5.	To be digitally signed by ü  person is authorized by board of directors to sign the eForm/ manager Certificate by practicing professional ü  Chartered Accountant (in whole-time practice) ü  Company Secretary (in whole-time practice) ü  Cost Accountant (in whole-time practice)
6.	Attachments The following attachments are mandatory: 1. Particulars of members/partners along with the details of shares held by them 2. Declaration of two or more directors verifying the particulars of all members/ partners 3. Affidavit from all the members/partners for dissolution of the entity 4. Copy of the instrument constituting or regulating the entity 5. Copy of certificate of registration of the entity 6. Copy of Newspaper advertisement 7. Certificate from a CA/CS/CWA certifying the compliance with all the provisions of Stamp Act, to the extent applicable Conditional: 8. Consent of majority of members 9. Consent of at least three-fourth of members agreeing for registration under this part 10. No objection certificate from the concerned Registrar of Firms or Registrar of Companies (LLP) . 11. No objection certificate/Consent given by secured creditors is mandatory to be attached in case of any secured debt outstanding as on the date of application. 12. Statement of accounts of the company, prepared not later than 6 days preceding the date of application duly certified by auditor, if applicable. 13. Copy of the resolution declaring the amount of guarantee is mandatory in case company is limited by guarantee. 14.  Any other information can be provided as an optional attachment(s).

FAQs related to conversion;

1. What will be the treatment of Corpus fund of Rs. 100 Crs. if we convert trust into normal pvt ltd company having authorised share capital of Rs. 10 Lakhs. (Rs. 10 Lakhs will be subscribed additionally by 7 trustees). 

If a trust is converted into private company(which is not a section 8 company) it become taxable in the hand trustees and shall be chargeable to income tax as capital gain under section 45 of the Income Tax Act 1961.

2. Can Corpus fund (100Crs.) be shown  as Reserve & Surplus?

Yes, if such trust is converted into section 8 company the corpus fund shall be shown in reserve & surplus of the balance sheet of section 8 company.

3. In case of liquidation of the company at any future date, this Rs. 100 Crs. Corpus will be distributed to existing shareholders. Will there be any capital gain liability on such distribution?

At a time of liquidation of company no such asset shall be distributed among the shareholder as Section 8 sub-section 9 clearly state that " If on the winding up or dissolution of a company registered under this section,there remains, after the satisfaction of its debts and liabilities, any asset, they may be transferred to another company registered under this section and having similar objects, subject to such conditions as the Tribunal may impose, or may be sold and proceeds thereof credited to the Rehabilitation and Insolvency Fund formed under section 269."

4. I doubt after conversion, income tax authorities may ask 30% tax on corpus fund of Rs. 50 Crs. Being it was exempt in Trust but company may be liable to pay income tax on it. Please throw some light on this also."

Income tax authority shall not demand  capital gain if a trust registered under section 12 Income Tax act (assumed that object of trust shall remain same after conversion into section 8 company).

For more queries, pls contact us at csnehaseth@gmail.com or call us at 9871903449