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