CONVERTING SOLE PROPRIETORSHIP TO ONE PERSON COMPANY (OPC)- STEP BY STEP PROCEDURES

 CONVERTING SOLE PROPRIETORSHIP TO ONE PERSON COMPANY (OPC)- STEP BY STEP PROCEDURES

Proprietorship cannot be converted into any new company but it can be only takeover by an existing company or by forming an OPC.

Hence, it is advised to incorporate an OPC with a MoA having clause to take over the business of sole proprietorship.

SOLE PROPRIETORSHIP

A sole proprietorship is a type of business entity where an individual, known as the sole proprietor, operates  and owns the business. It is the simplest form of business organizaton and but it is not considered as a separate legal entity from its owner. In a sole proprietorship, the owner is personally responsible for all the business's debts and obligations. His estates can be attached by creditors for the amount due to them.

OPC" REFERS TO A ONE PERSON COMPANY.

The concept of One Person Company was introduced in the Companies Act, 2013 under Section 2(62) , to enable single entrepreneurs to operate as a separate legal entity and enjoy limited liability protection similar to that of a company, while still being a single owner.

 

ADVANTAGES DERIVED BY CONVERTING SOLE PROPRIETORSHIP INTO OPC

LIMITED LIABILITY

One of the chief benefits of conversion is that an OPC offers limited liability protection. In sole proprietorship, one is personally liable for any debts or legal obligations of the business. Nonetheless, by converting to an OPC, one’s liability becomes limited to the extent of his your investment in the one man company.

SEPARATE LEGAL ENTITY

An OPC is considered a separate legal entity distinct from its owner. This offers advantage while dealing with larger clients or seeking external funding.

PERPETUAL EXISTENCE

An OPC has perpetual existence. The company continues to exist even in the event of the owner’s death or incapacitation. This feature adds stability and longevity to one’s business, making it easier to attract investors and business plan for long-term growth.

EASE OF TRANSFERABILITY

OPC provides for easy transfer of ownership. In an OPC, shares can be easily transferred, making it simpler to investors mainly to facilitate business expansion.

BORROWING AND FUNDRAISING OPPORTUNITIES:

Banks and financial institutions are often more willing to lend to companies that have a separate legal identity and limited liability structure.

                        Fewer Compliance Requirements:

OPCs have fewer compliance requirements compared to other types of companies. The regulatory burden is lower, making it easier for the owner to comply with legal formalities and focus on business operations.

                                       Tax Benefits:

Certain tax advantages may be enjoyed by OPCs, including tax deductions and allowances, contributing to the reduction of the overall tax liability. Furthermore, in some instances, OPCs might be subject to lower tax rates compared to individual business owners, potentially resulting in cost savings and heightened profitability.

FURTHER STEPS TO BE TAKEN FOR CONVERSION OF SOLE PROPERITORSHIP INTO AN OPC

·       To Obtain Director Identification Number (DIN) and Digital Signature Certificate (DSC) for the proposed director.

 

·       Select a Unique Name for the OPC. Check the availability of the chosen name through the MCA portal and reserve it if available.

 

·       Draft the MOA and AOA documents, which outline the objectives, share capital, shareholding structure, and operational rules of the OPC.Include provisions related to the conversion of the sole proprietorship into an OPC in these documents.

 

·       Conduct a board meeting of the sole proprietorship and pass resolutions approving the conversion of the business into an OPC. Authorize a director or an authorized person to execute the necessary documents, including the MOA and AOA.

 

 

·       No-Objection Certificate (NOC): Obtain NOCs from relevant parties like creditors, customers and suppliers, indicating their non-objection to the conversion and willingness to continue association with the new OPC.

 

·       Filing of Forms with the Registrar of Companies: Prepare the required forms like INC-32, INC-33 and INC-34 that contain information about the company and its directors and submit them to the Registrar of Companies along with the necessary documents and fees.

 

·       RoC Approval: The RoC will review the submitted documents and forms. If everything is in order, the RoC will issue a Certificate of Incorporation for the OPC.