Conversion of Proprietorship into A Private Limited or OPC in India

Any sole proprietorship may easily be converted into a private limited company or a one person company (OPC) to attain business security, legal existence, and greater share capital for further growth of the existing business. It must be noted that only a sole proprietorship which is registered under any local authority or under the Shops and Establishments Act of the concerned State, avail the quality of a separate legal existence.

On the other hand, an OPC or a private limited company enjoys the following advantages or benefits, which are not available to unregistered sole proprietorships --

• The right of a separate legal entity
• The benefits of limited liability
• The facility to gather greater share capital for further business growth
• Certain tax exemptions and benefits, and governmental subsidies
• Only nominal regulatory compliances boosting legal security and prestige of the company

     Fortunately,now there is no recommended provisions for the minimum paid-up capital or getting the certificate for business commencement in India for registering any type of a company, say an OPC or a private limited company. For registering an OPC, required are only one director and a shareholder; both can be the same person. And for incorporating a private limited company, necessary are at least two directors and two shareholders. Hence, depending upon one’s specific choice and situations/circumstances, a sole proprietorship may be preferably converted into a private limited company or an OPC. For any of these two objectives, relevant will be the Registrar of Companies (RoC) of the related State. We offer expert and cost-effective legal and advisory services for Convert Proprietorship Firm to Private Limited  Company or opc in entire India.

    Well-based in Delhi, our well-resourced and highly prestigious law firm has been very famous and trusted for the full-range of legal services related with the corporate world in India. These company law services essentially cover the expert and efficient services for registration of all most popular types of companies in entire India on behalf of Indian and foreign clients. All tasks involved in the entire company registration procedure are adroitly performed by our veteran and up-to-date company and corporate lawyers of international fame.

   To know more, or avail our services for registration or corporate governance and growth, please contact us through any of the following means ----

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Conversion of One Person Company into Private Limited Company

One-person Company is a relatively new term in India which is used for the businesses that are run by a single entrepreneur. OPC has become widely popular and it is promoted also to support new business enterprises. In the given article we will discuss about the reasons and methods of conversion of one-person company into private limited company (PLC).

There are basically two methods of converting an OPC to Private Limited Company which are voluntarily or by mandatorily. In any of the given cases an official process has to be followed for the conversion.
Eligibility for conversion:
An OPC can be converted to a Private Limited Company only if the following criteria are met strictly, which are:

• When the paid-up capital of the OPC exceeds Rs. 50 lakhs.
• When there is an average turnover for any three consecutive financial years of the company is more than Rs. 2 crores.

Mentioned below is a brief description of both the processes for a better understand of the people.

Voluntary Conversion

The process of conversion of Conversion of One Person Company into Private Limited Company voluntarily comes under the section 18 of the Companies Act. The process of conversion cannot be initiated till the completion of 2 years of the company as an OPC. Post that, the company can convert to a Private Limited Company which is under the same act, and it can be done by modification of MOA and AOA as per the provisions. After the conversion process, it is obligatory for the Private Limited Company to have a paid-up share capital of Rs. 50 lakh and also have an annual turnover of more than 2 crores.

Compulsory Conversion

This form of conversion takes place when an OPC has paid a capital of more than Rs. 50 lakhs or if the turnover of the company exceeds Rs. 2 crores. In the given conditions the company has to mandatorily convert itself to Private Limited Company.

Advantages of converting from OPC to Private Limited Company:

    

Easy Fund Raising

Private Limited Company have the opportunity to raise their shares by assistance from various investors, as getting funds/investments is the key for starting, sustaining and growing of any business.

Taxation Benefits

Private companies have been put under the bracket of 30% on total income but OPC is not recognized under the ITA, hence there are preferably more tax benefits by converting to Private Limited Company to prevent financial load.

 Improve Business Credibility

The credibility of a company is a very essential part of the company as it attracts reputed customers and assist in getting credit from dealers. With the information of Private Limited Company available on global database, it helps in validating the business and improving credibility of the business.

International Expansion

Private Limited Company are eligible for foreign direct investments of up to 100%, hence, foreign collaboration and investments can make the path of the company, being a multinational corporation, easier.

Company Registration In India

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Address: New Delhi, Delhi 110092

           

POSH Compliances: Mandatory Requirement in India

With the growth of the concept of Gender Equality and Women Empowerment at workplace, the cases of sexual harassment have also increased manifold over a period of time. Besides implementation of various measures to prevent such acts, there’s no halt for this growing nuisance in the society.

Mandatory Director KYC Update: Avoid Penalty and Disqualification

Every director has to file DIR KYC before 30th September, 2019 in terms of Companies (Appointment and Qualification of Directors) Rules, 2018 and amendments thereafter.

This rule applies to all every person holding DIN, as on 31st March, 2019, including Directors, all designated partner of LLPs, irrespective of DIN being active or inactive and DIN being disqualified, have to get their DIR KYC updated/completed.

National Financial Reporting Authority (“NFRA”) Rules

The Ministry of Corporate Affairs (MCA), Government of India has constituted an independent regulatory body named National Financial Reporting Authority (“NFRA”) and notified the National   Financial Reporting Authority Rules, 2018 (“Rules”) vide Notification dated November 13, 2018, effective from November 14, 2018. The National Financial Reporting Authority (NFRA) is a body constituted under the provisions of Section 132 of the Companies Act, 2013. The constitution of this authority is effective from 1st October 2018.After various recent scams like PNB scam and other financial scams and frauds in the country, NFRA is a very welcoming move by the present government.

 SCOPE OF THE NFRA

Classes of companies and bodies corporate governed by NFRA: NFRA shall have power to monitor and enforce compliance with accounting standards and auditing standards, oversee the quality of service or undertake investigation of the auditors of the following class of companies and bodies corporate, namely:

a.      Companies whose securities are listed on any stock exchange in India or outside India;

b.      Unlisted public companies having paid-up capital of not less than Rs 500 crores or having annual turnover of not less than Rs 1,000 crores or having, in aggregate, outstanding loans, debentures and deposits of not less than Rs 500 crores as on the 31st March of immediately preceding financial year;

c.   Insurance companies, banking companies, companies engaged in the generation or supply of electricity, companies governed by any special Act for the time being in force or bodies corporate incorporated by an Act in accordance with section 1(4)(b) to (f) of the Act;

d.     Anybody corporate or company or person, or any class of bodies corporate or companies or persons, on a reference made to the NFRA by the Central Government in public interest; and

e.   a body corporate incorporated or registered outside India, which is a subsidiary or associate company of any company or body corporate incorporated or registered in India as referred to in clauses (a) to (d), if the income or net worth of such subsidiary or associate company exceeds 20% of the consolidated income or consolidated net worth of such company or the body corporate, as the case may be, referred to in clauses (a) to (d).

*A company or a body corporate other than a company governed under this rule shall continue to be governed by the NFRA for a period of 3 years after it ceases to be listed or its paid-up capital or turnover or aggregate of loans, debentures and deposits falls below the limit stated therein. *

REPORTING TO NFRA

• Every existing body corporate other than a company governed by these rules, shall inform the NFRA within 30 days of the commencement of these rules, in Form NFRA-1, the particulars of the auditor as on the date of commencement of these rules;
• Everybody corporate, other than a company as defined in section 2(20), formed in India and governed under this rule shall, within 15 days of appointment of an auditor under section 139(1), inform the NFRA in Form NFRA-1, the particulars of the auditor appointed by such body corporate. However, a body corporate governed under sub-rule (1)(e) shall provide details of appointment of its auditor in Form NFRA-1.

 ANNUAL RETURN

A return with the NFRA on or before 30th April every year shall be filed with NFRA in such form as may be specified by the Central Government.

PUNISHMENT IN CASE OF NON-COMPLIANCE: 

lf a company or any officer of a company or an auditor or any other person contravenes any of the provisions of these rules, the company and every officer of the company who is in default or the auditor or such other person shall be punishable as per the provisions of section 450 of the Act.

Introduction of Legal Entity Identifier for large corporate borrowers

 1.        RBI/FEMA has introduced the concept of Legal Entity Identifier (LEI) code as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide.

2.        The LEI for the participants of the OTC derivatives market has since been implemented vide circular RBI/2016-17/314 FMRD.FMID No.14/11.01.007/2-16-17 dated June 01, 2017 in a phased manner.

3.      In the Statement on Developmental and Regulatory Policies dated October 4, 2017 it was indicated that LEI system for all borrowers of banks having total fund based and non-fund based exposure of ₹ 5 crore and above will be introduced in a phased manner (extract enclosed). Accordingly, it has been decided that the banks shall advise their existing large corporate borrowers having total exposures of ₹ 50 crore and above to obtain LEI as per the timelines provided. Borrowers who do not obtain LEI as per the scheduled timeline are not to be granted renewal / enhancement of credit facilities. A separate roadmap for borrowers having exposure between ₹ 5 crore and upto ₹ 50 crore would be issued in due course.

4.       Banks should encourage large borrowers to obtain LEI for their parent entity as well as all subsidiaries and associates.

5.       Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In India, LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the Clearing Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank as issuer of LEI under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local Operating Unit (LOU) in India for issuance and management of LEI.

6.       Based on the feedback and requests received from market participants, and with a view to enable smoother implementation of the LEI system in non-derivative markets:

a.         The timelines for implementation (Phase I and Phase II) for OTC derivatives are extended as under:

·           Phase 1: Net Worth of Entities above Rs.10000 million – December 31, 2019.

·           Phase 2: Net Worth of Entities between Rs.2000 million - Rs 10000 million December 31, 2019.

·           Phase 3: Net Worth of Entities up to Rs.2000 million– March 31, 2020.

b.        The schedule of large Corporate borrowers from Scheduled Commercial banks (SCB’s) to obtain LEI is as follows:

·           Phase 1: Total exposure to SCBs of 1000 Cr and above – March 31, 2018.

·           Phase 2: Total exposure to SCBs of 500 Cr and 1000 Cr– June 30, 2018.

·           Phase 3: Total exposure to SCBs of 100 Cr and 500 Cr – March 31, 2019.

·           Phase 4: Total exposure to SCBs of 100 Cr and 50 Cr – Dec 31, 2019.

                  

Anjali Suri

Company Secretary

Global Jurix LLP

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