Procedures under Companies Act, 2013

Conversion of One Person Company Into A Public Company

Section 2(62) of the Companies Act, 2013 defines “One Person Company” as a Company which has only one person as a member.

  • Two ways by which One Person Company can convert itself into a Public  Company:
  1. Mandatory Conversion as covered under Sub Rule 1,2,3 &4 of Rule 6 of Companies (Incorporation) Rules, 2014
  2. Voluntarily Conversion as covered under Sub Rule 6 of Rule 6 of Companies (Incorporation) Rules, 2014

 

PART A- MANDATORY CONVERSION

Key Considerations:

 

  • Under mandatorily conversion, One Person Company has to convert itself into either a Public Company or a Private Company, within 6 months from the date on which the:
  • Paid up share capital of One Person Company exceeds Fifty lakh Rupees

 OR

  • Average annual turnover of One Person Company exceeds Two Crore rupees during the relevant period. [Rule 6(1) & 6(2)of Companies (Incorporation) Rules, 2014]

"Relevant Period" here means the period of immediately preceding three consecutive financial years.

  • Member of the Company shall approve the conversion of Company into Public Company and consequent amendment of Memorandum and Articles of Association by Special Resolution. [Rule 6(3) of Companies (Incorporation) Rules, 2014]. It shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act. [Section 122 (3) of Companies Act, 2013]                                                  
  • Name clause of Memorandum needs to be amended to exclude the word 'Private'.
  • Appropriate steps should be taken to increase the number of members and Directors to be 7 (seven) and 3 (three) respectively in addition to a Minimum Paid up capital as may be prescribed. [Rule 6(6) of Companies (Incorporation) Rules, 2014]
  • The Articles of the Company shall be suitably amended for the removal of restrictive provisions applicable to a Private Company. It is advisable to adopt a new set of Articles applicable to a Public Company.
  • Company has not defaulted in filing of Annual Returns or Financial Statement or any other document due for filing with the Registrar. [Rule 29(1) of Companies (Incorporation) Rules, 2014]
  • Company has not defaulted in repayment of matured deposits or debentures or interest on deposits or debentures. [Rule 29(1) of Companies (Incorporation) Rules, 2014] 

The following procedure is to be followed for conversion under Rule No. 6 of Companies (Incorporation) Rules, 2014 read with Section 18 & 122 of the Act-

  1. Convene a Board meeting in accordance with Section 122(4) and pass Board Resolutions for :
  1. Take note about exceeding the threshold limits .
  2. Filing Notice to the Registrar in Form INC.5.
  3. Approving conversion of the Company into Public company and subsequent amendments in Memorandum and Articles of Association, subject to the approval of member and filing application with ROC in form INC.6.
  4. Approving Notice with Explanatory Statement for resolutions to be signed, dated and communicated by the member to the company regarding:

 

  1. Special Resolution for approving conversion of company into Public company
  2. Special Resolution for alteration of Articles of Association;
  3. Special Resolution for alteration of Memorandum of Association (name clause)
  4. Ordinary Resolution for alteration of Memorandum (Capital clause), to increase capital if required
  5. Special Resolution for alteration of Memorandum to amend the reference of the name of one person and its nominee.

 Where there is only one director on the Board of Director of a One Person Company, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such One Person Company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act.[Section 122(4)]

  1. Hold a general meeting in accordance with provisions of Section 122(3) of the Act and pass the following special resolutions:
  • Special Resolution for approving conversion of company into Public company
  • Special Resolution for altering the Memorandum of Association of Company in accordance with Section 13 of the Act.
  • Special Resolution for altering the Articles of Association, including removal  of restrictive provisions, as applicable to  Public Company in accordance with Section 14 of the Act.

It shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act.. [Section 122(3)]

  1. File certified true copy of each special resolution(s) passed in general meeting along with altered Memorandum and Articles of Association of Company with the Registrar in E-Form No. 14 under Section 117 of the Act within 30 days of passing Special Resolution in general meeting along with fee as specified in the Companies (Registration offices and fees) Rules, 2014.
  1. File a notice within period of sixty days in E-Form No. INC.5to the Registrar informing that it has ceased to be a One Person Company and it is required to convert itself into a Private or Public Company. [Sub Rule 4 of Rule 6 of Companies (Incorporation) Rules, 2014] E-Form INC.5 should be accompanied with the copy of following attachments:
  • Board Resolution authorizing giving of such notice
  • Duly attested latest Financial Statements
  • Certificate from a CA in practice calculating the average annual turnover during the relevant period ,if conversion is on the basis of turnover criteria.
  1. Appropriate steps should be taken to increase the number of members to at least seven  .[Refer Rule 6(6) of Companies (Incorporation)Rules, 2014 and Section 3(1) (a)  ]. Update the required entries in Register of Members and Register of Transfers, if applicable.  [Rule 5 (1) of Companies (Management and Administration)Rules, 2014] [Pls. refer Procedure for allotment/transfer of shares]
  1. Appropriate steps should be taken to increase the number of directors to at least three Directors .[Refer Rule 6(6) of Companies (Incorporation)Rules, 2014 and Section 149(1) (a)]. Update the required entries in Register of Directors. [Rule 17 of Companies (Appointment and Qualification of Directors)Rules, 2014] [Pls. refer Procedure for appointment of Director]
  1. Record minutes of Board meeting and shareholder’s meeting in the minutes book within 30 days of conclusion of meeting along with the date of such Entry. [Section 118]
  1. File an application for conversion within a period of six months in E-Form No. INC. 6to the Registrar requesting for conversion into a Public Company. [Sub Rule 2 of Rule 6 of Companies (Incorporation) Rules, 2014] E-Form INC.6 should be accompanied with the copy of following attachments:
  • Altered Memorandum of Association
  • Altered Articles of Association
  • Duly attested latest Financial Statements
  • Board Resolution authorizing giving of such notice
  • Certificate from a CA in practice calculating the average annual turnover during the relevant period ,if conversion is on the basis of turnover criteria.
  • Copy of minutes, list of creditors and list of member.
  •  Copy of NOC of every creditors with the application for Conversion
  1. Pursuant to the approval of E-Form No. MGT.14, E-Form No. INC-5 and E-form No. INC-6 and being satisfied on all accounts, Registrar will register the documents and issue a fresh Certificate of Incorporation.[Section 13(3) and Rule 29(2) of Companies (Incorporation) Rules, 2014]

 

PART- B: VOLUNTARY CONVERSION

        Key Considerations:

  • Under voluntarily conversion, One person company cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company [Rule 3(7) ofthe Companies (Incorporation) Rules 2014]
  • Name clause of Memorandum needs to be amended to exclude the word 'Private'.
  • Appropriate steps should be taken to increase the number of members and Directors to be 7 (seven) and 3 (three) respectively in addition to a Minimum Paid up capital as may be prescribed. [Rule 6(6) of Companies (Incorporation) Rules, 2014]
  • The Articles of the Company shall be suitably amended for the removal of restrictive provisions applicable to a Private Company. It is advisable to adopt a new set of Articles applicable to a Public Company.
  • Company has not defaulted in filing of Annual Returns or Financial Statement or any other document due for filing with the Registrar. [Rule 29(1) of Companies (Incorporation) Rules, 2014]
  • Company has not defaulted in repayment of matured deposits or debentures or interest on deposits or debentures. [Rule 29(1) of Companies (Incorporation) Rules, 2014]

The following procedure is to be followed for voluntary conversion under Rule No. 6 of Companies (Incorporation) Rules, 2014 read with Section 18 & 122 of the Act-

  1. Convene a Board meeting in accordance with Section 122(4) and pass Board Resolutions for :
  1. Approving conversion of the Company into Public company and subsequent amendments in Memorandum and Articles of Association, subject to the approval of member and filing application with ROC in form INC.6.
  2. Approving Notice with Explanatory Statement for resolutions to be signed, dated and communicated by the member to the company regarding:
  1.  Special Resolution for approving conversion of company into Public company
  2. Special Resolution for alteration of Articles of Association;
  3. Special Resolution for alteration of Memorandum of Association (name clause)
  4. Ordinary Resolution for alteration of Memorandum (Capital clause), to increase capital if required
  5. Special Resolution for alteration of Memorandum to amend the reference of the name of one person and its nominee.

 

Where there is only one director on the Board of Director of a One Person Company, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such One Person Company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act.[Section 122(4)]

  1. Hold a general meeting in accordance with provisions of Section 122(3) of the Act and pass the following special resolutions:
  • Special Resolution for approving conversion of company into Public company
  • Special Resolution for altering the Memorandum of Association of Company in accordance with Section 13 of the Act.
  • Special Resolution for altering the Articles of Association, including removal of restrictive provisions, as applicable to  Public Company in accordance with Section 14 of the Act.

It shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act.. [Section 122(3)]

 

  1. File certified true copy of each special resolution(s) passed in general meeting along with altered Memorandum and Articles of Association of Company with the Registrar in E-Form No. 14 under Section 117 of the Act within 30 days of passing Special Resolution in general meeting along with fee as specified in the Companies (Registration offices and fees) Rules, 2014.
  1. Appropriate steps should be taken to increase the number of members to at least seven.[Refer Rule 6(6) of Companies (Incorporation)Rules, 2014 and Section 3(1) (a)]. Update the required entries in Register of Members and Register of Transfers, if applicable. [Rule 5 (1) of Companies (Management and Administration)Rules, 2014]
  1. Appropriate steps should be taken to increase the number of directors to at least three Directors.[Refer Rule 6(6) of Companies (Incorporation)Rules, 2014 and Section 149(1) (a)]. Update the required entries in Register of Directors. [Rule 17 of Companies (Appointment and Qualification of Directors)Rules, 2014]
  1. Record minutes of Board meeting and shareholder’s meeting in the minutes book within 30 days of conclusion of meeting along with the date of such Entry. [Section 118]
  1. File an application for conversion within a period of thirty days from the date of general meeting in E-Form No. INC. 6 to the Registrar requesting for conversion into a Public Company. [Sub Rule 2 of Rule 6 of Companies (Incorporation) Rules, 2014] E-Form INC.6 should be accompanied with the copy of following attachments:

 

  • Altered Memorandum of Association
  • Altered Articles of Association
  • Duly attested latest Financial Statements
  • Board Resolution authorizing giving of such notice
  • Copy of minutes, list of creditors and list of member.
  •  Copy of NOC of every creditors with the application for Conversion 
  1. Pursuant to the approval of E-Form No. MGT.14 and E-form No. INC-6 and being satisfied on all accounts, Registrar will register the documents and issue a fresh Certificate of Incorporation.[Section 13(3) and Rule 29(2) of Companies (Incorporation) Rules, 2014]

 ACTION POINTS REQUIRED TO BE TAKEN AFTER GETTING FRESH CERTIFICATE OF INCORPORATION:

  • Every Alteration made in the memorandum or articles of the company shall be noted in every copy of the memorandum or articles as the case may be. [Section 15(1)]
  • Arrange printing of fresh copies of Altered Memorandum and Articles of Association with new Certificate of Incorporation;
  • Arrange new rubber stamps, stationaryall in the new name of Company.
  • Change the specimen of Blank Share Certificates, if already printed. with the new name,
  • Have painted the new name of the Company on outside of every office, building etc. along with former name or names so changed [Pursuant to Sec 12(3)(a) and First proviso to Section 12(3)]
  • Arrange a new common seal engraved with new name and adopt it at the meeting of Board of Directors(Common Seal is optional now). [Pursuant to Sec 12(3)(b)]
  • Get its new name printed in its entire business letters, letter heads, Billheads, Invoice Forms, Receipt Forms and all other official publications along with former name or names so changed. [Pursuant to Sec 12(3)(c) and First proviso to Section 12(3)]
  • Have its new name printed on hundies, promissory notes, bills of exchange etc. [Pursuant to Sec 12(3)(d)]
  • Remove the words ‘One Person Company’ as written in brackets below the name of Company, wherever it is printed or affixed. [Second Proviso to sec 12(3)]
  • Inform all concerned persons/ govt. authorities about the conversion of the Company like Central Excise Authorities, Customs Authorities, Sales Tax Authorities, Service tax Department, Chief Inspector of Factories, and Regional Provident Fund Commissioner etc.
  • Intimate all the Banks, where Company operating Bank Accounts, about its conversion and file necessary applications and documents, as required by Bank, with regard to change in the status and name of Account holder
  • Make application to Income Tax Department for Arranging New Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • Update the new name of the Company with the Basic Utility Service providers like Electricity providers, Telephone Internet connections
  • Inform all other Companies where Company has made Investments, taken loans, taken Insurance Policies, entered agreements of any kind and to all stakeholders.

Procedure Authors

ACS Divya Jain
ACS Palak Jain
ACS Ankita Jain
ACS Sugandh Jain
ACS Mansi Kapor
ACS Bhawna Sharma


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