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Conversion of business entity is the process of changing one type of business structure to another type of business structure i.e. the continuance of one business entity into another form of business entity. After the conversion of business entities, the converting entity results into a Converted business entity. However, the process of conversion changes the legal status of the entity for different reasons. The procedure for conversion of a business entity involves-
conversion of business takes place in domestic entities. A Statutory conversion
is the most efficient way to change one entity from another entity.
Table of Contents
There are different ways of conversion of Business Entity mentioned below-
is the most time taking, complicated and expensive way to change entity forms.
As the procedure involves dissolution, and dissolving a business entity can be
complex, and further, a new entity is formed. For the same, the agreements have
to be entered into to transfer the original entity’s assets and liabilities to
the newly formed entity.
this method, the original entity gets dissolved, and a new entity is formed.
merger is the method where the new entity type is formed, and the old entity
type is merged into the new one. As a matter of statute, the significance of a
merger over dissolution/formation is that the former entity will cease to
exist, its assets and liabilities will vest in the later (new) entity and its
owners will become owners of the new entity.
Statutory conversion is the
least complex expensive way to change business entity forms, and a document is
filed with the authority to change from one entity form to another. In
statutory conversion, there is no need to form a new entity, and similar to a
merger, the assets and liabilities, and ownership interests are transferred by
law. A conversion plan is drafted containing the terms and conditions of the
the business entity is a significant decision that may affect the legal
structure including liability and taxes.
There are different types of conversion of business entity mentioned below-
Sole proprietorship is the simplest form of formation of a business entity. It only requires capital, for starting the Sole proprietorship business, as an individual a person only requires a layout of the new business and contributing capital.
But converting a Sole proprietorship into a Partnership Firm or Company is a complex process. As for partnership firm, the partners are required to comply with the Partnership Act 1932 and by signing a Partnership Deed.
Forming a company, is a more advanced type of
business organization which requires more statutory compliances, legal
formalities, lengthy procedures, reporting to the appropriate authorities and
paperwork. Companies are also required to establish by-laws and to conduct the meetings
i.e. Board meetings, Annual General Meeting and Extra-Ordinary General Meeting.
Conversion of Partnership firm into
a company represents a change of a business entity from one formalized type to
another. The procedure involves forming a new company and to dissolve the
Further, it also involves the
transfer of assets and liabilities from Partnership firm to the new one i.e. a
company which is done through one of the following three methods:
The conversion is technically tax-free and reduction in liability.
The Procedure is as follows:
The procedure for conversion of Private Company into a Public Company involves approval of the Board of the directors and the members/shareholders of the company. The procedure of conversion of Private Company into Public Company is mentioned below-
Many Public companies have converted or in the process to convert it into a Public Company, keeping in view the relaxations provided to a Private Company. The conversion takes place from the date of receipt of the approval from the registrar and after the issue of a fresh certificate of incorporation.
A Public Company within the limits imposed upon the
private companies may become a private company by following the below-mentioned
Note – (Any Representative can come for
hearing on behalf of the both a person who has raised the objection and
case, of Compulsory Conversion
The conversion of One Person Company to Private or Public Company is compulsory if –
The OPC shall within 6 months from the
date the exceeding the above-mentioned limits shall be required to convert
itself into –
One Person Company shall give notice to the ROC in Form No-INC-5 within 60 days explaining that the company has ceased to be an OPC and is required to convert itself into a Private Company or Public Company.
Voluntary conversion of OPC to
Private Company /Public Company is only possible after the expiry of 2 years from
the date of incorporation.
The procedure of both Compulsory
conversion and Voluntary conversion is the same but the requirement for filing
Form INC-5 shall not be applicable in the case of Voluntary Conversion.
After the due compliances, ROC
shall close the OPC and register the documents submitted as for the issue of
fresh Certificate of Incorporation. However, the conversion shall not affect
the existing debts, liabilities, and obligations of the company.
Private Company other than a company registered under Section 8 companies Act
2013, can convert itself into OPC who has-
A share capital of 50
lakhs rupees or,
An average annual
turnover is 2 crore rupees, during the relevant period.
· The Conversion shall be in accordance with Rule 7 of Companies (Incorporation) Rules, 2014.
· NO objection in writings is obtained by the company from existing members and creditors when passing a special resolution in the general meeting.
· The Special Resolution is required to be filed by the company, passed by shareholders for Conversion of Private Company into One Person Company (OPC) with concerned Registrar of Companies. Form MGT.14 shall be filed within 30 days of the passing of Special Resolution with the concerned Registrar of Companies with the documents and the documents that shall be enclosed along with fees are mentioned below:
Detailed list of
members and list of creditors;
The Audited Balance
Sheet and the Profit and Loss Account; and
No Objection letter
of secured creditors and a declaration by way of the affidavit
shall be provided by the directors of the company confirming that all members
and creditors of the company have given their consent for conversion.
· On being satisfied that the Company has complied with prescribed requirements the Registrar of Companies (ROC) shall issue the Certificate to the effect of Conversion of Private Company into One Person Company (OPC).
Read our article:Converting an OPC into a Private Limited Company
Priyanka Bajpayee has done Masters in International Business Law and well versed in content writing covering the area of legal and finance. Also, she has practical experience of almost 1.5 years in Legal compliance and secretarial work.
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