Introduction

A One Person Company (OPC) is an ideal business structure for individual entrepreneurs seeking limited liability and corporate recognition. However, OPCs are designed to cater to small-scale enterprises with restricted financial and operational limits. To ensure that larger businesses move into more suitable corporate frameworks with broader governance structures, the Companies Act, 2013 specifies certain thresholds beyond which an OPC must convert into a private or public limited company. Understanding these thresholds is critical for maintaining legal compliance and planning business growth effectively. This article defines the mandatory conversion thresholds and their implications.

Legal Provision for Mandatory Conversion

The mandatory conversion of an OPC is governed by Rule 6 of the Companies (Incorporation) Rules, 2014, which states that if an OPC crosses specified financial thresholds, it must convert into either a private limited company or a public limited company. This ensures that OPCs do not operate beyond their intended scale and scope.

Threshold Based on Paid-Up Share Capital

One of the key triggers for mandatory conversion is when the OPC’s paid-up share capital exceeds ₹50 lakh. Paid-up capital refers to the actual amount received by the company from its shareholder (the sole member) in exchange for shares. Crossing this limit indicates substantial financial backing, necessitating a transition to a more robust company structure.

Threshold Based on Annual Turnover

The second conversion trigger is when the annual turnover exceeds ₹2 crore in any financial year. Turnover includes gross revenue generated from business activities, excluding capital receipts. This threshold helps ensure that growing businesses adopt a company model that supports increased operations, employees, and stakeholders.

Timeline for Conversion

If either of the above thresholds is exceeded, the OPC is required to convert within six months from the end of the relevant financial year. During this period, the OPC must complete all necessary legal procedures for conversion, including altering its Memorandum and Articles of Association and filing the required forms with the Registrar of Companies (RoC).

Filing Form INC-5

As soon as the OPC exceeds either of the thresholds, it must file Form INC-5 with the RoC within 60 days of crossing the limit. This is a declaration of intent to convert the OPC into another type of company and initiates the compliance tracking by authorities.

Filing Form INC-6 for Final Conversion

The actual conversion process is carried out by filing Form INC-6 with the RoC, along with required documents such as shareholder resolution, updated constitutional documents, and financial statements. This must be completed within the six-month period allowed after the threshold is breached.

No Conversion Before Two Years – With Exceptions

An OPC cannot voluntarily convert into a private or public limited company before two years of incorporation unless it breaches the paid-up capital or turnover threshold. This rule ensures that the OPC framework is not used as a temporary structure for avoiding initial compliance associated with other company types.

Implications of Non-Compliance

If an OPC fails to convert within the stipulated time after exceeding the prescribed limits, it may attract penalties, legal scrutiny, and potential disqualification of the director. It could also face difficulties in raising funds, entering contracts, or maintaining legal validity for certain transactions.

Conclusion

The threshold for mandatory conversion of a One Person Company into a private or public limited company is clearly defined: ₹50 lakh in paid-up capital or ₹2 crore in turnover. These financial limits act as checkpoints to ensure that companies operate within structures suited to their size and scope. For entrepreneurs, crossing these thresholds is a sign of business growth—and also a signal to transition into a company model that supports expansion, compliance, and governance. Timely recognition and action are essential to ensure seamless legal compliance and uninterrupted business operations.

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