COMPANIES (INCORPORATION) SECOND AMENDMENT RULES, 2021

The concept of One Person Company (“OPC”) was originally envisioned by Dr J.J. Irani Committee in May 2005, which was later incorporated in the Companies Act, 2013 (“Act”).

The Ministry of Corporate Affairs, Government of India has released a notification dated February 1, 20211 (“MCA Notification”) on Companies (Incorporation) Second Amendment Rules 2021 (“Amendment Rules 2021”) which has brought the following changes to Companies (Incorporation) Rules 2014 (“Incorporation Rules 2014”):

1. Change in Definition of One Person Company
   

   Prior to the amendment, only a natural person who is an Indian citizen and resident in India was eligible to incorporate an OPC or was eligible to become nominee for the sole member of the OPC. However, under the Amendment Rules 2021, the definition of OPC shall be widened to include any natural person who is an Indian citizen whether resident in India or otherwise. This allows non-resident Indians to incorporate OPCs in India. Also, the number of days mentioned in Explanation 1 to Rule 3 of Incorporation Rules 2014 has been reduced from 182 days to 120 days, for calculating the resident status of person resident in India.

   The Amendment Rules 2021 has further done away with Explanation II to the Incorporation Rules 2014, paving way for an OPC to convert itself into any kind of company under the Act. The Amendment Rules 2021 has also done away with minimum and maximum thresholds of paid-up capital requirements, which previously existed under sub-rule (7) to Rule 3 of Incorporation Rules, 2014

2. Conversion of One Person Company into a Public Company or Private Company
   

   Rule 6 of Incorporation Rules 2014 provided that upon exceeding paid up capital of fifty lakh rupees and average annual turnover (during the relevant period) of two crore rupees, OPC shall cease to continue as an OPC. The new Amendment Rules 2021 ensures that the OPC may continue to retain its status as OPC irrespective of the increase in its paid up capital or annual turnover.

   The existing Rule 6 of Incorporation Rules 2014 has been substituted with the following:

   1. Alterations- OPC may convert itself into a public company or a private company by altering its MOA and AOA by passing a resolution as per Section 122(3) of the Act for conversion of OPC.
   2. Requirements to be fulfilled:OPC may convert into a private or public company, other than Section 8 company by fulfilling below requirements:
      1. Increasing the minimum number of members and directors to two for private company and seven members and three directors for Public company;
      2. Maintaining the minimum paid-up capital as per the requirements of th Act for such class of company and;
      3. By making due compliance of section 18 of the Act for conversion.
   3. Form and Fees for filing Conversion-
      1. Form for conversion:e-Form No. INC-6;
      2. Fees:As per Companies (Registration offices and fees) Rules, 2014.
   4. Documents required-
      1. Altered MOA and AOA;
      2. Altered MOA and AOA;
      3. Copy of resolution;
      4. List of proposed members and its directors along with consent;
      5. List of creditors; and
      6. Latest audited balance sheet and profit and loss account.
   5. Granting of New Certificate of Incorporation after Conversion:

      After completion of all requirements, Registrar of Companies shall approve form and issue new certificate of incorporation.

3. Conversion of Private Company into One Person Company
   

   In Rule 7(1) and Rule 7(4)(i) related to “Conversion of private company into One Person Company”, following have been substituted, namely:-

   1. Rule 7(1)-A private company other than a company registered under section 8 of the Act may convert itself into one person company by passing a special resolution in the general meeting.
   2. Rule 7(4)(i)-The company shall file an application in Form No. INC.6 for its conversion into one person company along with fees as provided in in the Companies (Registration offices and fees) Rules, 2014, by attaching the following documents, namely:-
      1. The directors of the company shall give a declaration by way of affidavit duly sworn in confirming that all members and creditors of the company have given their consent for conversion;
      2. the list of members and list of creditors;
      3. the latest audited balance sheet and the profit and loss account; and
      4. the copy of no objection letter of secured creditors.
4. Other Changes and Modifications:
   

   E-form No. INC-5 related to “One person company - Intimation of exceeding threshold” has been omitted and E-form No.INC-6 related to “One Person Company and Private company–Application for Conversion” has been substituted.

Please note that this Amendment Rules 2021 shall come into force form April 1, 2021.