Comparison – One Person Company and Private Limited Company
Comparison – One Person Company and Private Limited Company
One Person Company (OPC) and Private Limited Company are two popular forms of business entities that operate under the regulations of the Companies Act. Each structure has unique features and benefits, making it crucial for aspiring entrepreneurs to understand their differences before choosing the most suitable option for their business. This article aims to provide a comprehensive comparison between One Person Company and a Private Limited Company, highlighting their distinct characteristics, legal requirements, ownership structures, and other essential factors.
Similarities between an OPC and a Private Limited Company
Here are the similarities between an OPC and a Private Limited Company:
- Governing Law: Both OPC and Private Companies are governed by the Companies Act 2013.
- Registration Process: Both entities must be registered with the Ministry of Corporate Affairs.
- Limited Liability: OPC and Private Limited Companies provide limited liability protection to their owners/shareholders.
- Legality: OPC and Private Limited Companies are separate legal entities, and the personal assets of their owners/shareholders are not liable for the Company’s losses.
- Taxability: Both entities are subject to the same tax rates as per the provisions of the Income Tax Act.
- Audit: Both OPC and Private Companies are required to appoint auditors within 30 days of incorporation for statutory audits, regardless of their share capital or turnover
Differences between OPC and a Private Limited Company
The differences Between OPC and a Private Company are listed as follows:
- Name of entity: OPCs have to use the suffix “(OPC)” in their company name, while Private Limited Companies use the suffix “Private Limited” or “Private Limited Company.”
- Minimum Capital Required: OPCs do not have a mandatory minimum paid-up capital requirement, but if the paid-up Capital exceeds Rs. 50 lakh, the OPC must convert into a Private Limited Company. Private Limited Companies no longer have a minimum capital requirement.
- Minimum Number of Members: OPCs can have a minimum of one member and a maximum of one member, while Private Limited Companies require a minimum of two members and can have a maximum of 200 members.
- Minimum Number of Directors: OPCs can start with at least one Director, while Private Limited Companies require a minimum of two. Both entities can have a maximum of 15 directors.
- Conversion: An OPC can be converted into a Private Limited Company after two years of incorporation or when its turnover exceeds the threshold limit.
- Annual Filings: OPCs need to file financial statements and annual returns with the Registrar of Companies (ROC), while Private Limited Companies need to file annual accounts and returns with the ROC.
- Transferability of Shares: In an OPC, shares can only be transferred by altering the Memorandum of Association, while in a Private Limited Company, shares can be easily transferred.
- Board Meetings: OPCs must hold a board meeting every half-year, with a 90-day gap between them. If there is only one Director, no board meeting is required. Each quarter of the calendar year, private limited companies must hold a board meeting, with a maximum gap of 120 days between meetings.
Comparison between OPC and Private Limited Companies
Cost of Registration
One Person Company’s registration cost is lower than that of a Private Limited Company. The all-inclusive cost for registration of a One Person Company through IndiaFilings.com is Rs.15,000/- while the all-inclusive cost for registration of a Private Limited Company through IndiaFilings.com is Rs. 16,000/-.
Number of Persons Required to Incorporate
Two persons must incorporate a Person Company: the Director of the One Person Company and the Nominee Director. The Nominee Director is responsible for the Company’s management if the Director cannot execute his functions. To incorporate a Private Limited Company, two persons are required.
Board of Directors
There is no concept of a Board of Directors in a One Person Company as a single person can manage the entity. The idea of Annual General Meetings and Board Meetings is also not applicable to a One Person Company. A private limited company has a Board of Directors comprising a minimum of two Directors to a maximum of seven Directors.
A single person can hold 100% shares of a One Person Company. A private limited company must have a minimum of two shareholders. Therefore, a single person cannot own 100% of the shares of a private limited company.
NRI or Foreign Nationals
Only Indian Citizens and Indian Nationals are allowed to start a Person Company. NRIs and Foreign Nationals can start and manage a private limited company. 100% FDI is available in Private Limited Companies for several sectors.
The compliance requirements of a One Person Company and a Private Limited company are almost similar. One Person Companies and Private Limited Companies must file their annual returns with the Ministry of Corporate Affairs and their Income Tax Returns with the Income Tax Department. One Person Companies and Private Limited Companies must also get their accounts audited each year.
A One Person Company must be mandatorily converted into a Private Limited Company if the annual sales turnover exceeds Rs.2.00 crores or the paid-up Capital of the One Person Company exceeds Rs.50 lakhs. A private limited company has no such limitations or requirements for mandatory conversion.
One Person Company has been recently introduced in India. Still, some Governmental Departments and Banks have not updated their systems or forms and procedures to handle Person Companies. Therefore, there may be difficulties in obtaining specific licenses or registration after the incorporation of a One Person Company.
A Private Limited Company has been around for decades and is India’s most popular type of corporate entity. Therefore, obtaining other licenses and registration post incorporation of a private limited company will be easy.
To facilitate better comprehension, we have presented a comparative analysis of One Person Companies (OPC) and Private Limited Companies in tabular form.
Comparison Table: One Person Company (OPC) vs. Private Limited Company
|PARAMETER||ONE-PERSON COMPANY||PRIVATE LIMITED COMPANY|
|Recommended for||Individual Proprietor||Multiple Promoters|
|Minimum owners||1 Owner & 1 Nominee||2 Shareholders|
|Maximum owners||1 Owner||200 Shareholders|
|Board of directors||At least 1 Director||At least 2 Directors|
|Shareholding||100% shares held by a single person||A single person cannot hold 100% shares. Minimum of two shareholders required|
|External investment||Difficult to obtain||Easily available|
|Compliance requirements||Annual return filing. No board meetings if only one Director & no general meetings.||Annual return filing, board meetings & general meetings|
|NRI or foreign nationals||Only Indian citizens and Indian residents are allowed to start||The Company can also be created and managed by NRIs or foreign nationals|
|Mandatory conversion||If annual turnover exceeds Rs. 2 Crores or paid-up Capital exceeds Rs. 50 lakhs, then mandatory conversion into a private limited company||No mandatory conversion|
|Procedure||Obtain DSC (digital signature certificate), obtain DIN (directors identification number), name approval, file for incorporation & file nominee details.||Obtain DSC (digital signature certificate), obtain DIN (directors’ identification number), name approval & file for incorporation.|
|Law applicable||Companies Act 2013||Companies Act 2013|
|Minimum share capital||No minimum share capital is necessary. If Capital exceeds 50 lakhs, OPC becomes a Private Limited Company.||No requirement for minimum share capital|
|Board meeting||Every half-year, there will be a meeting. There must be a 90-day gap between the two meetings.||Meetings are held every quarter. The maximum gap between the two meetings can be 120 days.|
|Annual filing||Financial statements and annual returns are to be filed with the registrar||Annual accounts and annual returns are to be filed with RoC|
|Transferability of shares||Can be made by altering MOA||It can be easily transferred|
|Foreign direct investment||Not eligible for FDI||Eligible via automatic route|
|Suitable for||Individuals with capital requirements under 50 lakhs and turnover less than two crores||Business, trade, manufacturers, large industrial establishments|
|Company name||Should end with (OPC) Private Limited Company./(OPC) Ltd.||It should end with a Private Limited Company.|
Tips to Choose Company
When deciding between forming a One Person Company (OPC) or a Private Limited Company (Private Limited Company.), here are some tips to consider:
- Business Structure: Assess the nature and scale of your business. OPC might be suitable if you are a sole entrepreneur or wish to operate a small-scale business. For a more significant business with multiple stakeholders or plans for future expansion, a Private Limited Company. The Company offers more flexibility.
- Liability protection: Consider your personal risk tolerance before offering limited liability protection. In OPC, the sole owner has limited liability, while in a Private Company., the liability is distributed among shareholders. Evaluate the extent of risk involved in your business operations.
- Ownership and Control: OPC allows a single person to own and manage the Company, giving them complete control over decision-making. In Private Limited Company., multiple shareholders are involved, which can impact decision-making and require consensus. Consider your preference for ownership and control structure.
- Expansion and Fundraising: Use a Private Limited Company to raise funds or attract investors. It is generally more suitable. Private Limited Company. Companies have a separate legal identity and are perceived as more credible by investors, making it easier to secure external funding.
- Compliance Requirements: Both OPC and Private Companies. Companies have compliance obligations, but Private Limited Companies. Companies generally have more stringent requirements due to their extensive scale and multiple shareholders. Assess your willingness and capacity to fulfill the legal and regulatory obligations.
- Tax Implications: Consult a tax professional to understand the implications for OPC and Private Limited Companies. IndiaFilings is dedicated to assisting businesses in seamlessly filing their taxes, ensuring a hassle-free experience.
- Conversion and Exit Strategy: Evaluate your long-term plans. If you anticipate significant growth or wish to bring in more shareholders, Private Limited Company. Allows for more straightforward conversion and expansion. If you foresee remaining a single-owner business without the need for additional shareholders, OPC may be a more suitable option.
- Professional Advice: Seek professional guidance from company formation experts, chartered accountants, or legal advisors. Contact IndiaFilings today; we can provide insights based on your business requirements and goals. We can help you understand the legal, financial, and operational aspects of both OPC and Private Limited Companies.
Considering these tips and conducting thorough research, you can choose an OPC or a Private Company. Company structure that aligns with your business objectives and aspirations.
One-Person Companies are very similar on many fronts, like the cost of incorporation, the number of people required to incorporate, and compliance. However, when it comes to limitations, One Person Company has many more limitations on foreign promoter participation, mandatory conversion to a private limited company, etc. Therefore, IndiaFilings recommends that Entrepreneurs incorporate a Private Limited Company instead of a One Person Company until the concept of One Person Company is well established in India.