Private Limited Company vs One Person company
Are you an entrepreneur wondering whether to set up a company on your own or to involve others as co-founders? Clarity on the business structures available might help you make the decision.
There are different types of business structures available and each has its own set of benefits and drawbacks. Private Limited Company and One Person company are two choices if you have decided to go for a limited company.
Here we will compare and contrast the two structures to help you decide which is best for your business.
What is a Private Limited Company?
According to the Companies Act, 2013 Section Section 2(68), a private limited company is “A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in the case of One Person Company, limits the number of its members to two hundred;
(iii) prohibits any invitation to the public to subscribe for any securities of the company”
What Is One Person Company?
A One Person Company (OPC) is a company that has only one shareholder. It was introduced in the Companies Act of 2013 and is governed by the Ministry of Corporate Affairs.
How Are They Different?
The key difference between a private limited company and a One Person company is that a private limited company must have at least two shareholders while a One Person Company can have only one shareholder.
Number of Persons Required to Register
OPC: Only one person (shareholder) is required to form an OPC. However, it also requires a second person as a nominee. This is to ensure that in the event of the death or incapacity of the shareholder, there is someone to take over the business.
The nominee needs to give their consent in writing to the company. They also need to be mentioned in the MOA (Memorandum of Association) and AOA (Articles of Association) of the company.
Pvt Ltd Co: At least two shareholders are required to form a private limited company. The maximum number of shareholders is 200. Even artificial persons like other companies, LLPs, firms, etc. can be shareholders in a Pvt Ltd company.
There is no requirement to appoint a nominee in the case of a Pvt Ltd company.
OPC: In case of an OPC, the minimum requirement is one director and the maximum is 15 directors.
Pvt Ltd Co: A Pvt Ltd company should have a minimum of 2 directors and a maximum of 15 directors on its board. The directors form the Board of Directors who are responsible for the management of the company.
OPC: An OPC is required to file annual compliance documents like financial statements and annual returns with the Registrar of Companies (RoC). They also need to hold an AGM (Annual General Meeting) each year. However, the compliance requirement for an OPC is fewer than that of a private limited company.
Pvt Ltd Co: A Pvt Ltd company is required to file annual compliance documents like financial statements and annual returns with the Registrar of Companies (RoC). They also need to hold an AGM (Annual General Meeting) each year. In addition, they are required to comply with various other regulations like the Companies Act, 2013, the Income Tax Act, 1961, etc.
OPC: Certain kinds of business activities like Non – Banking Financial Activities, investment in securities, etc. are not permitted to be carried out by OPCs.
Pvt Ltd Co: There are no restrictions on the business activities that can be undertaken by a Pvt Ltd company.
OPC: An OPC can raise funds from the member. It cannot raise funds from the public.
Pvt Ltd Co: A Pvt Ltd company can raise funds from various sources like shareholders, financial institutions, investors, venture capitalists, etc.
Limited liability: In both OPCs and Pvt Ltd companies, the liability of shareholders is limited to their investment in the company.
Separate legal entity: Both OPCs and Pvt Ltd companies are separate legal entities. This means that they can enter into contracts, own assets, incur liabilities, etc. in their own name.
Taxation: Both OPCs and Pvt Ltd companies are taxed at the corporate tax rate of 30% or 25% or 22% or 15%.
Perpetual succession: In both OPCs and Pvt Ltd companies, the life of the company is not affected by the death or incapacity of any shareholder or director. The company continues to exist even if there is a change in shareholders or directors.
If you want to start as an OPC and see how the business goes, there is always an option to convert your OPC into a Pvt Ltd company at a later stage. This can be done by passing a special resolution in the AGM (Annual General Meeting) and getting the approval of the RoC (Registrar of Companies). The name of the company will also need to be changed.
The process for converting a Pvt Ltd company into an OPC is similar. A special resolution will need to be passed in the AGM and the approval of the RoC will need to be obtained.
So, these are some of the key differences between an OPC and a Pvt Ltd company. As you can see, there are certain advantages and disadvantages to both types of companies. It is important to consider these factors before deciding which type of company is best suited for your business.
Whichever you choose - private limited company registration online or OPC registration - we can help you with it. Contact us for a hassle-free company registration experience.
Author : Nivetha
Date : 13-Jul-2022