In India, company registration is mandatory with the Ministry of Corporate Affairs. Before setting up a company in India there are various factors which must be considered by the entrepreneur....
OPC and Private Limited Company are two completely different business structures, but both are governed by the Companies Act, 2013. The concept of One Person Company (OPC) was introduced with an objective to encourage single and enthusiastic entrepreneurs to operate own venture. However, in Private Limited Companies, you require at least two members for incorporating the company.
In this blog, we will encounter how OPC is different from the Private Limited Company. So, let’s get started-
What is the difference between OPC & Private Limited Company?
Though there are various differences between an OPC and a private limited company, the main difference lies in the number of members required to run or incorporate a company. Likewise, other distinctions between the two companies form are as follows:
1. Conversion of company
The One Person Company is mandatorily required to convert itself into a Private Limited Company, if:
- The annual sales turnover of the company exceeds Rs. 2 crores; or
- The paid-up capital of the company surpasses Rs. 50 lakhs.
However, there’s no such limitation on a private limited company. There is no requirement for obligatory conversion under any case.
2. Shareholders and shares of the company
In a One Person Company, only one member is enough to incorporate and run the firm. And because of the same, there is only one shareholder in the company. Hence, a single person holds the 100% shares of an OPC. Moreover, in OPC, director and shareholder are supposed to be the same individual.
In contrast, in a private limited company, there is a requirement of a minimum of 2 shareholders at the time of incorporation. However, the maximum count of shareholders is 200. Therefore, s single person can never hold the 100% of shares of the company. Additionally, shareholders of the private limited company can be any entity, including a corporate firm.
3. Raising Funds
Since there is only one member of the company, therefore, raising funds in an OPC is quite difficult.
However, raising funds through equity is possible in the Private Limited Company in several ways including private placement, right issues, through Venture Capital, Angel investment, etc.
4. Board of Directors
As we have discussed, there is only one member in an OPC. Therefore, in One Person Company, the notion of the Board of Directors doesn’t arise. Whether it’s Annual General Meeting or Board Meetings, nothing is applicable to an OPC.
On other hands, a private limited company includes a board of directors which comprises a minimum of two directors at the time of incorporation and a maximum of seven directors. Also, private company shall convene mandatory 4 board meetings in a financial year and 1 AGM is mandatory.
5. Members required for the company’s incorporation
There is only one person required for operating a one person company who acts both as director and the shareholder. However, the member is mandatorily required to appoint a nominee for incorporating an OPC. The nominee director is liable for managing the company, in the case the Director isn’t able to execute his duty.
On other sides, two members are compulsory for the incorporation of a private limited company.
6. Investment by NRI or Foreign Nationals
NRIs and Foreign Nationals can easily start and manage a private limited company (PLC) in India. Additionally, 100% FDI (Foreign-Direct Investment) under Automatic approval Route is available in PLC for several sectors. It is mandated under the Companies act 2013 that at least one of the directors should be India resident.
But when we talk about One Person Company, only Indian citizens and Indian Nationals are permitted to commence and operate it. Therefore, OPCs are not eligible for Foreign Direct Investment.
7. Business activities
A company registered as an OPC isn’t permitted to carry out certain activities. Those activities include investment in securities, non-banking financial activities, etc. However, a private limited company may engage in such activities subject to prior approval of concerned regulatory.
8. Compliance requirements
The compliance requirements of both one Person Company and the private limited company are identical to some extent. For example, both of them have to file annual returns with the MCAs (Ministry of Corporate Affairs) and ITR (Income Tax Returns) with the Income Tax Departments. Moreover, both the private limited company and OPC are expected to get their accounts audited every year. However, One Person Company has got several exemptions under the Companies Act, 2013. Those are as follows:
- As per Section 2 (40), one person company isn’t required to include a Cash Flow statement in its financial statements.
- Provisions pertaining to AGM, Notice, EGM, procedures for conducting annual general meetings are not applicable to OPC.
- According to section 134 (1), the Financial Statements of an OPC shall be signed by only one director irrespective of a nominee director.
- As per the Proviso to section 92 (1), in the case, the company secretary doesn’t exist, annual returns could be signed by the director himself.
- According to section 173 (5), if OPC has only one director, then the provisions of section 173 (Meetings of the board) and section 174 (Quorum for meetings of the board) won’t apply.
- An OPC, if and only if having more than one director, must conduct a minimum of one board meeting in each half of a calendar year with a gap of 90 days between two board meetings.
- Resolutions in a one-director OPC become effective as soon as it is entered in a minute book and signed by the one and the only director himself.
9. Control and ownership of the company
In the case of One Person Company, the ownership of a company is defined by the shareholding by the personnel involved. The complete ownership of the company is in the hands of the sole member and doesn’t divide with any other person.
Owing to 100% ownership, the member isn’t dependent on another person. Hence, the owner of an OPC enjoys the freedom to work and operate subject to applicable laws and provisions. At the same time, he can become both director and shareholder and take over the complete control of the company which is not possible in PLC.
In a private limited company, the ownership is divided into at least two members. Therefore, the freedom of taking decisions is restricted. All the managerial decisions need to be taken by the directors appointed by the shareholders. Moreover, voting power is based on the ratio of shares held by each member.
10. Costs involved in the company’s establishment
Although the incorporation cost of both the companies is the same, the cost associated with compliances is lesser in the case of One Person Company. It is so because compliances of the private limited company are more as compared to One Person Company. Filing of each form requires Rs. 500. So, less form you file, less capital will require to invest. In a nutshell, the cost involved in establishing a company is lower in the case of One Person Company as compared to a private limited company.
OPC and Private Company both fall under the category of Private Company only. But when it comes to limitations and the overall cost involved, both vary from each other which we have already described above. OPC has several restrictions such as mandatory conversion to the private limited company after a certain turnover, restrictions on foreign promoter participation, etc. Both company forms have their unique advantages and disadvantages.
If you still have any doubt regarding the difference between an OPC and Private Limited Company, then you can mention your queries in the comment section. We will be happy to help you with your doubts.
Apart from this if you’re confused about whether you should go with One Person Company or open a private limited company, then contact Swarit Advisors. Our experts will understand your need for opening a company, will educate you on both company forms, and will guide you on choosing the best option for you.