Introduction

A Private Limited Company is a business entity with numerous benefits – it is an entity that is privately held, and has a liability of the directors/members limited to their shares only. Being a separate legal entity its shares are prohibited from being publicly traded, however, the company can purchase the property in its name and have a better credibility rate compared to others. A private limited company is an independent legal structure with the benefits like -

• Separate Legal Entity - This provides a benefit to the organization to acquire assets on its own name.
• Limited Liability - liability of the company’s shareholders is limited to the amount of unpaid value of the shares owned by them.
• Ease in share transfer
• Attracts investors

A One Person Private Limited Company (OPC) is registered under Section 2(62) of the Companies Act 2013. This concept was introduced in order to promote the individuals who want to operate their businesses on their own without the interference of any other director. This type of entity acts as a bridge between a proprietorship firm and a private limited company, where a business owner can enjoy the benefits of a single owner as well as a private limited company.

If an individual is looking for independence and wants to have whole control over any other person’s interference in operating the business then he can apply for One Person Company (OPC). If an individual is looking for funds and has plans for foreign investment, then he can opt for the Private Limited Company.

Now the main question arises when both entities have almost similar benefits, then what are the differences in One Person Company and a Private Limited Company? How one can decide what to choose? This can be understood with this article.

Similarities –

• Governing Law - both are governed by the Companies Act, 2013
• Registration Process- both are registered with the Ministry of Corporate Affairs.
• Limited Liability – personal assets are not liable
• Taxability - the same rate according to the provisions of the Income Tax Act.
• Audit - 30 days from the date of incorporation for statutory audit

Differences -

• Name of entity - One Person Company name has to use the suffix “(OPC) Pvt Ltd” and Private Limited Company has to use suffix “Private Limited”

• Shareholders in the company - In OPC, only one person and one shareholder is required where the Director and the shareholder same individual. While in the Private Limited Companies, a minimum of 2 shareholders are required during the incorporation.
• Controls and Ownership of the Company - In OPC the Director has complete ownership of the company. In the private limited company controls and ownership is divided among the members.
• Minimum Number of Member - One Person Company requires minimum of 1 member and there can’t be more members whereas a Private Limited Company requires a minimum 2 member and the maximum it can be 200.

• Board of Directors – OPCs have only one member in the company whereas in a private limited company there is a Board of Directors consisting minimum of 2 Directors and a maximum 7 Directors.
• Funds Raising - There is only one member in OPC having an entire financial burden on his/her shoulder. However, a private Limited Company can get funding from venture capitals, angel investments, etc.
• Investment by Foreign Direct Investment – 100% percent FDI are allowed in Private Limited Company, whereas OPCs are not eligible for FDI.
• Business Activities – In OPC activities like an investment in securities, non-banking financial activities are restricted or not allowed. However, on approval from the concerned authority a Private Limited Company can engage in such activities.
  Compliance Requirements – There are some compliances that a OPC doesn’t has to bother about as they are exempted from the, which are -
• Section 2(40) of the Companies act, 2013 - not mandatory to include a Cash Flow statement in their financial statements.
• Section 134(1) of the Companies act, 2013 - only one Director signs the financial statements irrespective of a Nominee director.
• Section 92(1) of the Companies act, 2013 - the Director can sign the annual return as well if in case the CS (Company Secretary) is not present or appointed.
• Section 173(5) of the Companies act, 2013 - as there only 1 director or shareholder OPC are free from - Board Meetings (Section 173(5)), and Quorum for the board meetings (Section 174)
• Conversion – OPC can be converted into Private Limited Company in two cases. First, after two years of incorporation. Second when the paid up capital increases above INR 50 lac and turnover exceeds INR 2 Cr for 3 consecutive years.

Why to choose Private Limited Company over One Person Company

• Easy Fund Raising
• Improve Business Credibility
• No restriction business objective
• Business expansion outside India
• Taxation Benefits
• No need of a Nominee as required for One Person Company

Conclusion

The confusion of choosing the type of entity between a Private Limited Company and a One Person Company sometimes becomes difficult when the person have no idea about the restrictions or differences in a particular entity type which ultimately results in loss. The OPCs and Private Limited Companies have many similarities have both similarities as well as differences. Although both entities are fit in their own terms, entrepreneurs should consider all the aspects and only after comparing one should choose between OPCs or Private Limited Companies. If you wish to register your One Person Private Limited Company or a Private Limited Company, feel free to contact us.