Difference between OPC and Private Limited Company

One Person Company 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 OPC and Private Limited Company, highlighting their distinct characteristics, legal requirements, ownership structures and other essential factors.

Meaning and Features of OPC and Private Limited Company

We are going to discuss the meaning and features of OPC and Private Limited Company:

Understanding One Person Company (OPC)

The Companies Act of 2013 introduced the concept of One Person Company (OPC) which brought a significant change in the corporate landscape. It enables an individual to establish and operate a company with limited liability, providing the benefits of a corporate entity while retaining full control over their business operations. This structure is particularly helpful for solo entrepreneurs who want to maintain complete control over their business while enjoying the benefits of a limited liability company.

Key Features of OPC

• Single Shareholder: OPC allows for the formation of a company with just one individual as its shareholder, offering sole ownership and control over the business.
• Nominee Director: OPCs are required to appoint a nominee director who will step in to manage the affairs of the company in the event of the sole shareholder’s demise or incapacitation.
• Less Compliance: OPCs are subject to relatively fewer compliance requirements compared to Private Limited Companies, making them an attractive option for solo entrepreneurs looking for simplicity and ease of operation.
• Limited Liability: Similar to a Private Limited Company, OPC provides limited liability protection to its sole shareholder, ensuring personal assets are safeguarded against business debts and liabilities.
• Conversion: OPCs have the flexibility to convert into Private Limited Companies as they grow and expand their business operations, offering scalability and access to additional resources.

Understanding Private Limited Company

A Private Limited Company is a highly favored corporate structure among entrepreneurs due to its flexibility, credibility, and scalability. This structure enables multiple shareholders and provides the advantages of limited liability protection while also offering a platform for growth and expansion.

Key Features of Private Limited Company

• Multiple Shareholders: Unlike OPC, a Private Limited Company requires a minimum of two shareholders and can have up to a maximum of 200 shareholders, facilitating diversified ownership and investment.
• Separate Legal Entity: A Private Limited Company is considered a separate legal entity distinct from its shareholders, enabling it to enter into contracts, acquire assets, and incur liabilities in its own name.
• Board of Directors: Private Limited Companies are required to have a board of directors comprising at least two individuals, ensuring governance and decision-making are distributed among key stakeholders.
• Limited Liability: Shareholders of a Private Limited Company enjoy limited liability protection, ensuring personal assets are shielded from business debts and legal liabilities.
• Compliance Requirements: Private Limited Companies are subject to more stringent compliance requirements compared to OPCs, including holding regular board meetings, maintaining statutory registers, and filing annual returns with regulatory authorities.

Similarities between OPC and Private Limited Company

Here are the similarities between OPC and 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

What are the Differences between OPC and Private Limited Company?

Following are the main differences between OPC and Private Limited Company in India:

Name of Entity

As the name suggest, in case of One Person Company, the company name has to have a suffix (OPC) and in case of private limited company, the name of company has to end with suffix Private Limited. Generally an OPC is incorporated as OPC Pvt. Ltd. or OPC Private Limited.

Minimum Capital Required

There is no mandatory requirement for a minimum paid up capital. However when the paid up capital exceeds Rs. 50 lakhs, One Person Company must mandatorily convert to a private limited company ( Pvt. Ltd.) while in case of Private Limited Company, the Companies Amendment Act, 2015 relaxed the minimum requirement for paid up capital. Therefore, there is now no requirement for any minimum capital to be invested to start a private limited company.

Minimum Number of Member

In case of One Person Company, minimum and maximum 1 member is allowed while in case of a Private Limited Company the minimum numbers of members required are 2 and the maximum numbers of member that a private limited Company can have is 200.

Minimum Number of directors

In a One Person Company, the minimum number of directors to start a company is 1 while in a Private limited Company the minimum number of directors to start a company is 2. Both the entities can have maximum 15.

Conversion

A One Person Company can be converted into Private Limited Company after two years of its incorporation or when its turnover exceeds the threshold limit.

Annual Filings

In a One Person Company, the minimum number of directors to start a company is 1 while in a Private limited Company the minimum number of directors to start a company is 2. Both the entities can have maximum 15.

Transferability of Shares

In case of One Person Company, shares can be transferred only by altering the Memorandum of Association. In Private Limited Company, shares can be transferred easily.

Board Meeting

In One Person Company, One board meeting must be held in each half of the calendar year and the gap between the meetings must be at least 90 days. In case of one director, no need to hold a board meeting. In case of a Private Limited Company, one board meeting must be held in each quarter of the calendar year and the maximum gap between two meetings can be 120 days.

Conclusion

The confusion between OPC and Private Limited Company makes people go for an incorrect choice which results in loss. There are lots of practical benefits given to private companies by way of new changes made in the Companies Act. One Person Companies have many similarities but what makes Private Limited Company different is the hassle-free incorporation and transferability. The taxation procedure is same for both entities as there are no separate provisions made for One Person Company related to taxation. Private Limited Company has edge over OPC in many aspects. Thus, people should opt for Private Limited Company because at certain point of time they will have to convert their one-person company into Private Limited Company.

FAQs

Q1) What is the meaning of a Private Limited Company?

A Private Limited Company is a small company that is handled by a group of people privately. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Q2) What are the documents required for the Private Limited Company Registration?

• Photograph of all the Directors
• PAN Card of all the Directors
• ID Proof of all the Directors (Driving License/Passport/Voter ID)
• Electricity Bill or any other utility bill for the address proof of the Registered Office.

Q3) Can an Indian citizen living abroad form a One Person Company?

No, as per the Act, only Indian-born citizens can form a One Person Company. Non-resident Indians or individuals who have not resided in India for over 182 days cannot incorporate an OPC.

Q4) Is Foreign Direct Investment allowed for One Person Company?

No, FDI is not allowed for a One Person Company. If it is allowed, then it will lose its One Person Company status.

Q5) What is the process of converting a Private Limited Company to an OPC?

To convert a Private Limited Company into an OPC, you need to follow the steps below:

1. Obtain NOC from members and creditors of the Private Limited Company.

2. Pass a Special Resolution for conversion.

3. File Special Resolution in Form No. MGT.14 with ROC.

4. File fees and application in Form No. INC.6 and supporting documents with ROC.