One Person Company vs. Private Limited Company (OPC vs Pvt Ltd): A Detailed Comparison

Last updated : September 6th, 2024 03:50 pm

One Person Company vs. Private Limited Company (OPC vs Pvt Ltd): A Detailed Comparison

When starting a business, entrepreneurs must choose the most suitable structure for their venture. Two popular forms of business entities under the Companies Act are One Person Company (OPC) and Private Limited Company (PLC). Each has its unique features, benefits, and compliance requirements. This article provides a detailed comparison of the two structures (OPC Vs PVT Ltd), highlighting their differences in terms of legal requirements, ownership, compliance, and other essential factors.

Start your company journey today with IndiaFilings. Get expert assistance for hassle-free company registration and ensure your business is set up the right way from the start!!

What is an OPC (One Person Company)?

An OPC, or one-person company, is a business structure that allows a single individual to operate as both the owner and the director. Introduced under the Companies Act 2013, an OPC provides the advantage of limited liability, meaning the owner’s personal assets are protected from business liabilities. It is designed for solo entrepreneurs who wish to run a business with minimal shareholders while still enjoying the benefits of a corporate entity. However, an OPC can have only one member at a time, and the inclusion of a nominee director is mandatory, who will take over in case of the owner’s incapacity.

What is a Private Limited Company?

A Private Limited Company (PLC) is a widely recognized business structure where ownership is distributed among a minimum of two shareholders and a maximum of 200 shareholders. PLCs are governed by the Companies Act 2013 and offer limited liability protection to shareholders. It provides a distinct legal identity, which means the company is treated as a separate entity from its owners. This structure is suitable for businesses that plan to grow, raise funds, and attract investors, as it allows easy transfer of shares and offers more credibility. 

Similarities between OPC and Private Limited Company

Here are the key similarities between OPC and Private Limited Company:

• Governing Law: Both OPCs and Private Limited Companies are governed by the Companies Act of 2013.
• Registration Process: Both must be registered with the Ministry of Corporate Affairs (MCA).
• Limited Liability: Owners/shareholders of both OPC and Private Limited Companies enjoy limited liability protection, meaning their personal assets are protected from company liabilities.
• Separate Legal Entity: Both are considered separate legal entities, distinct from their owners.
• Taxation: OPCs and Private Limited Companies are taxed similarly under the Income Tax Act.
• Audit Requirements: Both entities must appoint an auditor within 30 days of incorporation and undergo an annual statutory audit.
• Compliance Filing: Both OPCs and Private Limited Companies are required to file annual returns with the Registrar of Companies (ROC).

OPC vs Pvt Ltd: A Detailed Comparison

Here’s a detailed comparison between a One Person Company (OPC) and a Private Limited Company (PLC), outlining key differences across various parameters:

Meaning of Entity:

• OPC: A One Person Company is a business entity that allows a single individual to own and operate a company with limited liability protection. It is designed for small businesses or solo entrepreneurs.
• Private Limited Company: A Private Limited Company is a company structure with at least two shareholders and two directors. It is suitable for businesses with multiple stakeholders and offers limited liability to its owners.

Legal Framework:

• OPC: Governed by the Companies Act, 2013 under specific provisions for One Person Companies (Section 2(62)).
• Private Limited Company: Governed by the Companies Act, 2013, under general provisions applicable to all private companies (Section 2(68)).

Name of Entity:

• OPC: The name of an OPC must end with the suffix “(OPC) Private Limited.”
• Private Limited Company: The name must end with the suffix “Private Limited” or “Pvt. Ltd.”

Ownership Structure:

• OPC: Only one person can own and manage the entire company. There is also a requirement to nominate a nominee director.
• Private Limited Company: A minimum of two shareholders and two directors are required. Ownership is shared between multiple shareholders, with a maximum limit of 200 shareholders.

Minimum Capital Requirement:

• OPC: No minimum paid-up capital is required. However, if the paid-up capital exceeds ₹50 lakhs, the OPC must convert into a Private Limited Company.
• Private Limited Company: There is no mandatory minimum capital requirement for a Private Limited Company.

Number of Members:

• OPC: Only one member is allowed, and the same individual is the sole owner of the business.
• Private Limited Company: A minimum of 2 members is required, with a maximum of 200 members.

Directors:

• OPC: The minimum number of directors is 1, but an OPC can have up to 15 directors.
• Private Limited Company: A minimum of 2 directors is required, with a maximum of 15 directors.

Board of Directors and Meetings:

• OPC: No Board of Directors, as only one person manages the business. If there is only one director, no board meeting is required. However, if there is more than one director, a board meeting must be held every six months.
• Private Limited Company: Board meetings are mandatory, with a minimum of 4 board meetings held annually and no more than 120 days gap between two meetings.

Annual General Meeting (AGM):

• OPC: There is no requirement to hold an AGM if the company has only one director.
• Private Limited Company: A Private Limited Company must hold an AGM within six months of the financial year-end.

Transferability of Shares

• OPC: Shares can only be transferred by altering the Memorandum of Association (MOA), and there are restrictions on the free transfer of shares.
• Private Limited Company: Shares can be easily transferred between shareholders, subject to the company’s Articles of Association (AOA).

Foreign Ownership

• OPC: Only Indian citizens are allowed to form an OPC. Foreign nationals or NRIs cannot incorporate or own an OPC.
• Private Limited Company: Foreign nationals and NRIs are permitted to invest in Private Limited Companies. 100% Foreign Direct Investment (FDI) is allowed in certain sectors under the automatic route.

Conversion

• OPC: An OPC must mandatorily convert into a Private Limited Company if:
  • The paid-up capital exceeds ₹50 lakhs.
  • The turnover exceeds two crores in any financial year.
• Private Limited Company: There is no such mandatory conversion requirement for Private Limited Companies, and they can remain as such regardless of capital or turnover.

Taxation

• OPC: Taxed at the same rates as Private Limited Companies under the Income Tax Act, 1961.
• Private Limited Company: Subject to the same tax rates as OPCs, with corporate tax rates applicable under the Income Tax Act.

Shareholding:

• OPC: 100% of shares are held by a single individual.
• Private Limited Company: Shareholding is divided among a minimum of 2 shareholders. A single person cannot hold 100% of the shares.

External Investment and Funding:

• OPC: External funding or venture capital investment is difficult to obtain due to the single ownership structure. It is primarily self-funded.
• Private Limited Company: Private Limited Companies can raise funds easily by issuing shares or raising capital from venture capitalists, angel investors, or financial institutions.

Credibility:

• OPC: Limited credibility in the market due to its small size and single-owner structure. Banks and investors may view OPCs as having a higher risk.
• Private Limited Company: Generally has higher credibility in the market, making it easier to secure loans, attract investors, and build business partnerships.

Limitations on Expansion:

• OPC: Limited in terms of growth and expansion. Mandatory conversion is required if the company grows beyond certain limits.
• Private Limited Company: No limitations on growth, and it can expand indefinitely without mandatory conversion.

Post-Incorporation Formalities:

• OPC: Some governmental departments and banks may not have updated systems or processes to handle OPC registrations, leading to challenges in obtaining licenses or completing post-incorporation formalities.
• Private Limited Company: A Private Limited Company has well-established processes for post-incorporation formalities, and banks and other government agencies are familiar with handling PLCs.

Foreign Direct Investment (FDI):

• OPC: Not eligible for Foreign Direct Investment (FDI).
• Private Limited Company: Eligible for FDI through the automatic route in several sectors.

Suitability:

• OPC: Ideal for small businesses or sole entrepreneurs with modest capital requirements and no immediate plans for significant expansion.
• Private Limited Company: Suitable for larger businesses, start-ups, and ventures looking to raise external funding, grow rapidly, or operate on a larger scale.

Compliance Requirements: OPC vs Pvt Ltd

Compliance is an essential part of running a business, and both OPCs and Private Limited Companies are required to adhere to various regulations under the Companies Act 2013. Here is a comparison of their compliance requirements:

One-Person Company (OPC) Compliances:

• Annual Return Filing: The company must file its annual return (MGT-7A) with the ROC within 60 days of the financial year-end.
• Financial Statements: Financial statements must be filed in Form AOC-4 within 180 days from the end of the financial year.
• Board Meetings: Only one board meeting every six months is required if more than one director exists. If there is only one director, no board meeting is needed.
• Auditor Appointment: An auditor must be appointed within 30 days of incorporation in Form ADT-1.
• Income Tax Return: Must file an annual ITR-6 by 30th September each year.
• KYC of Directors: Must file Form DIR-3 KYC annually for director KYC.
• Conversion: Mandatory conversion into PLC if the paid-up capital exceeds ₹50 lakhs or turnover exceeds ₹2 crores.

Private Limited Company (PLC) Compliances:

• Annual Return Filing: Must file Form MGT-7 within 60 days of the Annual General Meeting (AGM).
• Financial Statements: Financial statements must be filed in Form AOC-4 within 30 days of the AGM.
• Board Meetings: Must conduct a minimum of four board meetings annually, with a maximum gap of 120 days between meetings.
• Auditor Appointment: An auditor in Form ADT-1 must be appointed within 30 days of incorporation.
• Annual General Meeting (AGM): An AGM must be held annually within six months of the financial year-end.
• Income Tax Return: Must file ITR-6 by 30th September annually.
• Director KYC: Annual filing of Form DIR-3 KYC.

Other Forms:

• Form MSME for outstanding payments to MSMEs.
• Form BEN-2 for the declaration of beneficial ownership.
• Form DPT-3 for deposits or particulars not considered deposits.

Connect with IndiaFilings experts to understand all compliance requirements for your OPC or Private Limited Company, ensuring timely completion and avoiding penalties.

Differences between OPC and Private Limited Companies (OPC vs Pvt Ltd)

Let’s break down the key differences between OPC and Private Limited Companies:

Key Factors to Consider When Choosing Between OPC and Private Limited Company

• Business Structure: If you are a sole entrepreneur, OPC is a suitable option. For businesses involving multiple partners, the Private Limited Company structure is more appropriate.
• Liability Protection: Both structures offer limited liability, but the OPC ensures that one person holds all the control, while a PLC distributes liability among shareholders.
• Foreign Ownership: Only Indian citizens can form an OPC, whereas foreign nationals and NRIs can participate in a PLC.
• Conversion: OPCs are required to convert into a PLC if they surpass certain financial limits, while PLCs face no such restrictions.
• Compliance: Private Limited Companies have more rigorous compliance requirements, making them more suitable for larger businesses.
• Expansion Potential: A Private Limited Company is more conducive to attracting external investment and growth, whereas OPCs may find it challenging to raise external funds.

Conclusion

IndiaFilings offers expert assistance in setting up your business, both OPC and PLC, and managing compliance requirements efficiently.