OPC and Private Limited Company
OPC and Private Limited Company are two types of business structures governed by law. The concept of a one-person company encourages single and interested entrepreneurs to run their own ventures. However, Pvt. Ltd. requires two persons to merge the company.
You want to start a new business, but are you confused as to which company structure to choose? This article may help you to make your decision easier.
What is the meaning of OPC and Private Limited Company?
An individual company means a company in which a company has only its members. OPC is effectively a company with only one shareholder as its member.
A private limited company is a form of organization that requires a minimum of two members and a maximum of 200 members. The liability of a private limited company is limited to the number of shares they hold.
Difference between OPC and Private Limited Company
The difference between OPC and a private limited company is as follows:
Shareholders in the company
In OPC, only one person and one partner are required to co-operate with the company. Also, a person is a director and shareholder in a company and the only person who owns 100% of the shares in the company.
In the case of private limited companies, a minimum of 2 shareholders and a maximum of 200 shareholders require during this merger. Also, the shareholders of a private limited company can be any company.
Fundraising is a complex part of the OPC because there is only one member who has the full financial burden on his/her shoulders.
At a private limited company, they can receive funding from various venture capitals, such as angel investments.
Board of Directors
According to the name of the OPC (One Person Company), we have only one member in the organization, which means there is no need to hold such annual general meetings (AGM) or committee meetings.
In contrast, in a private limited company, there is a board of directors consisting of a minimum of 2 directors and a maximum of seven directors. In addition, 4 board meetings and 1 AGM meeting are mandatory in a financial year.
NRI (Non-Resident Indian) or Foreign National Investment
The best advantage of having a private limited company is that foreigners and NRIs can invest in PLC in India. Furthermore, 100 percent foreign direct investment approach in a private limited company under the automated approval path.
But in OPC, only Indian citizens allow starting a company. Henceforth, an individual company will not be eligible for foreign direct investment.
Certain activities such as investment in securities and non-bank financial activities prohibit in OPC. However, a company registered as a private limited company may engage in such activities with the approval of the relevant authority.
There are some similarities in the compliance requirements of OPC and The Pvt. Both OPC and PLC need to file annual income with the MCA (Ministry of Corporate Affairs) and the Income Tax Department. In addition to these similarities, both companies require to audit their accounts each year. Let’s look at some of the exceptions to the OPC.
- Under Section 2 (40) of the Act, companies are not required to include a cash flow statement in their financial statements under the OPC.
- According to Section 134 (1) of the Companies Act, 2013, only one director requires to sign financial statements irrespective of the nominating director.
- According to Section 92 (1) of the Companies Act, 2013, in the absence of the CS (Institutional Secretary) the Director can sign the annual income.
- The provisions of Section 173 and Section 174 do not apply if the OPC has only one director as per Section 173 (5).
Controls and Ownership of the Company
In a one-person company, the sole member who is the director has full ownership of the company. It will not share with any other person.
In the case of a private limited company, the ownership divides between the two members. Also, voting power may divide based on the ratio of shares held by each member.
The cost of setting up a Person Company and a Private Company is the same, but the cost of engaging in compromises is somehow different.
At OPC, the cost of compliance may be lower compare to OPC. INR 500 shall require to file each form, which reflects the high compliance cost of the OPC.
There are some pros and cons to both OPC (one-person company) and private limited company. Which is entirely yours, what kind of company do you want to start. In short, we can suggest that you go to a private limited company as there are some other benefits of unrestricted balance and fixed liability.