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Selecting the appropriate business structure is a very important decision that can significantly impact the success and operations of a company. The business structure determines the legal framework within which the organisation operates, affecting bases such as liability, ownership, taxation, compliance requirements and fundraising opportunities.
The Companies Act governs two distinct business structures, which are OPC and Private Limited Company. The notion of a One Person Company enables single, motivated entrepreneurs to run their own business. A Private Limited Company, on the other hand, must be formed by two people.
Comparison Between One Person Company vs. Private Limited Company:
OPC Vs. Private Limited Company difference on the basis of Basic Characteristics and Features:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Ownership Structure | Sole ownership by a single individual | Ownership divided into shares, multiple shareholders |
| Limited Liability | Owner’s liability is limited to the extent of their investment | Shareholders’ liability is limited to the extent of their investment |
| Separate Legal Entity | OPC is considered a separate legal entity, distinct from its owner | PLC is considered a separate legal entity, distinct from its shareholders |
| Minimum Capital Requirement | No specific minimum capital requirement | No specific minimum capital requirement |
| Statutory Compliance Requirements | OPCs have compliance obligations, including annual filings, audit requirements and meetings | PLCs have compliance obligations, including annual filings, audit requirements and meetings |
| Flexibility in Raising Capital | Limited flexibility in raising capital, primarily through personal funds | More options for raising capital through issuing shares, obtaining loans, etc. |
OPC Vs. Private Limited Company difference on the basis of Minimum and Maximum Members/Shareholders:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Minimum members/shareholders | At least one individual member/shareholder | At least two individuals or entities as shareholders |
| Maximum members/shareholders | One individual member (plus one nominee director) | Up to 200 individuals or entities as shareholders |
OPC Vs. Private Limited Company difference on the basis of Formation and Legal Requirements:
| Sr no. | One Person Company (OPC) | Private Limited Company (PLC) |
| 1. | Minimum requirements: | Minimum requirements: |
| – One individual as the owner and director. | – At least two shareholders and two directors (one director can also be a shareholder). | |
| – At least one nominee director. | – At least one director should be a resident of India. | |
| – Minimum authorised and paid-up share capital as per the regulations. | ||
| 2. | Steps involved: | Steps involved: |
| a. Obtain a Digital Signature Certificate (DSC) for the owner and nominee director. | a. Obtain DSC and DIN for all directors and shareholders. | |
| b. Apply for Director Identification Number (DIN) for the owner and nominee director. | b. Choose a unique name for the company and submit it for approval to the RoC. | |
| c. Choose some original name to be used for the OPC and get approval from the Registrar of Companies. | c. Draft and file the MOA and AOA with the RoC. | |
| d. Draft and file the Memorandum of Association (MOA) and Articles of Association (AOA) with the RoC. | d. Pay the required registration fees and get the Certificate of Incorporation from the RoC. | |
| e. Pay the required registration fees and obtain the Certificate of Incorporation from the RoC. | e. Obtain PAN and TAN for the company. | |
| f. Obtain the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the OPC. | f. Open a bank account in the name of the company. | |
| g. Open a bank account in the name of the OPC. |
OPC Vs. Private Limited Company difference on the basis of Liability and Ownership:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Limited liability | Owner’s liability is limited to their investment in the company | Shareholders’ liability is limited to their shareholding in the company |
| Separate legal entity | OPC is considered a separate legal entity | PLC is considered a separate legal entity |
| Personal liability of owner | Limited to investment in the company | Limited to shareholding in the company |
OPC Vs. Private Limited Company difference on the basis of Flexibility and Limitations:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Flexibility | Provides flexibility to entrepreneurs who want to establish and operate as a single individual. | Offers the opportunity for multiple individuals or entities to collectively own the company. |
| Allows complete ownership and control over the company. | Allows for the distribution of ownership among shareholders. | |
| Limitations | Has a limitation on the maximum number of members/shareholders. | Has a more flexible restriction on the maximum number of members/shareholders (up to 200). |
| Can have only one individual as a member/shareholder. | Allows for the involvement of multiple individuals or entities as shareholders. | |
| Restricts the possibility of expanding ownership or bringing in additional partners. | Facilitates raising capital, attracting investors and sharing responsibilities. | |
| Scaling Potential | Limited scaling potential due to the restriction on the number of members. | Higher scaling potential due to the ability to have more shareholders. |
| Facilitates diverse skills, resources and perspectives for growth and expansion. |
OPC Vs. Private Limited Company difference on the basis of Compliance and Regulations:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Annual Filings | File annual financial statements (balance sheet, profit and loss account, annual return) | File annual financial statements (balance sheet, profit and loss account, annual return) |
| with the Registrar of Companies (RoC) | with the Registrar of Companies (RoC) | |
| Audit Requirements | Accounts audited if turnover exceeds specified threshold | Accounts audited annually by a practicing Chartered Accountant |
| Board Meetings | Conduct at least one board meeting in each half of the calendar year | Conduct at least four board meetings in a calendar year |
| Minimum gap of 90 days between the two meetings | Maximum gap of 120 days between two consecutive meetings | |
| Compliance with Companies Act | Comply with provisions of the Companies Act and regulations related to directors, statutory registers, etc. | Comply with various provisions of the Companies Act, including appointment and rotation of directors, holding general meetings, maintaining statutory registers, etc. |
OPC Vs. Private Limited Company difference on the basis of Ongoing Compliance Obligations:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Reporting Requirements | File annual financial statements and annual returns with the RoC | File annual financial statements and annual returns with the RoC |
| – Relaxed reporting requirement as OPCs have a single director | ||
| Audit Requirements | Accounts audited if turnover exceeds a certain threshold | Accounts audited regardless of turnover |
| Board Meetings | Hold at least one board meeting in each half of the calendar year | Hold a minimum of four board meetings in a year |
| Statutory Compliance | Comply with provisions of the Companies Act and maintain statutory registers | Comply with provisions of the Companies Act and maintain statutory registers |
OPC Vs. Private Limited Company difference on the basis of Tax Implications:
| Basis | One Person Company (OPC) | Private Limited Company (PLC) |
| Income Tax | OPCs are subject to income tax based on individual tax slabs | PLCs are subject to corporate tax on their profits at the applicable tax rates |
| Tax Benefits | OPCs can avail deductions for business expenses, depreciation and exemptions available under the Income Tax Act | PLCs can avail deductions for business expenses, depreciation, R&D tax incentives and tax incentives for startups in some jurisdictions |
| Presumptive Taxation | OPCs with turnover up to a specified limit may opt for presumptive taxation | Not applicable to PLCs |
| Capital Gains Tax | OPCs and their shareholders are subject to capital gains tax | PLCs and their shareholders are subject to capital gains tax |
Final Thoughts
Choosing the right business structure between One Person Company (OPC) and Private Limited Company is significant for entrepreneurs and business owners. Each structure has its own unique characteristics, advantages and compliance requirements.
OPCs offer the benefit of sole ownership and limited liability protection for single individuals, while PLCs provide the opportunity for broader ownership and greater scalability.
Considerations such as the desired level of control, number of members/shareholders, compliance obligations, tax implications and long-term growth plans should be evaluated when making the decision. Seeking professional advice and understanding the specific legal and regulatory framework in your jurisdiction is essential for making an informed choice that aligns with your business goals and aspirations.
To find out more on the differences between an OPC and a Private limited company and to choose the right structure between the two, connect with our experts at StartupFino.
One Person Company (OPC) vs. Private Limited Company (PLC) comparison table:
| Basis | OPC | Pvt. Ltd. Co. |
| Law Applicable | Companies Act 2013 | Companies Act 2013 |
| Minimum share capital | No requirement for minimum share capital. | No requirement for minimum share capital |
| Members required | Minimum one | Minimum two |
| Maximum one | Maximum up to 200 | |
| Directors required | Minimum one | Minimum two |
| Maximum 15 | Maximum 15 | |
| Board meeting | One meeting in each half of the year. | One meeting in each quarter of the year. |
| The gap between the two meetings must be at least 90 days | The maximum gap between the two meetings can be 120 days | |
| Statutory Audit | Compulsory | Compulsory |
| Annual Filing | Financial Statements and Annual returns to be filed with RoC | Annual accounts and Annual returns to be filed with RoC |
| Liability | Limited | Limited |
| Foreign Direct Investment | Not eligible for FDI | Eligible via automatic route |
