Both, One Person Company (OPC) and Private Limited Company are different kinds of companies under the Companies Act, 2013. OPC is an entity owned and managed by a single person. Whereas, a company is owned by multiple shareholders. While starting a new business, people often get confused while choosing the business model. When considering the options, these potential business owners need to choose from the various options. Two structures that often undergo competition are opc vs pvt ltd company. Which means, before you register a private company in India, it is ideal you understand all about the difference between opc and private company. The comparison between the one person company vs private limited company is not only common, but also very helpful in starting a successful entrepreneurial journey. Don’t keep wondering how. In this blog, we cover all the aspects of the difference between opc and pvt ltd.
What is OPC and Private Company?
The Companies Act, 2013 defines all the different types of company that entrepreneurs can establish in India. One person Company and Private Company are both also part of these legal entities. However, to understand the comparison between opc vs pvt ltd, first you need to understand its meaning. So, let’s see its meaning.
Meaning of One Person Company
An OPC is a type of entity where only one shareholder exists. It allows a sole person to own and also manage the entire business operations. The OPC as a business structure was recently introduced in India through the Companies Act, 2013 to administer the proprietorship businesses and promote them in an organized way. Moreover, OPC registration in India provides the benefits of corporate structure to those who want no partition to business ownership.
What is Private Limited Company?
As per the Act, all companies that are privately held and have more than 2 members and less than 200 are private companies. While considering the first point of difference between OPC and pvt ltd, the number of members immediately come into play. However, it is just a singular factor and many others make the comparison of one person company vs. private limited company even more solid.
Difference between OPC and Pvt Ltd
As stated above, there are many areas of difference between one person company and private limited company. Let’s take a look at all points that make opc vs pvt ltd.
Definition under the Act
As referred, the Companies Act, 2013 has introduced the One Person Company as a sub-category of Private Company. The Act defines both structures in the following way.
One Person Company
According to Section 2(62) of the said Act, “One Person Company” means a company which has only one person as a member.
Private Company
Section 2(68) of the Act defines a Private Company as “A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in the case of One Person Company, limits the number of its members to two hundred;
(iii) prohibits any invitation to the public to subscribe for any securities of the company”
Number of Persons in One Person Company vs Private Limited Company
One Person Company registration is possible with only one person as the shareholder of the company. Besides, the member must be a natural person and not a corporate or other artificial body. S/he must be a resident of India and a person competent to contract. Apart from the member, the company requires to appoint a nominee as well.
In the case of a Private Company, the minimum number of shareholders required is 2. The ceiling limit prescribed for the number of shareholders is 200. In this company, an artificial person such as another company or LLP can also hold shares to be an owner of the company. For more information, do read : Company Registration Process in India.
Nominee
While considering opc vs pvt ltd, another strong point of difference is the requirement to appoint a nominee. In a one person company, it is mandatory to hire a nominee. However, in a private company, it is on the basis of the discretion of shareholders.
Number of Directors in OPC vs. Pvt Ltd
The minimum number of directors required in case OPC is only one, whereas it is 2 for a Private Company. In both cases, the shareholder himself can hold the directorship at the same time. For more information, you can also read: Who can be a Director?
Difference in Ownership and Control between OPC and Private Company
In a private limited company, the ownership and control is divided between the multiple shareholders and directors. However, in a one person company, the ownership and entire control of business operations is in the hands of the sole shareholder. Maintaining the limited liability benefit of a company, sometimes becomes difficult in an OPC as compared to a pvt ltd company.
Business Activities in One Person Company vs Pvt Ltd
In one person companies, there are restrictions on certain business activities. However, there is no such restriction in the private companies. Yet, the main activity of a business must be included in the object clause of memorandum of association of both the types of companies.
Investment by foreign nationals in OPC and Private Company
OPC Registration in India by a foreign national as a member is not permitted as only Indian residents can become a member of the company. However, in the case of Private Limited Company, NRIs, foreign nationals and foreign entities are allowed to hold shares subject to FDI Guidelines. 100% Foreign Direct Investment is allowed in India in many of the industries under the Automatic Route. However, there are few industries that require prior approval from the RBI. You can also read: How to obtain RBI Approval?
Fund Raising
Fundraising from investors is not possible in the form of equity investment in the case of OPC because there can only be one member. But, for a Private Company, fundraising through the issue of equity is possible in many ways including private placement, right issues, Venture Capital, etc. Further, internal funding has a better face than OPC as there is more than one to contribute to. For more information, read : How to raise funds in private company?
Taxability
The concept of OPC is not recognised under the Income Tax Act and hence such companies will be put in the same category as other companies for taxation purposes. Private companies have been placed under the tax bracket of 30% on total income excluding cess and surcharges. However, the small companies are covered under the tax bracket of 25% on total income. So, there is not much to compare for opc vs pvt ltd company in terms of taxation yet.
Audit & Annual Compliance
The audit and annual compliance is mandatory for any company registered under the Indian Companies Act, 2013. Both OPC and Private Company shall appoint a statutory auditor within 30 days of registration. The Annual Compliance will include filing forms with the Ministry of Corporate Affairs for each financial year. Additionally, both must file income tax returns for each financial year. Hence, there is no difference between a one person company and a private limited company for post registration compliance for companies.
Other Compliance
A great benefit is that OPC enjoys many exemptions compared to a Private Limited Company. These exemptions include the requirements for AGM, Board Meeting and more.
Conversion of OPC
A limitation that a one person company faces over a private limited company is that it cannot expand business from a certain level. If the paid-up capital of the company exceeds INR 50 Lakh or the average turnover exceeds INR 2 Crore, OPC shall convert itself into a Private or a Public Company. Therefore, this is the ceiling limit provided to operate under the OPC. In the case of a Private Company, no restrictions or limitations are provided.
Similarities between One Person Company and Private Limited Company
By now, we have seen many points of difference between opc and pvt ltd. However, there are also many similar features when considering opc vs pvt ltd. Let’s discuss these points of similarities in brief:
Separate Legal Entity
As both of these entities undergo the registration process as per the Act, they get the title of a separate legal entity of a company. Moreover, this comes laden with many benefits such as perpetual succession and limited liability for owners.
Governed by Chartered Documents
The one person company and private company are both governed by its ruling documents Memorandum of Association and Articles of Association. One states out the basic details of the company and another puts out all governing rules and regulations. For more information, check out the difference between MOA and AOA.
Regulatory Compliance
Both the types of legal entities are governed by the same regulatory body. The Registrar of Companies (ROC) through the Ministry of Corporate Affairs (MCA) portal.
Comparison Chart of OPC vs Pvt Ltd
Now that we have covered both, the similarities and difference between one person company and pvt ltd co. It is vital that we compare the features of opc vs pvt ltd once, in a tabular form to get a better idea.
| Feature of OPC vs Pvt Ltd | One Person Company | Private Limited Company |
| Minimum Member | 1 | 2 |
| Maximum Member | 1 | 200 |
| Number of Directors | 1 – 15 | 2 – 15 |
| Annual General Meeting (AGM) | Not Compulsory | Compulsory in first 6 months of a new financial year |
| Board Meetings | At Least 2 in one calendar year | At least 4 in one calendar year |
| Appointment of Nominee | Mandatory | Not Mandatory |
One Person Company vs Private Limited: Which is better for your Business?
Choosing the right type of business structure is integral to building a strong business in these competitive times. Confused between choosing a private limited company and one person company. Worry not, here are some key tips to understand which form is better for your goals:
Business Scalability
Choosing pvt limited company registration over opc registration depends on the scalability of your business plan. In OPC vs pvt ltd, OPCs are usually more advantageous for small scale and individual driven plans. However, private companies are more advantageous for growth centric business plans.
Owners
If you want to be the whole and sole owner of your business, OPC is a better option. However, if you are planning to share your profits and reign of control with others, you can register private company.
Compliance Requirements
Certain compliance requirements are additional and more time consuming in private companies. So, think how much time and energy you can spend on these before deciding between one person company vs private limited.
Also Read: What is Articles of Association?
Legal Advice
Even after consideration of all these different factors, ideally, before you make the decision between choosing opc vs pvt ltd, it is vital that you discuss your requirements with an expert in the field. This will help you avoid unnecessary documentation and charges of conversion, etc.
Conclusion
There are both advantages and disadvantages associated with every organization. If one can balance the pros and cons in a situational context by considering the above-discussed features, it would be easy to set upon which is the appropriate structure for a particular business.
