A Comparison between a One Person Company and a Private Limited Company

One Person Company vs Private Limited Company

Definition of an OPC

Typically, these businesses are founded by a single promoter or founder. Furthermore, because of the numerous benefits that OPCs offer, entrepreneurs who are starting their enterprises prefer them to sole proprietorships.

Features of an OPC

The primary traits of a one-person business are as follows:

Nominee: OPCs are special in that just one member of the business must name a nominee when the business is registered.

No perpetual succession: The nominee has the option to accept or deny membership in the OPC because there is only one member. This is not the case in other businesses because they do not adhere to the perpetual succession premise.

OPCs must have a director, at a minimum. The permitted number of directors is 15.

OPCs are not subject to any minimum capital requirements under the 2013 Companies Act.

OPCs have unique privileges: Under the Companies Act, OPCs are entitled to specific exemptions and privileges that other types of businesses are not.

One-person companies

By executing a memorandum and meeting other conditions stipulated by the Companies Act of 2013, an individual can create an OPC registration. This Memorandum shall specify the candidate who shall, in the event of the incapacity or death of the original member, be the sole member of the company.

The memorandum should be delivered to the Registrar of Companies simultaneously with the registration application. The nominee may revoke his nomination whenever he chooses by presenting the required paperwork to the registrar. The member may later withdraw his nomination.

Advantages of an OPC

Safety Net

The Companies Act limits a single shareholder’s liability in the firm to the unpaid subscription money registered in his or her name. This means that his or her personal property is totally protected from the business’s creditors.

Succession

In the case of the stakeholder’s demise or incapacity, the Companies Act also allows the stakeholder to select a person to assume control of the business. Also, this enables the OPC to continue existing after the departure of the founding director.

Market Value

The same benefits that come with a company being listed as a private limited company are also available to one-person companies that are established under the Companies Act.

Easy Credit Facilities

Banks and other financial institutions favor this type of business since it is lawful and has a permanent succession provision.

Easier Returns Filing

While it is required for an OPC to have its accounts audited and submit the necessary annual filings, doing so is simple with the director’s signature; a company secretary’s signature is not required.

Single Owner

Having a single owner is preferable to having multiple owners. Making decisions quickly and conducting business without outside interruption or ideas is tremendously advantageous. Those who feel a sense of belonging grow their enterprises.

Easy Funding

A private limited company can raise money through venture capital, angel investors, banking institutions, etc. if it is a one-person business. Any OPC has the ability to raise money and transform into a private business.

Limited Liability

One advantage of an OPC is that the owner can take more business risks without worrying about losing any personal assets or being exposed to excessive responsibility because the one-person company’s liability is restricted to the amount of each share’s worth. It serves as a form of support for fresh, young, and creative business start-ups.

Separate legal entity

The member grants the OPC independent legal entity status. The sole person who incorporated the OPC is protected by its distinct legal status. The member is not personally liable for the company’s loss; instead, his or her culpability is limited to the value of the shares that he or she owns.

Disadvantages of an OPC

• Only the firm’s members may get shares from the company.
• The Income-tax Act does not allow OPC firms any exemptions. The corporation is subject to a flat tax rate of 25%.
• Although OPC is a relatively small company, it is nevertheless required to complete all yearly compliances within a certain time period, whether or not the company holds an annual general meeting. If OPC fails to complete the annual compliances, the company will be fined.
• OPC cannot transition to a section 8 corporation.
• If a business’s paid-up capital exceeds 50 lakh rupees and its annual revenue surpasses 2 crore rupees, it is required to convert to either a private limited company or a public limited company.
• OPC cannot conduct its function as an NBFC or engage in any business activities relating to finance.
• Before issuing any shares, a corporation must transform itself into another company; it cannot offer ESOS or ESOP to its employees.
• During the existence of the company, the member must designate its nominee, who may only be a natural person.

Private Limited Company

Definition and Features

According to Section 2(68) of the Companies Act, 2013, a private limited company is a distinct legal person with limited liability that is privately held. Unlike other public firms, it does not offer its shares for free transfer to the general public. With a private limited company, the firm alone is responsible for all business losses and obligations, and shareholders may not be held liable for debts acquired by the company.

Features of a PLC

Formally registered companies must have vital documents like articles of association and taxation since they are registered as official legal entities.

Separate legal entity

The legal identity of this company is distinct from that of its owner. The owner’s personal finances are separate from those of the business. The owner’s personal liability does not extend to the company’s legal issues or debt issues.

Owner

They’re referred to as stockholders. There is at least one shareholder in the business. These could be people, trusts, associations, or different businesses.

Limited liability

Shareholders are only partially liable. Their personal liability for the company’s debt is waived. So, stockholders only have minimal accountability if a corporation fails to pay its debts or declares bankruptcy. Shareholders’ private property cannot be used to settle debts. They merely lost the money they had put into the company.

Operation

The Board of Directors is chosen by the shareholders to run the company and represent their interests. The Board of Directors is in charge of managing daily operations and making all corporate decisions. Moreover, shareholders occasionally hold the position of director.

Double tax

Taxes are paid by shareholders on their income. Also, corporations pay corporate taxes. This results in double taxation.

Advantages of a PLC

The benefits of a private limited company include the following:

Opportunity for acquiring foreign investment

Due to their tight compliance requirements, data accessibility on the website, and adherence to ROC standards, private limited firms enjoy greater trust from foreign investors. Also, if there is at least one director who resides in India, a foreign businessperson may be elected to the board of directors of a private limited company. Due to this, foreign investors prefer investing in private limited corporations over other business entities.

Can own properties

Any sort of mobile or immovable property can be owned by a private limited business. Typically, the firm is accountable for its assets and obligations. In the event of a company’s dissolution, its debts are paid off to creditors in a predetermined order, lowering the shareholders’ individual liability.

Greater borrowing capacity

There are many options available to private limited companies for borrowing money. Financial institutions frequently favor providing financial support to private limited companies. Because of the openness, compliance, and limited data availability on governmental websites, they have more faith in this kind of business entity.

Access to Capital

Companies can raise money in the capital market by selling shares or issuing debt securities in addition to receiving capital infusions from current shareholders. It is therefore simpler for businesses to raise money to support future growth.

Continuity

Even if the shareholders change, the company remains in operation. Similarly, the death of a shareholder or director does not result in the death of the business.

Control

The first owner may still exercise control. Also, their ownership is not diminished because the business does not offer its shares for sale to the general public on a stock exchange.

Disadvantages of a PLC

Establishment

These commercial entities require additional documentation and procedures, and their formation is more challenging. Legal and administrative costs associated with regulation are therefore high. Also, because of severe bureaucratic issues, completing legal requirements in some nations can take a long time.

Dividend

Dividends may not generate money for shareholders. Dividend payments cannot be made by the company and reinvested in the company (known as retained earnings). Hence, the owner receives no compensation.

Complexity

Operations at a business are more intricate and entail a large number of documents, such as typical financial statements and taxation.

Transparency

It is more challenging for the general public or regulators to get information about corporations, such as their financial statements. A private limited corporation is not required by law to publish this information, in contrast to a public limited company.

Conflict of interest

Directors could disregard the interests of the shareholders in order to pursue their personal interests and profits. That’s because, unlike in a sole proprietorship, where those decisions are made by the owners, in a corporation, the directors, not the owners, make the business decisions. Problems with agencies may then result from this.

Transfer of ownership

Because shares are not publicly traded through the stock exchange, older stockholders find it challenging to sell their holdings. Only with the consent of the other shareholders are they able to sell their shares. New shares cannot be sold on the open market either.

Comparison between an OPC and a Pvt Ltd

Let us now compare some important parameters between an OPC and a PLC.

 Conclusion

Key factors to consider when choosing between an OPC and a PLC

While any of the aforementioned business models can be used to launch a firm, there are a few things to take into account. Some factors that need to be taken into account are as follows:

Continuity of Existence

Knowing the right type of business structure is crucial if one hopes to protect the business for the future financial stability of the business’s family members. This will help maintain the legacy of the company.

Complex Procedures

Businesses with fewer employees overseeing their operations must choose a straightforward business structure. In order to choose the best legal structure with the least amount of operational complexity, there are several procedures and compliance standards that must be followed when starting and running a business.

Liabilities

By selecting a business model with limited liabilities, one can take risks without worrying about losing personal assets, and doing so will protect the company from any potential losses and debts.

The investment necessary for the efficient operation of the firm is one of the most crucial things to take into account when selecting a business structure. Maintaining all requirements in line with the company’s capabilities is vital for the firm to prosper.

Nature of business

The type of business structure you choose for your enterprise is perhaps the most significant of all the considerations made before choosing a business structure. The basic aim and duration of an organization within the selected industry are referred to as the “nature of a business.”

Government regulations and control

In addition to being formally registered, business entities may need specific licenses to operate. Depending on the type of business and its operations, a firm may need to get municipal, state, and federal licenses. Corporate entities also need to follow all government regulations.

The future outlook for a one-person company

Although the idea of an OPC is still very novel and revolutionary in Indian entrepreneurship, it will take time for such a novel idea to be implemented completely. But, as and when time passes, an OPC will have a bright future and be accepted as a successful company concept.

An OPC will have a significant impact in the next few years, and Indian entrepreneurship will benefit from this. Expectedly, there will be successful joint ventures, mergers, and foreign investments. When the expert committee of Dr. J.J. Irani proposed the idea of an OPC in India, it was only intended to organize the private sector of entrepreneurship and create a structured, organized business with a different legal entity. This is exactly what is anticipated to happen along with significant growth in the Indian economy, which will benefit the nation on a global scale.

The future outlook for a Private Limited Company

Small, privately held businesses with limited liability are frequently private limited companies. The company can only have a small number of shareholders due to its tiny size and private ownership (e.g. 50 shareholders in the UK). Many SMEs operate as private limited companies because it enables them to decrease personal risk and seek protection from personal liability while also enabling them to raise money through the sale of shares.

According to a new survey, allocators overwhelmingly prefer private markets over public ones when investing in 30-year economic trends like artificial intelligence. The respondents thought that private enterprises were best positioned to respond to significant changes given the 30-year time horizon for some of the trends. Over 200 investors responded to the study, representing roughly $10 trillion in assets, including pensions, sovereign wealth funds, foundations, and endowments.

Based on what we’ve covered so far, we believe that this blog will be of interest to all readers who are interested in learning more about the minor and significant differences between a private limited business and a one-person firm.

FAQ on Comparison between One Person Company and Private Limited Company

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