Demystifying the difference between OPC, LLP and Pvt. Ltd. Co.

India is an emerging market with expansive scope and opportunities for Indian and foreign investors alike. As a result, many companies continue to target expansion by establishing their businesses in India. Investors can decide the legal structure within which their businesses will operate, based on the purpose, objective, initial investment, risk appetite and duration (short term/long term) of the business. The commercial law in India lays down several mechanisms for the establishment and functioning of different types of commercial entities; each having distinguishable attributes, prerequisites for incorporation, and conversion mechanisms. Through this article, we aim to demystify three types of companies in India (One Person Company, Limited Liability Partnership and Private Limited Company) and share a comprehensive understanding of their differences.

  One Person Company Limited Liability Partnership Private Limited Company
  • Low compliance burden, owing to the numerous exceptions culled out, despite being within the scope of what is defined as a “Private Limited Company” under S. 2(68) of the Companies Act, 2013i.
  • One Person Company (OPC) tends to bring the unorganized sector of proprietorship into the organized version of a private limited company. Proprietors, by default, have unlimited liability. However, if such a proprietor does business through an OPC, then the liability of the members is limited.
  • OPC gives entrepreneurs the advantage of limited liability whereby their liability as members is limited to their unpaid subscription money.
  • On the demise/disability of the original director, a nominee director is appointed who is required to managethe affairs of the company till the date of transmission of shares to legal heirs of the demised member (S. 4(1)(f), CA, 2013).
  • OPC's can appoint as many as 15 directors for administrative functions, without giving any share to them.
  • There is no requirement to hold Annual or Extra Ordinary General Meetings. Only a resolution is required to be communicated by the member of the company, and entered into the minutes' book with the date and signature. Such date is deemed to be the date of meeting (S. 96 (1), CA, 2013).
  • Provisions of S. 174 (Quorum for meetings of Board) don't apply to a One Person Company in which there is only one director on its Board of Directors.
  • Where the OPC has only one director, all the businesses to be at the transacted meeting of the Board is required to be entered into the minutes' book maintained under S. 118 (S. 122(3), 122(4), CA, 2013). In this case, there is no additional requirement to hold Board Meetings (S. 96(1)), CA, 2013).
  • The cost for registration of an OPC is lower and there are fewer filings with the Registrar of Companies (ROC).
  • The mandatory rotation of auditor after expiry of the maximum term is not applicable.
  • Provisions of S. 98 and S. 100-111, relating to holding of general meetings do not apply to a One Person Company (S. 122 (1), CA, 2013).
  • OPC is an artificial entity distinct from its owner. Thus, the claims made against the business cannot be pressed against the owner and there is perpetual succession.

  • No minimum capital requirement. The contribution of a partner can consist of tangible, movable or immovable or intangible property or other benefit to the Limited Liability Partnership (LLP).
  • An LLP requires a minimum of two partners while there is no limit on the maximum number of partners (S. 6, Limited Liability Partnership Act, 2008ii).
  • Lower cost for registration.
  • The LLP, being a separate legal entity, has the right to own, enjoy and transfer property in its own name.
  • The accounts are audited in accordance with the LLP Rules, 2009 unless the turnover does not exceed Rs. 40,00,000, in any financial year; or the contribution does not exceed Rs. 25,00,000 (Rule 24, LLP Rules, 2009).
  • LLP is liable for payment of income tax but the share of its partners in LLP is not liable to tax. Thus, no dividend distribution tax is payable. Provision of 'deemed dividend' under income tax law is not applicable to LLP (S. 40(b), CA, 2013).
  • Most prevalent and popular type of corporate legal entity in India.
  • A Private Limited Company has 'perpetual succession', i.e. continued or uninterrupted existence until it is legally dissolved. Being a separate legal person, it is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership.
  • The liability of the members is limited only to the extent of the face value of shares taken up by them (S. 2(22), CA, 2013).
  • Shares are transferable by a shareholder to any other person. The transfer is easier in comparison to the transfer of interest in business run as a proprietary concern or a partnership.
  • A company being a juristic person, can acquire, own, enjoy and alienate property in its own name.
  • Being an independent legal entity, it can sue and also be sued in its own name.
  • It can make a valid and effective contract with any of its members. It is also possible for a person to be in control of the company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the Private Limited Company.
  • It can issue debentures (secured as well as unsecured) and can also accept deposits from the public, etc.
  • At least one shareholder;
  • At least one director;
  • The director and shareholder can be the same person;
  • At least one nominee director (cannot be a minor);
  • Only a natural person who is an Indian Citizen and resident in India may form an OPC;
  • Share Capital of at least Rs. 1,00,000;
  • 'OPC' to be suffixed with the name of OPCs to distinguish it from the other companies (S. 12(3), CA, 2013);
  • At least one meeting of the Board of Directors in each half of a calendar year where the gap between the two meetings shall not be less than 90 days (unless there's only one director) (S. 173(5), CA, 2013); and
  • Filing of the financial statements duly adopted by its member, along with all the documents which are required to be attached to such financial statements, within 180 days from the closure of the financial year (S. 137, CA, 2013).
  • At least two partners (not cooperative societies, minors) with at least one partner being an Indian resident (S. 6, LLP Act, 2008).
  • The fee for registration of LLP including conversion of a firm or a private company or an unlisted public company into LLP:
  • LLP whose contribution is limited to Rs 1,00,000: fee of Rs. 500.
  • LLP whose contribution exceeds Rs 1,00,000 but is limited to Rs 5,00,000: fee of Rs. 2,000.
  • LLP whose contribution exceeds Rs 5,00,000 but is limited to Rs 10,00,000: fee of Rs. 4,000.
  • LLP whose contribution exceeds Rs 10,00,000: fee of Rs. 5,000. (5, Annexure A, LLP Rules, 2009)
  • Name should not include something prohibited under the Emblems and Names Act, 1950 (Rule 18, LLP Rules, 2009).
  • Should not belong to the excluded list of names (Rule 18, LLP Rules, 2009).
  • Minute book to be maintained to record minutes of meetings of partners. However, the LLP Act does not prescribe compulsory meetings of partners. Partners may be called for events prescribed in the LLP Agreement.
  • Statement of account and solvency is required to be filed annually.
  • If the LLP has a turnover of less than Rs. 40,00,000 and a capital contribution of less than Rs. 25,00,000; there are no audit requirements.
  • FDI in LLP requires prior RBI approval. (Annex I to A. P. (DIR Series) Circular No. 123 dated April 16, 2014)
  • A minimum of two directors, and maximum of 15 (One needs to be Indian Resident and Indian national) (S. 3(1)(b), 149(1)(b), CA, 2013).
  • Two persons are also required to act as shareholders of a company. The shareholders can be natural persons or an artificial legal entity (Maximum 200) (S. 2(68)(ii), CA, 2013).
  • Minimum capital contribution required for a private limited company is Rs. 1,00,000.
  • An address in India where the registered office of the Company will be situated is required. The premises can be a commercial/industrial/residential where communication from the MCA will be received.

i Hereinafter CA, 2013.
ii Hereinafter LLP Act, 2008.

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Anubhav Chakravorty