Choosing the right business structure is a crucial decision for any entrepreneur. In India, two popular options are the Private Limited Company (Pvt Ltd) and the One Person Company (OPC). While Pvt Ltd companies suit growth-oriented startups with aspirations to scale, OPCs cater to solo entrepreneurs seeking simplicity with limited liability.
This blog explores the key features, benefits, and differences between these structures to help you decide what’s best for your business.
Table of Contents
1. Difference between Private Limited and One Person Companies 2. What is a Private Limited Company?3. Private Limited Company Registration4. Key Features of Private Limited Company5. What is a One Person Company?6. One Person Company Registration7. Key Features of OPC8. Similarities between OPC and Private Limited Company9. Register Your Company with Razorpay Rize10. Which company type to register your business with?11. Know Your Ideal Company Type12. Conclusion13. Frequently Asked Questions
Difference between Private Limited and One Person Companies
Although we will explore each legal structure in the upcoming sections, let's currently delve into a comparative analysis between these two entities.
Private Limited Company
One Person Company
Suitable For
Financial Services, Tech Startups, Medium Enterprises
Franchises, Retail Stores, Small Businesses
Shareholders/ Partners
Minimum - 2
Maximum - 200
Minimum - 1
Maximum - 1
Nominee
Not required
One Nominee mandatory
Minimum Capital Requirement
No minimum capital requirement
No minimum paid-up capital requirement exists. However, the minimum authorized capital required is Rs. 1,00,000 (One Lakh)
Tax Rates
The basic tax rate, excluding Surcharge and Cess, is 25%
The applicable Tax rate to the OPC would be 25%, excluding cess and surcharge
Fundraising
Multiple options for Fundraising
Limited options for Fundraising
ESOPs
Can issue ESOPs to the Employees
Unable to issue ESOPs to the Employees
DPIIT Recognition
Eligible for DPIIT recognition
Ineligible for DPIIT recognition
Transfer of Shares
Shares can be easily transferred by amending AOA
Transfer of shares isn’t possible; it can only be done in case of transfer of ownership
Agreements
Duties, Responsibilities, and other basic clauses outlined in MOA and AOA
Duties, Responsibilities, and other basic clauses outlined in MOA and AOA
Compliances
• More compliance costs
• Mandatory 4 Board Meetings
• No mandatory audits till a specified threshold limit
• Less Compliance Costs
• Minimum 2 Board Meetings
• Mandatory Audits
Foreign Directors
NRIs and Foreign Nationals can be Directors
No foreign directors are allowed
Foreign Direct Investment
Eligible through Automatic route
Not eligible for FDI
Mandatory Conversion
No mandatory conversion
If annual turnover exceeds Rs. 2 Crores or paid-up capital exceeds Rs. 50 lakhs, then mandatory conversion into a private limited company
While we have provided some context on the differences between a private limited company and an OPC, let's break down their features and registration process in detail. This will help you figure out which one suits your business needs best.
What is a Private Limited Company?
A Private Limited Company (Pvt Ltd) is one of the most sought-after business structures in India. It combines the benefits of limited liability, a separate legal identity, and scalability.
It’s a privately held entity governed by the Companies Act of 2013 and is often chosen for its ability to combine the flexibility of partnerships with the advantages of corporate status.
In a Private Limited Company, shareholders' liability is limited to the extent of their shareholding, which means personal assets are protected in case the company incurs losses or debts. This makes it an attractive option for entrepreneurs looking to build a scalable business while minimising financial risks.
In short, a Private Limited Company is ideal for entrepreneurs with big ambitions, as it provides:
- A formal structure for business operations.
- Easier access to funding through equity or debt.
- A professional image that boosts credibility with investors and customers.
Private Limited Company Registration
Registering a Private Limited Company involves a detailed process governed by the Companies Act, 2013.
Step-by-Step Guide to Registration
Document Requirements:
PAN and Aadhaar of all directors.
Proof of address for both directors and the company (rental agreement, utility bills, etc.).
Digital Signature Certificate (DSC) for directors.
Name Reservation:
Apply to the Ministry of Corporate Affairs to reserve a unique company name. This is done using the SPICe+ (Simplified Proforma for Incorporating Companies Electronically) Part A.
Drafting MOA and AOA:
Memorandum of Association (MOA): Outlines the company’s objectives and scope of operations.
Articles of Association (AOA): Governs the company’s internal management.
Filing Incorporation Application:
Submit the SPICe+ Part B form along with MOA and AOA to the ROC.
Articles of Association (AOA): Governs the company’s internal management.
Certificate of Incorporation:
Upon approval, the ROC issues a Certificate of Incorporation, officially recognising the company.
The process usually takes 10–15 working days, provided all documents are in order.
* Effective 15th July, 2024, DSC charges have increased by ₹ 1,000 per DSC, by the Government. This will be chargeable over and above the given prices.
Key Features of Private Limited Company
Here are some Private limited company features:
- Ownership Structure: Owned by shareholders, managed by directors (who can also be shareholders).
- Liability of Shareholders: Limited to the amount of unpaid shares they hold.
- Capital Requirements: There is no minimum capital requirement; businesses can start with as little as ₹1 lakh authorised capital.
- Perpetual Succession: The company exists independently of its owners' or directors' status.
- Limited Liability: Shareholders’ liability is restricted to the amount invested.
- Ease of Fundraising: Can raise capital from angel investors, venture capitalists, or private equity.
- Tax Implications: Subject to corporate tax rates, including additional surcharges and cess, based on annual income.
What is a One Person Company?
Introduced under the Companies Act of 2013, a One Person Company (OPC) is a simplified corporate structure designed for solo entrepreneurs.
As the name suggests, it allows a single individual to own and operate a business while enjoying the benefits of limited liability and corporate status. OPCs are particularly suited for small businesses, consultants, and freelancers who want to step up from a sole proprietorship and gain a formal business identity.
The OPC structure is a bridge between sole proprietorship and private limited companies. It combines the flexibility of running a solo business with the legal and financial protections of a company, making it a popular choice for first-time entrepreneurs.
One Person Company Registration
The process is designed to be straightforward and entrepreneur-friendly, ensuring that individuals can easily transition from a sole proprietorship or informal business setup to a legally recognised company.
Step-by-Step Guide to Registration
Document Requirements:
PAN, Aadhaar, and proof of address of the sole shareholder/director.
Nominee details.
Digital Signature Certificate (DSC).
Name Reservation:
Reserve a unique name for the OPC via the MCA portal through SPICe+ Part A.
Filing Application:
Submit the incorporation form, i.e. SPICe+ Part B with MOA and AOA, to the ROC.
Certificate of Incorporation:
Receive the Certificate of Incorporation after approval.
* Effective 15th July, 2024, DSC charges have increased by ₹ 1,000 per DSC, by the Government. This will be chargeable over and above the given prices.
Key Features of OPC
Here are some One person company features:
- Ownership Structure: The ownership is held by one individual, with the provision to nominate another person as a successor in case of the owner’s demise.
- Liability of the Shareholder: The shareholder’s liability is limited to the unpaid value of their subscribed capital.
- Capital Requirements: There is no minimum capital requirement, making it easier for individuals to start with minimal resources.
- Ease of Formation: Streamlined setup and management processes.
- Lower Compliance Costs: Fewer filings and regulatory requirements.
- Limited Liability: Protects personal assets.
- Tax Implications: OPCs are subject to the same corporate tax rates as Private Limited Companies. However, they enjoy lower compliance costs and simplified tax filings.
Similarities between OPC and Private Limited Company
- Limited Liability Protection: Both structures ensure the owner’s liability is restricted to their investment.
- Legal Entity: Both are considered separate legal entities distinct from their owners.
- Compliance with ROC: Both require periodic filings with the Registrar of Companies.
- Taxation: Both are subject to corporate tax rates.
Register Your Company with Razorpay Rize
Razorpay Rize provides a comprehensive suite of offerings that simplifies the complexities of business registration- exclusively designed to cater to the requirements of both startups and established businesses.
Discover a hassle-free and entirely online business registration process with robust support and seamless document collection. Unlock the perks of being an incorporated company with Razorpay Rize!
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
* Effective 15th July, 2024, DSC charges have increased by ₹ 1,000 per DSC, by the Government. This will be chargeable over and above the given prices.
Our package includes:
- Company Name Registration
- 2 Digital Signature Certificates (DSCs)
- 2 Directors’ Identification Numbers (DINs)
- Certificate of Incorporation(COI)
- MoA & AoA [Applicable for Private Limited Companies and OPCs]
- LLP Agreement [Applicable for LLPs]
- Company PAN & TAN
*Prices and documents can differ based on the company type.
Which company type to register your business with?
Before commencing the registration process for either a OPC or a Private Limited company, it is essential to carefully assess the following factors.
1. Consider the Nature and Size of Your Business
- Evaluate the nature and size of your business. If your operations are on a smaller scale and you are a single operator, opting for OPC registration may be advantageous. Conversely, for larger businesses with substantial employee numbers and capital needs, registering as a Private Limited Company offers greater flexibility in capital raising.
2. Fundraising Requirements
- Assess your fundraising requirements. If your objective is to raise funds through equity, opting for a company structure is essential. However, if you can fundraise through debt options, the OPC structure may work.
3. Compliance Requirements
- Generally, OPCs have fewer compliance requirements compared to Private Limited Companies, making them more suitable for small businesses. Nonetheless, ensure that you are aware of several post-incorporation compliances that come along with each business structure and choose accordingly.
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Answer our questions and discover the ideal business structure for you.
Explore side-by-side comparisons of popular company types with prices to help you give a clear picture of the nuances involved with different legal structures.
Conclusion
Choosing between a Private Limited Company and a One Person Company depends on your business needs.
If you’re a solo entrepreneur who clearly focuses on managing things independently and prefers minimal compliance requirements, an OPC can be a great option. It’s a straightforward structure, perfect for freelancers, consultants, or small-scale businesses who want the advantages of limited liability while keeping things simple.
However, if you’re building a business with big dreams, such as attracting investors, scaling operations, or entering international markets, a Private Limited Company might be a better fit.
When making this decision, it’s essential to consider not only where your business is today but also where you want it to be in the future. Think about:
- Your business goals: Are you aiming for steady income or scaling into new markets?
- Your growth plans: Will you need external funding or partners?
- Your resources and bandwidth: Can you manage the compliance requirements of a Private Limited Company, or is a simpler structure better suited for now?
Explore side-by-side comparisons of popular company types with prices to help you give a clear picture of the nuances involved with different legal structures.
Frequently Asked Questions
What are the documents required for Private Limited Company Registration?
To register a Private Limited Company (PVT Ltd) in India, the following documents are typically required:
For Directors and Shareholders:
PAN Card: Mandatory for all Indian citizens involved in the company.
Identity Proof: Passport, Aadhaar card, voter ID, or driving license.
Address Proof: Bank statement, electricity bill, or any government-issued document not older than two months.
For Registered Office Address:
Rent/Lease Agreement: If the office is rented.
NOC (No Objection Certificate): From the property owner.
Utility Bills: Electricity or water bill (not older than two months).
Photographs:
Passport-sized photos of directors and shareholders.
Digital Signature Certificate (DSC):
Required for all directors to file forms online.
Can an Indian citizen living abroad from a One Person Company (OPC)?
Yes, an Indian citizen living abroad can form a One Person Company (OPC) in India, but with certain conditions:
The person must be an Indian citizen and a Resident of India, as per the Companies Act, 2013.
Resident of India means the individual has stayed in India for at least 120 days in the preceding financial year.
If an Indian citizen living abroad doesn’t meet this residency requirement, they cannot form an OPC but may explore alternative structures like a Private Limited Company, which allows for non-resident directors and shareholders.
Is Foreign Direct Investment (FDI) allowed for a One Person Company?
No, Foreign Direct Investment (FDI) is not allowed in a One Person Company (OPC) under the automatic route. OPCs are restricted to Indian citizens and residents, and allowing FDI would contradict this principle.
For businesses looking to attract foreign investment, registering as a Private Limited Company is the better option.
What is the process of converting a Private Limited Company to an OPC?
Currently, the Companies Act of 2013 does not allow the conversion of a Private Limited Company into a One Person Company (OPC). However, if the business scale reduces and fewer directors/shareholders are required, the owners may dissolve the Private Limited Company and incorporate an OPC.
When to convert an OPC to a Private Limited Company?
As per the Companies Act of 2013, a One Person Company (OPC) must be converted into a Private Limited Company (PVT Ltd) in the following scenarios:
When the Paid-Up Capital Exceeds ₹50 Lakhs:
If the capital crosses ₹50 lakhs, the OPC must be converted into a PVT Ltd company within six months.
When the Annual Turnover Exceeds ₹2 Crores:
If the turnover of the OPC exceeds ₹2 crores in the previous three consecutive financial years, conversion is mandatory.
Steps for Conversion:
Pass a special resolution in the OPC for conversion.
File necessary forms with the Ministry of Corporate Affairs (MCA), such as INC-5 and INC-6.
Update the Memorandum of Association (MoA) and Articles of Association (AoA) to align with the requirements of a Private Limited Company.
Voluntary Conversion:
If the OPC owner wishes to scale the business, raise funds, or bring in multiple shareholders, they can also opt for voluntary conversion without waiting for mandatory thresholds.
