Private Limited Company vs LLP vs OPC

Private Limited Company

Private Limited Company is the most common for doing business in India because of its limited liability and corporate stature. Besides this, there are numerous advantages of incorporating a Private Limited Company such as a Separate Legal entity, ease in transferring the ownership (shares), more credibility in the eyes of society, diffusion of risk, ease in raising capital, etc.

Features of Private Limited Company:

1. 1. Separate Legal Existence: A company is a distinct legal entity independent of its members. Shareholders are not the owners of the company’s property. A company can own property, make contracts, and file suits in its name.
   2. Easy to setup: Nowadays, it has become very easy to set up a private company as the process is completely online.
   3. Greater Legal Compliance: Private Limited Companies are subjected to greater compliance mandates. These include quarterly board meetings, Annual General Meeting, Statutory Audit, Minutes, and Registers maintenance. 
   4. Minimum Director and Shareholder– To register a private limited, there should be a minimum of two directors and two shareholders.
   5. Capital Raising and Funding: Venture Capitalists and Seed Investors prefer funding Private Limited companies. 

Advantages of Private Limited Company:

1. 1. Better borrowing capacity: A Private Company enjoys a better borrowing capacity. It can issue debentures or bonds and can raise loans from the banks. They enjoy greater credibility in the market.
   2. Limited Liability of members: Limit on member’s liability is both the feature and advantage. This means that the liability of members is only limited to the amount unpaid on the shares held by them. They cannot be asked to pay anything beyond that. Unlike the case in partnership or proprietorship, wherein the debts of the business could be settled form the personal properties of the owner.
   3. Ease in transferring shares: The ownership of the company can be easily transferred by transferring the shares.
   4. Funding: Private Companies have easy access to the funds which is not the case with LLP or OPC.

Disadvantages of Private Limited Company:

1. 1. Restriction on the number of members: A Private Company cannot have more than 200 members.
   2. Greater Compliance: Private Limited Companies are subjected to greater compliance mandates. These include quarterly board meetings, Annual General Meeting, Statutory Audit, Minutes, and Registers maintenance.
   3. Division of Ownership: A Private Company needs a minimum of 2 Directors and 2 Shareholders. So, the sole person cannot start a Private Limited Company.

Private Limited Company is Ideal For:

1. 1. This form of business is ideal if you are looking for external sources of funding from Venture Capitalists and Seed Investors.
   2. For gaining the recognition as a Startup, it is prerequisite that the form of business should be either a Private Limited Company or an LLP

Limited Liability Partnership

LLP or Limited Liability Partnership is a unique blend of Partnership and Company. It has all the benefits that a company has and all the flexibility inherent to Partnership. It is governed by the Limited Liability Partnership Act, 2008. 

A Limited Liability Partnership limits the liability of its partner except in case of unauthorized acts, fraud, and negligence. An obligation of an LLP is solely its obligation. 

Features of LLP:

1. 1. Separate Legal Entity: LLP is a body incorporate and a legal entity separate from its partners having perpetual succession, can own assets in its name, sue and be sued.
   2. Flexibility: The partners have full authority over the business affairs, unlike company shareholders which give the partners flexibility in operation.
   3. Minimum and Maximum Partners: There should be minimum 2 partners in the LLP but there is no such limit on the maximum number.
   4. Easy to form: As the process is completely online, it is simpler to register LLP
   5. No Audit Requirement: Audit of accounts is required only when the contribution exceeds Rs. 25 lakh or the annual turnover exceeds Rs. 40 lakh.
   6. Very less compliance: The annual compliance of LLP is relatively less in comparison to Company or OPC.

Advantages of LLP:

1. 1. Cost-Effective: The registration process of LLP is simple and cost-effective. 
   2. Less Compliance Burden: Unlike companies, where various compliance deadlines have to meet, LLP’s have lesser compliance.
   3. Flexibility: The partners have full authority over the business affairs, unlike company shareholders which give the partners flexibility in operation.

Disadvantages of LLP:

1. 1. Minimum Number of Partners: A Limited Liability Partnership must have a minimum of 2 Partners. So if one partner decides to leave the partnership, the LLP may dissolve.
   2. Non Compliance leads to penalties: Although LLP is not subjected to much compliance mandates, the default in filing Annual Returns can result in penalties. 
   3. No Funding: LLP’s cannot raise funding from Angel Investors and Venture Capitalists.

LLP is Ideal for:

1. 1. Suitable for a business that does not require external funding from investors
   2. Closely held businesses without much interference from outsiders
   3. Businesses with small turnover (mostly service-oriented)

One Person Company (OPC)

OPC or One Person Company as the name suggests is a company with only one member. An OPC can avail numerous benefits under the MSME Act, a lesser rate of interest on loans, etc. OPC is a hybrid form of sole proprietorship and company. It is a very popular form of doing business in India because of its flexibility and limited liability.

Features of OPC:

1. 1. Lower Registration Cost: The cost of registering an OPC is relatively cheap as compared to the Private Company.
   2. One Man Army: As the name suggests, OPC is a company with only one person as to its member. This is suitable for all the businesses where the owner wants full control.
   3. Absence of the Board of Directors: The Company is owned and managed by a single person, the concept of the Board of Directors is non-existent in these entities. 
   4. Flexibility in operation: As there is no interference from outside involved, no partner no other shareholders, OPC is flexible in operation. Sole member can take all decisions of the company.
   5. Relatively less compliance: Compliance is less in comparison to Company
   6. Mandatory Audit Requirement: OPC’s are mandatorily required to get their books audited as per the Companies Act.
   7. Compulsorily Conversion: The OPC’s are mandatorily required to get themselves converted into Private Limited Companies when their revenues cross Rs. 2 Crores or their paid-up share capital is exceeding Rs. 50 lakh. 

Advantages of OPC:

1. 1. More Flexibility: As there is no interference from outside involved, no partner no other shareholders, OPC is flexible in operation. Sole member can take all decisions of the company.
   2. Less Compliance compared to Private Limited Companies.
   3. Full Control: The sole member has full authority and control over the affairs of the company as no interference from outside is involved.

Disadvantages OPC:

1. 1. Suitable only for small businesses: OPC is suitable for only small businesses. They are mandatorily required to get themselves converted into Private Companies if their revenues cross Rs. 2 Crores or their paid-up share capital is exceeding Rs. 50 lakh.
   2. Cannot raise Funding: OPC cannot raise funds.

OPC is Ideal for:

1. 1. Suitable for business which does not require an external source of funding
   2. Owners looking for limited liability with 100% contribution