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Difference between One Person Company and Private Limited Company

Keep reading the article further to understand the difference between One Person Company and Private Limited as well as similarities between One Person Company and Private Limited.

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difference between one person company and private limited

Overview: Difference between One Person Company and Private Limited Company

The One Person Company and Private Limited Partnership are two fundamentally distinct company entities, they are both controlled by the Companies Act of 2013. The One Person Company (OPC) idea was established to encourage single and motivated entrepreneurs to develop their businesses. However, to form a Private Limited Company, you must have at least two members.

Keep reading the article further to understand the difference between One Person Company and Private Limited as well as similarities between One Person Company and Private Limited.

One Person Company

Section 2 (62) of the Companies Act, 2013 states “A one person company is one in which just one individual is considered as a member.” 

These enterprises enjoy all of the benefits of a privately held corporation, such as access to finances, loans, limited responsibilities, government recourse, and so on. Members of a firm’s Memorandum of Association or shareholders are the firm’s stakeholders.

Private Limited Company

private limited company is a distinct legal body from its investors and management.  A privately operated firm must have at least two investors. A private limited corporation can have a minimum of two owners and a total limit of 200 stockholders. Shareholders might be individuals or corporations, particularly international firms. 

Private Limited Company can be classified into two types, they are as follows:

A private limited company has limited protection, which means that the corporation’s shareholders’ responsibility is constrained. In the event of the corporation’s demise or closure, the shareholders’ financial wealth is not a danger.

Similarities between One Person Company and Private Limited

  • Legality: Both one-person companies and private limited companies have different legal bodies for their members, which means that the investors’ financial wealth is not accountable for any lost revenue.
  • The registering procedure: The Ministry of Corporate Affairs requires both one-person companies and private limited companies to be established.
  • Limitation of Liability: In the event of a one-person company, the sole proprietor is liable, and in the case of a private limited company, all investors are liable up to the price of the shares.
  • Assess: Regardless of the shareholding or revenue of the firm, both companies are required to engage an accountant within a month of formation for the auditing process.
  • Taxability: Since the notion of a one-person company is not recognized by the Income Tax Assessment Act, the revenue of both companies is paid at the same rate under the Act’s rules. Tax advantages are available to both lines of business formations. Income would be taxable at a 25% rate.
  • Legal Entity in Its own right: Each of them is a legal entity in its own right. That implies OPC, or Private Limited Company is considered differently by the legislation.
  • Law that governs: The Companies Act of 2013 governs both one-person companies and private limited companies.

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Difference between One Person Company and Private Limited

However, there are other variations between a Person Company and a private limited company, the most significant distinction is the number of individuals necessary to governor establish a business. Other differences between the two firms include the following:

  • Fundraising: Capital raising in an OPC is challenging due to the fact that there is only one owner of the firm. But a Private Limited Company can raise capital through stock in a range of methods, involving buyout, rights issuesVenture Funding, Angel financing, and so on.
  • Entrepreneurial pursuits: A corporation that has been designated as an OPC is not able to engage in certain operations. These activities include securities investing, non-banking financial activity, and so on. A private limited corporation, on the other hand, may participate in such operations with the previous consent of the relevant supervisory agency.
  • For the firm’s establishment, the following members are expected: A single individual who serves as both a board and a shareholder is the entire thing that is necessary to run a one-person corporation. For the purpose of establishing an OPC, however, the person must designate a nominee. In the event that the director is unable to perform his duties, the nominated director is responsible for administering the firm. A private limited business requires the participation of two people.
  • Meeting of the Board of Directors: One board meeting must be conducted in each quarter of the calendar year in a Person Company, with a 3 months interval between conferences. There is no need for a meeting of the board if there is only one director. In the case of a Private Limited Company, one board meeting is required each quarter of the financial year, with a maximum delay of 120 days between conferences.
  • Annual Reports: Income reports and annual returns must be lodged with the registrant in the case of a one-person company while accounting records and annual returns must be filed with the ROC in the case of a private limited company.
  • Transformation: After two years of operation or when its revenue surpasses the cut-off point, a one-person company can be transformed into a private limited company.
  • Shares’ transferability: The only way to distribute shares in a one-person company is to change the Memorandum and Articles of association. Interests in a Private Limited Company can be adjusted accordingly.
  • Annual Reports: Income reports and annual returns must be lodged with the registrant in the case of a one-person company while accounting records and annual returns must be filed with the ROC in the case of a private limited company.
  • Transformation: After two years of operation or when its revenue surpasses the cut-off point, a one-person company can be transformed into a private limited company.
  • Shares’ transferability: The only way to distribute shares in a one-person company is to change the Memorandum and Articles of association. Interests in a Private Limited Company can be adjusted accordingly.

Comparison Table for One Person Company and Private Limited

Basis of Comparison One Person Company Private Limited
Number of directors required A minimum of 1 and a maximum limit of 15 A minimum of 2 and a maximum limit of 15
Board Meeting In each quarter of the year, there will be one meeting. At least 3 months must pass between the two encounters. Each quarter of the year, there will be one meeting. A total of 120 days might pass between the meetings held.
Annual Returns Annual reports and income reports must be submitted to the registrant. Annual reports and statements must be submitted to the RoC.
The number of members required Minimum and a maximum of 1 Minimum 2 and a maximum of 200
Audit Compulsory Compulsory
Liability Limited Limited

Reasons Why You Should Choose Private Limited Company over One Person Company

There are no prerequisites for an applicant for a one-person business:

Despite the fact that the purpose of a Person Company is to allow an individual to open a company without the requirement for a partner, procedurally, a qualified nominee must be chosen. This causes problems since the nominee has the option to withdraw their permission, and the chances of doing so are relatively high in today’s competitive environment. As a result, it becomes more difficult for the individual to identify a replacement candidate, acquire his or her approval, revise the memorandum, and notify the registrar.

Boost your brand’s reputation:

Consumers, suppliers, and financiers now search for trust in the companies they do commerce with. When reputation is lacking, it is difficult to gain reputable clients or borrow money from suppliers. The information pertaining to a private limited corporation is made available in a readily public database. This function makes it simple to confirm the identity of a company, enhancing its trustworthiness.

Pursue Several Potentials:

As the firm grows, forming a private limited company will enable the entrepreneur to explore different options. As a result, the company will be able to diversify into other markets and seek new opportunities.

Investigate the Global Market:

In order to become a worldwide firm, expenditures and relationships with international industries are critical. Foreign investors of up to 100% are permitted in privately owned firms. As a result, incorporating a Private Limited Company may be advantageous.

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Conclusion

People make the wrong option because of the misconception between a Private Limited Company and a Person Company, resulting in the loss. The Company’s Act has been amended to provide a slew of practical benefits to private businesses. Although there are many similarities between a one-person company and a private limited company, the benefits of a private limited company include ease of establishment and transferability. Because there are no specific tax provisions for Person Companies, the taxing procedure is the same for both companies. In many ways, a Private Limited Company has an advantage over an OPC.

People can choose a Private Limited Firm because they will need to convert their one-person company to a Private Limited Company at some point. We hope that after reading this post, all of your questions about Private Limited Company and One Person Company have been answered; nevertheless, if you still have questions, please feel free to contact us.

FAQ’s

There can be no initial capital units or ESOPs to encourage staff because an OPC can only have one stakeholder. Only when OPC becomes a business or government limited business may ESOPs be created.

In a one-person firm, a candidate is a person chosen by the lone promotion to take his or her position in the event of the sole promotion’s death or accidental injury. A one-person company’s nominee must be an Indian citizen and an inhabitant of India above the age of 18.

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