Start a business and the most confusing question that pops up in mind- whether I should incorporate a private limited company, an LLP (Limited Liability Partnership) or an OPC (One Person Company). Isn’t it? No worries! This article will clear your doubts and un-clutter your mind so that you can confidently go ahead and start taking action. Basically, suitability of all the three forms of entities depends upon your needs and your situation. Let’s have a look from various points of view:
Minimum requirement: While minimum two persons are needed for a private limited company and an LLP, OPC comes to the rescue of those who want to start a business alone. LLP requires minimum 2 designated partners, private limited company requires minimum 2 directors and OPC requires minimum 1 director and 1 nominee for shareholder. Not to forget, directors and shareholders can be the same person.
Formation and compliance cost: Out of these three, formation and compliance cost is highest for companies and relatively lesser in OPC and least for LLP out of these three.
Fund-raising options: If you have a plan to raise funds, then close your eyes and start a private limited company. Investors invest against share in equity, which can be possible only in the case of a company. But keep your eyes wide open to all the all the compliances that you need to follow regularly in that case.
Board Meetings: If you opt for a private limited company, it is mandatory for you to hold the first board meeting within 30 days of incorporation. Also, you need to hold minimum 4 board meetings in a year. There is no such requirement to hold a board meeting for an OPC with one director or an LLP. However, for an OPC with more than 1 director, first board meeting to be conducted within 30 days from the date of incorporation and at least one meeting in each half of the calendar year.
Annual General Meeting (AGM): Mandatory only for private limited companies, while no such requirement for OPC and LLP.
Statutory Audit: Mandatory for every private limited company and OPC while for the LLP, mandatory only when turnover is more than Rs 40 Lakh or contribution is more than Rs 25 lakh.
Above points in simplified and tabular form:
|Basis||Private Limited Company||One Person Company||LLP|
|Minimum Requirement||2 shareholders
(Shareholders can be the directors)
1 nominee of shareholder
(Shareholder can be the director)
|Formation and compliance cost||Highest||Relatively lower||Relatively lower|
|Fund-raising options||Best for fund raising||Chances are low||Chances are low|
|Board Meetings||First meeting within 30 days from the date of incorporation
Minimum 4 boards meetings in a calendar year.
|Board meeting not needed in case of 1 director.
In case of more than 1 director, first meeting to be conducted within 30 days from the incorporation date.
At least 1 meeting to be conducted in each half of the calendar year.
|Annual General Meetings||Mandatory||Not Mandatory||Not Mandatory|
If you just want to do business with no plan of raising funds and want to incur minimal compliance cost, LLP is the best option for you. Compliance costs are there, but are lesser than that in a company. No audit is needed for an LLP, until turnover crosses Rs 40 lakh or contribution is Rs 25 lakh. So, if you project that turnover will exceed Rs 40 lakh or contribution is more than Rs 25 lakh, then forming a company is a better option.
But, if you have a plan to raise funding in the future, then forming a private limited company is the best option. But, with pros, comes the cons! You need to bear higher compliance cost and an extra headache of complying all the laws as non-compliance can lead to penalties and interests or even imprisonment in many cases.
In the middle of these two, lies One Person Company. Compliances are lesser than a private limited company, but more than an LLP. Funding chances, still not at par with a private limited company. Also, OPC will be there only and only if paid up share capital does not exceed Rs 50 lakh or turnover does not exceed Rs 2 crore. Otherwise, it will be mandatorily converted into a private limited company.
Did Moneyम्जी forget to tell you the mandatory words you need to use after the names? Private Limited, LLP and OPC to be used in the respective cases. Which one do you want? XYZ Private Limited, XYZ LLP or XYZ OPC Private Limited? Choose carefully!