Setting up a business in India involves various considerations and options. Two such options are the One Person Company (OPC) and the Private Limited Company (PLC). They both have their own merits and limitations. Here in this brief blog, we will help you understand the differences and similarities between these two types of entities, focusing on various parameters such as
- Registration Cost Of Each,
- Required Number of People For Incorporation,
- Board of Directors,
- Shareholding,
- NRI or Foreign Nationals,
- Compliance Related Requirements,
- Post Incorporation scenarios.
To make it easy for you, please consider that below we have used OPC for One Person Company and PLC for Private Limited Company, and should be read accordingly. Let’s understand now OPC vs PLC.
OPC vs PLC: Cost of Registration
When it comes to setting up an OPC, the cost of registration is lower than that of a PLC. The expenses for an OPC include government fees, professional fees, and stamp duties. As an OPC only requires one individual, the overall expenses tend to be significantly lower. An OPC registration can usually be completed for approximately INR 7,000-12,000. This amount can vary from company to company
On the other hand, a PLC’s registration cost is higher because it requires at least two individuals. Additional costs include professional fees and stamp duties, and the total expenditure can be upwards of INR 16,000- 17,000. (This figure can vary from company to company)
Number of Persons Required to Incorporate
OPCs are a unique entity that only requires one person to incorporate. As the name suggests, a single individual can form an OPC, who will be the director and shareholder. This allows for complete control over the operations and decision-making processes of the company.
Conversely, a PLC requires at least two individuals to incorporate. The minimum number of shareholders is two and can go up to a maximum of 200. This necessitates shared control, which can be beneficial for companies that require a multitude of skills and expertise for effective management.
OPC vs PLC: Board of Directors
In an OPC, there is typically only one director. However, you can have up to 15 directors without the need to hold a general meeting. This ensures that decision-making is swift and efficient, making it an excellent choice for entrepreneurs who prefer autonomy.
PLCs, in contrast, require a minimum of two directors. This can provide a balanced perspective during decision-making. But bear in mind that it may lead to slower processes due to the need for consensus, especially in larger boards.
Shareholding
OPCs, by design, only have one shareholder who holds 100% of the company shares. The solitary nature of the ownership provides a clear path for decision-making and control.
In PLCs, shares are divided among at least two shareholders. While this distribution can enable more significant capital contribution, it does dilute control. Decision-making can become complicated, especially when there are more shareholders involved.
NRI or Foreign Nationals
An OPC can only be incorporated by Indian residents. NRIs or foreign nationals are not allowed to incorporate or hold shares in an OPC. This makes OPCs less flexible for international business prospects.
On the contrary, a PLC can be incorporated by NRIs and foreign nationals, provided that there are at least two subscribers to the memorandum. This gives PLCs an advantage for those looking to extend their operations globally.
Compliance Requirements
In OPC vs PLC, OPCs have relatively fewer compliance requirements. There is no requirement for them to hold annual general meetings and have lesser filing requirements. This can save time and resources, making them perfect for small businesses.
However, PLCs are bound by several statutory compliance requirements, such as annual filings, annual general meetings, and periodic audits. These factors can increase operational complexity but ensure higher transparency and governance standards.
OPC vs PLC: Limitations and Post Incorporation
Post incorporation, an OPC has the limitation of a threshold on paid-up share capital and average annual turnover. Once these cross INR 50 lakhs and INR 2 crores, the OPC must be converted into a PLC. This could potentially disrupt the operations of a growing OPC.
PLCs, on the other hand, don’t have such limitations. They offer scalability, and hence, can accommodate growth much more easily. However, the cost of compliance can increase with the size of the business.
To conclude OPC vs PLC we can say that both OPCs and PLCs offer distinct advantages. The choice between the two should ideally be based on factors such as the scale of operations, growth prospects, capital requirements, and the preferred level of control over the business. We always advise businesses to consult with a chartered accountant to understand which option would best suit their business objectives.
