Private Limited vs. LLP vs. OPC – Which to Setup

Introduction

Starting a business is an exciting journey, but one of the first critical decisions every entrepreneur faces is choosing the right business structure. This choice isn’t merely administrative; it lays the foundation for how the business will operate, grow, and be perceived. The corporate structure being selected can impact the business and founders’ liability, taxation, compliance requirements, and even the ability to raise funds.

In India, the three most popular business structures are Private Limited Companies (Pvt. Ltd.), Limited Liability Partnerships (LLP), and One Person Companies (OPC). Each has its unique advantages and limitations, catering to different types of entrepreneurs and business goals.

• A Private Limited Company offers a separate legal entity capable of scaling, credibility with investors, and with limited liability for shareholders.
• An LLP combines the flexibility of a partnership with the benefits of limited liability for the partners.
• An OPC is a perfect fit for solo entrepreneurs, offering the advantages of limited liability and a separate legal entity.

Choosing an ill-suited structure can lead to unnecessary financial, legal, and operational complications. Conversely, choosing the right one can help a business thrive from the outset. A significant contributor to business struggles is rooted in a lack of understanding of the distinction between Pvt. Ltd., LLP and OPC structures. In this blog, we breakdown the key differences between these structures and facilitate entrepreneurs to make informed decisions that align with the business vision. 

Understanding the Basics 

What is a Private Limited Company?

A Private Limited Company (Pvt Ltd) is one of the most popular business structures in India, governed primarily by the Companies Act, 2013 and regulated by the Ministry of Corporate Affairs (MCA). It is a preferred choice for startups and growth-oriented businesses due to its structured ownership model, limited liability protection, and credibility among investors. Additionally, Private Limited startups are given certain concessions and favourable benefits under the regulatory framework, as part of an ongoing government initiative to foster growth, development and innovation – particularly in underrepresented sectors of the economy.

Key Features of a Private Limited Company

1. Liability: Pvt Ltd’s formed can either be limited by shares or by guarantee. Consequently shareholders’ personal assets are protected, as their liability is limited to their shareholding or the extent of their contribution to the assets of the company. PLCs can also be an unlimited company, which can attach personal assets of shareholders.

2. Separate Legal Entity: The company is a distinct legal entity, capable of owning assets, entering contracts, and conducting business under its name. This distinction is critical where any penalties for contravention of the law are levied, as both the Private Limited Company and the officers in charge face penal action for default. 

3. Ownership: Owned by shareholders with a statutory minimum requirement of two members. Ownership can be transferred through the sale of shares.

4. Management: Managed by a board of directors, with operational decisions often requiring shareholder approval.

5. Credibility: Given the robust regulatory framework governing their operation, Pvt Limiteds are highly regarded by investors and financial institutions, making them suitable for fundraising.

Registration Process for a Private Limited Company

The MCA has simplified company incorporation through the SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) platform. A non-exhaustive list of certain mandatory compliances for incorporation of a Private Limited Company are:

1. Obtain DSC: Secure a Digital Signature Certificate for directors.
2. Name Approval: Reserve a company name using SPICe+ Part A.
3. Submit Incorporation Forms: Complete Part B of SPICe+ to file for incorporation, including Director Identification Number (DIN), PAN, and TAN applications. This will also include the memorandum and articles of association of the company.
4. Bank Account Setup: Open a current account in the company’s name for business transactions.
5. Commencement of Business: File Form INC-20A within 180 days of incorporation to begin operations officially.

Upon successful approval, the Registrar of Companies issues a Certificate of Incorporation (COI) with the company’s details.

What is an LLP?

A Limited Liability Partnership (LLP) blends the operational flexibility of a partnership with the limited liability advantages of a company. It is governed by the Limited Liability Partnership Act, 2008, making it a preferred structure for professional services, small businesses, and startups seeking simplicity and cost efficiency.

Key Features of an LLP

1. Limited Liability: Partners’ liabilities are restricted to their capital contributions, ensuring personal asset protection.

2. Separate Legal Entity: The LLP is treated as a body corporate, and is a legal entity separate from the partners. The LLP can own assets, enter contracts, and sue or be sued in its own name.

3. Ownership: Owned by partners (minimum two partners required), with ownership terms and extent of contribution to capital being defined in the LLP agreement executed between them. 

4. Management: Managed collaboratively, as detailed in the LLP agreement, with flexibility in decision-making. Every LLP shall have a minimum of 2 designated partners who are responsible for ensuring compliance with the applicable regulatory framework.

5. Compliance: Requires annual return filings and maintenance of financial records, with lower compliance requirements than companies.

Registration Process for an LLP

The registration and governance of LLPs is also handled by the MCA, with a non-exhaustive list of certain mandatory compliances for incorporation of an LLP as follows:

1. Obtain DSC: Secure a Digital Signature Certificate for designated partners.
2. Name Reservation: Submit the LLP-RUN form to reserve a unique name.
3. Incorporation Filing: File the FiLLiP form (Form for Incorporation of LLP) with required documents, including the Subscriber Sheet and partners’ consent.
4. LLP Agreement Filing: Draft and file the LLP Agreement using Form 3 within 30 days of incorporation.

Upon approval, the Registrar of Companies issues a Certificate of Incorporation for the LLP.

What is an OPC?

A One Person Company (OPC) is a revolutionary business structure introduced under the Companies Act, 2013, catering to individual entrepreneurs. It combines the benefits of sole proprietorship and private limited companies, offering limited liability and a separate legal entity for single-owner businesses.

Key Features of an OPC

1. Single Ownership: Managed and owned by one individual, with a nominee appointed to take over in case of incapacity.
2. Limited Liability: The owner’s personal assets are protected from business liabilities.
3. Separate Legal Entity: An OPC enjoys legal distinction from its owner, enabling it to own property and enter contracts independently.
4. Simplified Compliance: OPCs face fewer compliance requirements compared to Private Limited Companies, such as exemption from mandatory board meetings.

Registration Process for an OPC

The registration process is similar to that of a Private Limited and is also governed by the MCA, facilitated the SPICe+ platform:

1. Obtain DSC: Get a Digital Signature Certificate for the sole director.
2. Name Approval: Apply for name reservation via SPICe+ Part A.
3. Draft MoA and AoA: Draft the Memorandum of Association (MoA) and Articles of Association (AoA).
4. Submit Incorporation Forms: Complete Part B of SPICe+ and submit required documents, including nominee consent.
5. Commencement of Business: File Form INC-20A within 180 days of incorporation to officially start operations.

After approval, the MCA issues a Certificate of Incorporation, marking the official establishment of the OPC.

Eligibility Criteria for Setting Up Pvt Ltd, LLP, and OPC

Private Limited Company (Pvt Ltd)

• A Private Limited Company can be established by at least two individuals and is suitable for those seeking liability protection and structured governance. Importantly, it requires at least two directors, and the shareholders and directors must be Indian citizens or residents.
• Key Requirement: At least one director must be a resident of India, as per the Companies Act, 2013.

Limited Liability Partnership (LLP)

• LLPs can be registered by at least two individuals or entities, with no upper limit on the number of partners. There is no requirement for a resident director, making it more flexible for foreign investors or NRIs.
• Key Benefit: The liability of each partner is limited to their contribution to the LLP, ensuring financial security without personal exposure.

One Person Company (OPC)

• An OPC can be registered by a single person, ideal for small businesses that want the benefit of limited liability but with fewer formalities compared to a Pvt Ltd.
• Eligibility Criteria: The individual must be a citizen and resident of India. This structure is most beneficial for solo entrepreneurs.

Key Differences Between Private Limited Company, LLP, and OPC

When choosing a business structure, understanding the distinctions between Private Limited Companies (Pvt. Ltd.), Limited Liability Partnerships (LLP), and One Person Companies (OPC) is crucial. Below is a comparison of these structures based on key parameters:

1. Governing Laws and Regulatory Authority

• Private Limited: Governed primarily by the Companies Act, 2013 and rules formulated thereunder.
• LLP: Operates under the Limited Liability Partnership Act, 2008 and rules formulated thereunder.
• OPC: Governed by the Companies Act, 2013 and rules formulated thereunder.
• Each of the above corporate structures are regulated by the Ministry of Corporate Affairs (MCA).

2. Minimum Members and Management

• Private Limited: Requires at least two shareholders and two directors, who can be the same individuals. At least one director must be a resident Indian.
• LLP: Needs a minimum of two designated partners, one of whom must be an Indian resident.
• OPC: Involves a single shareholder and director, with a mandatory nominee.

3. Maximum Members and Directors

• Private Limited: Allows up to 200 shareholders and 15 directors.
• LLP: Has no cap on the number of partners but limits partners with managerial authority to the number specified in the LLP agreement.
• OPC: Limited to one shareholder and a maximum of 15 directors.

4. Liability

• Private Limited: Shareholders’ liability is limited to their share capital.
• LLP: Partners’ liability is confined to their contribution in the LLP and does not extend to acts of other partners.
• OPC: The director’s liability is restricted to the extent of the paid-up share capital.

5. Compliance Requirements

• Private Limited: High compliance needs, including statutory audits, board meetings, maintenance of minutes, and annual filings with the Registrar of Companies (RoC).
• LLP: Moderate compliance; audits are required only if turnover exceeds ₹40 lakhs or capital contribution exceeds ₹25 lakhs.
• OPC: Requires annual filings and statutory audits similar to a Private Limited but without the necessity of board meetings.

6. Tax Implications

• Private Limited: Subject to a corporate tax rate of 22% plus applicable surcharges and cess. Dividend Distribution Tax (DDT) and Minimum Alternate Tax (MAT) also apply.
• LLP: Taxed at 30% with fewer additional taxes; no DDT or MAT, making it tax-efficient for higher earnings.
• OPC: Taxed similarly to Private Limited Companies at 22% plus surcharges and cess.

7. Startup and Maintenance Costs

• Private Limited: Incorporation costs range from ₹8,000 upwards, with annual compliance costs of around ₹13,000.
• LLP: Lower setup costs of approximately ₹5,000, and minimal compliance costs unless turnover or contributions exceed thresholds.
• OPC: Similar to Private Limited Companies, with incorporation costs starting at ₹7,000.

8. Ease of Fundraising

• Private Limited: Ideal for raising equity funding as it allows issuing shares to investors.
• LLP: Limited options for funding; investors must become partners.
• OPC: Challenging for equity funding as it allows only one shareholder.

9. Business Continuity and Transferability

• Private Limited: Operates as a separate legal entity; ownership transfer is possible through share transfers.
• LLP: Offers perpetual succession; economic rights can be transferred.
• OPC: Exists independently of the director; ownership can be transferred with changes to the nominee.

10. Best Fit for Entrepreneurs

• Private Limited: Suited for startups looking to scale, attract investors, or issue ESOPs.
• LLP: Ideal for professional firms or businesses requiring flexibility and lower compliance.
• OPC: Best for solo entrepreneurs with simple business models and limited liability.

Table: Comparison between Pvt. Ltd., LLP and OPC

Aspect	Private Limited Company (Pvt. Ltd.)	Limited Liability Partnership (LLP)	One Person Company (OPC)
Governing Act	Companies Act, 2013	Limited Liability Partnership Act, 2008	Companies Act, 2013
Suitable For	Financial services, tech startups, and medium enterprises	Consultancy firms and professional services	Franchises, retail stores, and small businesses
Shareholders/Partners	Minimum: 2 ShareholdersMaximum: 200 Shareholders	Minimum: 2 PartnersMaximum: Unlimited Partners	Minimum: 1 ShareholderMaximum: 1 Shareholder (with up to 15 Directors)
Nominee Requirement	Not required	Not required	Mandatory
Minimum Capital	No minimum requirement, but suggested to authorize INR 1,00,000	No minimum requirement, but advisable to start with INR 10,000	No minimum paid-up capital; minimum authorized capital of INR 1,00,000
Tax Rates	25% (excluding surcharge and cess)	30% (standard fixed rate)	25% (excluding surcharge and cess)
Fundraising	Easier due to investor preference for shareholding	Challenging, as partners typically fund LLPs	Limited, as only a single shareholder is allowed
DPIIT Recognition	Eligible	Eligible	Not eligible
Transfer of Ownership	Shares can be transferred easily by amending the Articles of Association (AOA)	Requires partner consent and is more complex	Direct transfer is not possible; ownership transfer occurs with nominee involvement
ESOPs (Employee Stock Options)	Can issue ESOPs to employees	Not allowed	Not allowed
Governing Agreements	Duties, responsibilities, and clauses outlined in MOA (Memorandum of Association) and AOA	Duties and responsibilities specified in an LLP Agreement	Duties, responsibilities, and clauses outlined in MOA and AOA
Compliance	• High compliance costs• Mandatory 4 board meetings• Annual filings (AOC-4, MGT-7)• Statutory audit mandatory	• Low compliance costs• No board meeting requirements• Statutory audit not required if turnover < INR 40 lakhs or capital contribution < INR 25 lakhs• Annual filings in Form 8 and 11	• Lower compliance costs• Minimum 2 board meetings annually• Mandatory statutory audit
Foreign Directors/Partners	NRIs and Foreign Nationals can be Directors	NRIs and Foreign Nationals can be Partners	Not allowed
Foreign Direct Investment (FDI)	Eligible through automatic route	Eligible through automatic route	Not eligible
Mandatory Conversion of corporate structure	Not applicable	Not applicable	Mandatory to convert into Private Limited if turnover exceeds INR 2 crores or paid-up capital exceeds INR 50 lakhs

Conversion Process and Conditions for Pvt Ltd, LLP, and OPC

Private Limited Company to LLP Conversion

• Transitioning from a Private Limited Company to an LLP is a formal process that involves approval from the Registrar of Companies (ROC) and adherence to the provisions under the Limited Liability Partnership Act, 2008. It can be done only if the company has no outstanding liabilities and all shareholders agree to the conversion.
• Key Steps: Filing of forms like FiLLiP (Form for Incorporation of a Limited Liability Partnership), and approval from the ROC.

LLP to Pvt Ltd Conversion

• Converting an LLP to a Private Limited Company is a slightly more complicated process, requiring an agreement from all members and a formal approval from the Registrar. This is often considered when the business scales up and requires a more structured framework.
• Key Steps: Filing with Form 18 and Form 27 with the ROC, along with submission of the resolution to change the nature of the business.

OPC to Pvt Ltd Conversion

• Conversion of an OPC to a Private Limited Company is allowed once the OPC meets the criteria of having at least two members (directors and shareholders). This often occurs as the business grows.
• Key Requirements: Minimum of two shareholders and directors, filing with Form INC-6 for conversion.

Statutory Compliance Requirements for Pvt Ltd, LLP, and OPC

Private Limited Company

• Must file annual financial statements and tax returns with ROC under Section 137 of the Companies Act.
• Mandatory Audits: An audit is required for Pvt Ltd regardless of the turnover.
• Tax Filing: Corporate tax returns need to be filed annually under Income Tax Act, 1961.
• Board Meetings: A minimum of 4 board meetings must be conducted annually.

LLP

• Statutory Compliance: LLPs must file annual returns and maintain proper accounts.
• Tax Filing: LLPs are required to file annual tax returns. While the structure provides flexibility, tax benefits may be limited.
• Audit: An audit is only required if the turnover exceeds INR 40 Lakhs or the capital contribution is above INR 25 Lakhs.

OPC

• As a simplified structure, OPCs are required to hold only one board meeting annually. Financial statements must be filed with the Registrar of Companies every year.
• Tax Filing: Annual returns under Section 92 of the Income Tax Act, similar to Pvt Ltd.

Liability Protection in Pvt Ltd, LLP, and OPC

Private Limited Company

• Shareholders of a Pvt Ltd company enjoy limited liability, meaning their personal assets are protected. The company’s debts are separate from personal finances, providing a strong shield for investors.

LLP

• LLPs provide similar liability protection as Pvt Ltd companies but with more flexibility in management. Each partner’s liability is limited to the extent of their contribution, which is ideal for businesses with multiple investors.

OPC

• An OPC provides limited liability, protecting the sole owner’s personal assets, while also being a more cost-effective structure than a Pvt Ltd for small businesses.

Tax Benefits and Advantages in Pvt Ltd, LLP, and OPC

Private Limited Company

• Corporate Tax Rate: Pvt Ltd companies pay corporate tax on their income. Current tax rates are 25% for turnover below INR 400 Crores, and 30% for higher turnovers.
• Tax Deducted at Source (TDS): Pvt Ltd must deduct TDS for payments above a certain threshold as per the Income Tax Act.

LLP

• LLPs enjoy pass-through taxation, meaning the profits are not taxed at the company level but at the individual partner level. This avoids double taxation and can be beneficial for smaller companies.
• Tax Filing: LLPs are taxed at 30%, similar to Pvt Ltd companies, but the pass-through benefits can reduce overall tax liabilities.

OPC

• OPCs are taxed as sole proprietorships, but with limited liability protection. This is advantageous for solo entrepreneurs.
• Tax Filing: The income of the OPC is taxed at the individual tax rates, but they are also eligible for certain exemptions.

Loan and Fundraising in Pvt Ltd, LLP, and OPC

Private Limited Company

• Fundraising: Pvt Ltd companies can raise funds through equity, debt, and venture capital investments. They are also eligible for listing on stock exchanges if they meet the criteria.
• Loan Facilities: Access to loans from financial institutions and banks is easier for Pvt Ltd companies due to their structured corporate governance.

LLP

• Fundraising: LLPs can raise funds through partners and may also borrow money from financial institutions. However, venture capitalists often prefer Pvt Ltd companies for investment.
• Loan Facilities: Banks and financial institutions may provide loans to LLPs, but the terms might be less favorable than for Pvt Ltd companies.

OPC

• Fundraising: Fundraising for OPCs can be challenging due to the lack of multiple shareholders. Most OPCs rely on personal funds or loans from financial institutions.
• Loan Facilities: OPCs can avail loans, but the interest rates may be higher compared to Pvt Ltd companies.

Filing of Annual Returns and Other Documents

Private Limited Company

• Pvt Ltd companies must file annual returns, financial statements, and various other documents with the Registrar of Companies (ROC). These include Form AOC-4 and Form MGT-7.

LLP

• LLPs must file Form 11 for annual returns and Form 8 for financial statements, but they are not as stringent as Pvt Ltd companies.

OPC

• OPCs must file Form AOC-4 for financial statements and Form MGT-7 for annual return.

Which Structure is Right for You?

Setting up the right business structure is crucial for long-term success, as it impacts compliance, taxation, scalability, and operational ease. Here’s a detailed guide to help you decide:

Private Limited Company (Pvt. Ltd.): Best for High-Growth Startups

A Private Limited Company is the go-to choice for businesses aiming for rapid scalability, significant funding, and enhanced investor trust. Its advantages include limited liability, a professional corporate structure, and the ability to issue shares, making it easier to attract venture capitalists and angel investors.

When to Choose a Pvt. Ltd.:

• You are planning to raise funds from institutional investors or venture capitalists.
• Scalability and expansion are primary goals.
• You need to offer Employee Stock Ownership Plans (ESOPs) to attract and retain top talent.

Key Advantages:

• Easy access to funding from equity investors.
• A separate legal entity ensures perpetual existence, unaffected by changes in ownership or management.
• Higher credibility and brand value in the business ecosystem.

However, this structure comes with more compliance requirements and higher initial costs, making it ideal for businesses prepared for a robust operational framework.

Limited Liability Partnership (LLP): Ideal for Professional Firms and Partnerships

An LLP combines the simplicity of a partnership with the benefits of limited liability. It is particularly suited for professional services, consultancies, and firms where equity funding is not a priority.

When to Choose an LLP:

• You are running a service-based business or a partnership firm.
• Compliance requirements need to be minimal.
• Tax efficiency is a priority for your business model.

Key Advantages:

• No limit on the number of partners, making it ideal for growing collaborative ventures.
• Lower compliance and operational costs compared to a Private Limited Company.
• Exemption from Dividend Distribution Tax (DDT) offers tax benefits.

While LLPs offer flexibility, their fundraising limitations make them less suitable for high-growth startups or businesses requiring significant capital investments.

One Person Company (OPC): Perfect for Solo Entrepreneurs

An OPC is designed for solo entrepreneurs who want to benefit from limited liability and a separate legal entity without involving additional shareholders or partners. It bridges the gap between sole proprietorship and a Private Limited Company.

When to Choose an OPC:

• You are an individual entrepreneur running a small business.
• Limited liability is crucial to safeguard your personal assets.
• Your business doesn’t require external funding or multiple shareholders.

Key Advantages:

• Simple structure with complete control under one individual.
• Low compliance compared to a Private Limited Company.
• Suitable for small-scale businesses and franchise operations.

However, mandatory conversion into a Private Limited Company is required if your revenue exceeds ₹2 crores or paid-up capital crosses ₹50 lakhs, making it more suited for businesses with modest growth plans.

Quick Recap: How to Choose the Right Structure

• Opt for Private Limited Company if funding and scalability are your primary objectives.
• Choose LLP if you need a flexible, low-compliance structure ideal for service-oriented partnerships.
• Go for OPC if you are a solo entrepreneur seeking limited liability with minimal operational complexities.

Ultimately, the best structure depends on your business goals, compliance readiness, and long-term vision. Take the time to assess your needs and align them with the right structure for sustainable growth.

In conclusion, choosing the right business structure, Private Limited Company, LLP, or OPC depends on your business’s unique needs, growth aspirations, and operational priorities. A Private Limited Company is ideal for startups seeking scalability and funding opportunities, while an LLP suits collaborative professional ventures prioritizing tax efficiency and operational flexibility. For solo entrepreneurs, an OPC offers the perfect blend of limited liability and simplicity. Each structure has its advantages and limitations, so it’s crucial to assess your goals, compliance readiness, and future plans carefully. By selecting the right entity, you can lay a strong foundation for your business’s success and sustainability.