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 (PLC), 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 PLC 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 PLC, 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 (PLC) 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, PLC 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: PLC’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 PLC 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, PLCs 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 PLC 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 PLC 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.

Key Differences Between Private Limited Company, LLP, and OPC

When choosing a business structure, understanding the distinctions between Private Limited Companies (PLC), 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

• PLC: 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

• PLC: 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

• PLC: 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

• PLC: 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

• PLC: 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 PLC but without the necessity of board meetings.

6. Tax Implications

• PLC: 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 PLC at 22% plus surcharges and cess.

7. Startup and Maintenance Costs

• PLC: 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 PLC, with incorporation costs starting at ₹7,000.

8. Ease of Fundraising

• PLC: 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

• PLC: 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

• PLC: 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.

#TreelifeInsight: The choice between PLC, LLP, and OPC depends on the business goals, funding requirements, and compliance readiness. PLC is optimal for scalability and equity fundraising, LLP is better for cost efficiency and operational flexibility, and OPC works well for individual entrepreneurs desiring limited liability.

Table: Comparison between PLC, LLP and OPC

Aspect	Private Limited Company (PLC)	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 PLC if turnover exceeds INR 2 crores or paid-up capital exceeds INR 50 lakhs

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 (PLC): 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 PLC:

• 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.

FAQs on Private Limited Company(PLC) vs LLP vs OPC

1. What is the main difference between a Private Limited Company, LLP, and OPC?
   A Private Limited Company is suitable for businesses aiming for scalability and funding, an LLP is ideal for partnerships seeking flexibility and tax efficiency, while an OPC caters to solo entrepreneurs offering limited liability and independence.

2. Which structure is best for startups: Private Limited or LLP?
   Startups often prefer Private Limited Companies due to their ability to attract investors and issue equity. However, LLPs are a good alternative for startups focused on professional services or consulting due to lower compliance costs.

3. Can a One Person Company (OPC) be converted to a Private Limited Company or LLP?
   Yes, an OPC must convert into a Private Limited Company if its turnover exceeds ₹2 crores or paid-up capital exceeds ₹50 lakhs. Conversion to LLP is also possible under specific legal conditions.

4. What are the tax differences between a Private Limited Company, LLP, and OPC?
   Private Limited Companies and OPCs are taxed at a flat 25% (excluding surcharge and cess), while LLPs are taxed at 30% on income. LLPs enjoy an advantage as profits distributed to partners are not taxed.

5. Which business structure has the lowest compliance requirements?
   LLPs generally have the lowest compliance burdens, with audits required only for a turnover above ₹40 lakhs or capital contributions exceeding ₹25 lakhs. Private Limited Companies and OPCs require mandatory statutory audits and annual filings.

6. Can foreign investors or directors be part of an LLP, OPC, or Private Limited Company?
   Foreign nationals can be directors or partners in Private Limited Companies and LLPs but are not permitted in OPCs.

7. How do fundraising options differ among Private Limited Companies, LLPs, and OPCs?
   Private Limited Companies have the most diverse fundraising options, including equity shares, debentures, and venture capital. LLPs and OPCs face more restrictions, with limited external funding opportunities.

8. Is a Private Limited Company better than an LLP for tax purposes?
   Both structures have tax advantages depending on the business. LLPs avoid dividend distribution tax, making them more tax-efficient for profit-sharing, while Private Limited Companies offer credibility for larger-scale tax incentives.