Compliances for Private Limited Company, LLP and OPC – a clear comparison

Being a Chartered Accountant and interacting with several entrepreneurs, I found that the most common question bothering startup founders is which business entity to form and what are the compliances of these entities. Hence, there is a need to summarize this essential information in a comprehensive manner and layman terms.

The three most preferred business entities in India – Private Limited Company, Limited Liability Partnership (LLP) and One Person Company (OPC) have some important differences in their compliance structure which affect their running costs as well.

This article is focused on detailing the end to end compliance requirements of these entities. There are different set of laws and regulations which govern each business type.

Private Limited Company and OPC are governed by The Companies Act, 2013 and the corresponding company rules. There are various norms right from maintenance of books of accounts to preparation of financial statements and getting most of important events of your company approved by way of conducting board and general meetings with corresponding Registrar of Companies (RoC) filings.

Similarly, in LLP, immediately after incorporation should comply with the statutory requirements of the Limited Liability Partnership Act 2008 and the corresponding LLP Rules. In order to achieve this, the accounts, records of partner’s meetings, changes in partners and LLP Agreement should be prepared and vetted by your legal advisor’s at all times.

It becomes essential to take a note of all the key compliances so that you, as an entrepreneur are aware of the entire regulatory framework of your business and seep through the differences in each of these entities to take an informed decision.

The Comparison chart will give you a clear distinction between the compliance requirements of all the three forms of business.

Factors of Comparison Private Limited Company One Person Company Limited Liability Partnership
Governing Law and Regulatory Authority The Companies Act 2013 and the Ministry of Corporate Affairs (MCA) The Companies Act 2013 and the Ministry of Corporate Affairs (MCA) The LLP Act 2008 and the Ministry of Corporate Affairs (MCA)
Minimum Requirement for formation 2 Shareholders 2 Directors   Directors and Shareholders can be same persons 1 Shareholder 1 Director 1 Nominee of Sole Member   Director and Shareholder can be same person 2 Designated Partners
Maintenance of Books of Accounts Mandatory Mandatory Mandatory
Maintenance of Basic Statutory Records Resolutions and Minutes of the Board Meetings and General Meetings.   Share Register and Share Certificates Resolutions and Minutes of the Board Meetings and General Meetings.   Share Register and Share Certificates Minute book to be maintained to record minutes of meetings of partners.
Board Meetings First meeting within 30 days from the date of Incorporation   Minimum Four Board Meetings in a calendar year No meetings required if the company has only one director   In case of more than one director, first meeting to be conducted within 30 days from the date of Incorporation of company.   At least one meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. No compulsory meeting of the partners is prescribed in the LLP Act or Rules.   Meetings of Partners may be called for events prescribed in the LLP Agreement such as: • Remuneration, Admission, Cessation or Expulsion of the partners • Induction of the heir of any existing partner as a partner(s) of the LLP • Amendment in the objects of the LLP
Annual General Meetings (AGM) Mandatory No AGM Required No AGM Required
Annual RoC Filings Balance Sheet, Profit & Loss Account, Cash Flow Statement, and Statement of changes in equity in Form AOC-4   Annual Return in Form MGT-7 Balance Sheet, Profit & Loss Account, Cash Flow Statement, and Statement of changes in equity in Form AOC-4   Annual Return in Form MGT-7 Statement of Account and Solvency in e-Form 8.   Annual Return in e-Form 11.
Annual Tax Filings Mandatory – Tax Return in Form ITR-VI Mandatory – Tax Return in Form ITR-VI Mandatory – Tax Return in Form ITR-V
Statutory Audit Mandatory Mandatory If turnover > 40 lakhs or contribution > 25 lakhs
Tax Audit If turnover > 1 Crore If turnover > 1 Crore If turnover > 1 Crore
Alteration of Name, Address, Objects etc Fillings Required with RoC Approval from Central Govt. in some cases Fillings Required with RoC Approval from Central Govt. in some cases Fillings Required with RoC
Conversion A Private Company can be converted into OPC, subject to: • Paid up share capital <= 50 lakhs, or • Average annual turnover <= 2 crores. An OPC shall be converted into private limited company mandatorily, subject to: • Paid up share capital >50 lakhs, or • Average annual turnover > 2 crores during preceding 3 Financial years Cannot be converted into a Private Limited Company directly
Closure/ Dissolution Can be initiated voluntarily, • By the shareholders, or • By the Creditors, or • By the Tribunal. Can be initiated voluntarily, • By the shareholders, or • By the Creditors, or • By the Tribunal. Can be initiated voluntarily, • By the Partners, or • By the Order of the Tribunal.
Taxation Taxed at 30% Taxed at 30% Taxed at 30%
Fund Raising Options High Low Low
Compliance Cost High Medium Medium

Simply put, there is nothing better than a Private Company from an Investor’s perspective and credibility; however the cost of compliance is definitely higher. If you want to take it slow and steady and raising funds is not on cards, hitch to the easiest and simplest option of an LLP. Check out our annual compliance packages

This article was originally published on YourStory

Private Limited Company vs LLP vs OPC

Selection of the correct form of business entity is the most important decision taken by an entrepreneur. To make choices simpler and assist you in taking a well informed decision, here is a basic comparison chart of Private Limited Company vs LLP vs OPC – the three most common yet credible forms of business in today’s time.

Private Limited Company – The most successful business type.

In a private company, the business owners hold all shares of the company privately. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Registering a private limited company results in protection of personal assets, access to more resources, financial assistance and greater credibility.

Limited Liability Partnership (LLP) – A corporate form of Partnership

It exhibits elements of both partnership and corporation. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence unlike a traditional partnership in which each partner has joint and several liability. All these three forms of business have the feature if Limited Liability and Separate Legal Entity, ie, the members or partners have no personal liability. Yet, they are different from each other in various aspects.

One Person Company (OPC) – A corporate form of Proprietorship.

One Person Company (OPC) has been recently introduced in India to promote business enterprises that are owned and managed by a single Entrepreneur. OPC allows for a single individual to own and manage the business. One Person Company is therefore a viable option for those looking to start an unregistered Proprietorship. The Comparison chart will give you a clear distinction between all the three forms of business.

Factors of Comparison Private Limited Company One Person Company (OPC) Limited Liability Partnership (LLP)
Minimum Requirement Members – 2 Directors – 2 Member – 1 Director – 1 Nominee of Sole Member – 1 Designated Partners – 2
Minimum Capital No minimum requirement No minimum requirement No minimum requirement
Regulator Registrar of Companies Registrar of Companies Registrar of Companies
Compliance Requirements Annual Return Filing Board Meetings & General Meetings Annual Return Filing No Board Meetings, if only one director No General Meetings Annual Return Filing
Taxation Taxed at 30% Taxed at 30% Taxed at 30%
Credibility High Medium Medium
Investor Preference High Low Medium
Statutory Audit Compulsory Compulsory If Contribution > Rs 25lacs or, Turnover > Rs. 40lacs
Conversion Can be converted into LLP Cannot be converted before 2 years Cannot be converted into a Company
Time Taken for Registration 15 – 20 Days 15 – 20 Days 10 – 15 Days
Procedure Obtain DSC (Digital Signature Certificate) Obtain DIN (Directors Identification Number) Name Approval Filing for Incorporation Obtain DSC (Digital Signature Certificate) Obtain DIN (Directors Identification Number) Name Approval Filing for Incorporation File Nominee details Obtain DSC (Digital Signature Certificate) Obtain DPIN (Designated Partner Identification Number) Name Approval Filing for Incorporation File LLP Agreement
Conclusion:
  • Private Limited Company is the most popular type of corporate entity in India. Therefore its post incorporation compliance’s are easier. Click here for Private Limited Company Registration.
  • Non – convertibility of Limited Liability Partnerships into a Company makes it a less interesting option.
  • One Person Company has been recently introduced in India. Therefore, there may be difficulties in obtaining certain licenses or registration after incorporation of a One Person Company.