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 is the compliance cost 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 ComparisonPrivate Limited CompanyOne Person CompanyLimited Liability Partnership
Governing Law and Regulatory AuthorityThe 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 formation2 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 AccountsMandatoryMandatoryMandatory
Maintenance of Basic Statutory RecordsResolutions 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 MeetingsFirst 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)MandatoryNo AGM RequiredNo AGM Required
Annual RoC FilingsBalance 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 FilingsMandatory – Tax Return in Form ITR-VIMandatory – Tax Return in Form ITR-VIMandatory – Tax Return in Form ITR-V
Statutory AuditMandatoryMandatoryIf turnover > 40 lakhs or contribution > 25 lakhs
Tax AuditIf turnover > 1 CroreIf turnover > 1 CroreIf turnover > 1 Crore
Alteration of Name, Address, Objects etcFillings 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
ConversionA 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/ DissolutionCan 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.

TaxationTaxed at 30%Taxed at 30%Taxed at 30%
Fund Raising OptionsHighLowLow
Compliance CostHighMediumMedium

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.

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This article was originally published on YourStory

Nikita Bhatia
Nikita Bhatia
Nikita Bhatia is the Co-Founder of VenturEasy, an online platform for Company Registration, Tax Consultancy, Trademark Registration, Annual Filings, Accounting and Business Compliances in India. A Chartered Accountant by profession, she has wide experience in the field of Audit, Accountancy, Taxation and Corporate Governance. Her exposure across a wide portion of economy gives her the edge to help startups scale up and guide them effectively in legal, compliances and tax related matters.

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