All You Need to Know About Difference Between OPC and LLP

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All you need to know about difference between OPC and LLPThere are two very new concepts in the changing scenario of corporate law in India. The first is OPC which stands for One Person Company, and other is LLP which stands for Limited Liability Partnership.  The concept of LLP is a modern form of Partnership firm with the advanced features of the company. The Limited Liability Partnership is governed by the Limited Liability Partnership Act 2008, which state any corporate and incorporate body establishes under this act is limited liability partnership.

On the other hand, the One Person Company is a new concept introduced under the Companies Act 2013[1]. According to section 2(62) of the act states when one person is a member, it will be one person company. The advantage of OPC is it’s a company run by a single person. The key differences between OPC and LLP are shown below:

Table of Contents:

What is One Person Company (OPC)?

A company is a corporate body and a legal entity having its own status and personality which is distinct from the members that constituting in the business.

One Person Company is operated by one individual as its member having one director. Every proprietor who incorporates their entity as OPC has to register as a private limited company. The formed OPC shall be of a company limited by shares or guarantee.

What is Limited Liability Partnership (LLP)?

According to Section 6 of LLP Act, 2008 a LLP shall have at least 2 members as the partners. A LLP is a separate legal entity, liable to the full extent of its of its assets, along with their agreed liability which may be inclusive of tangible and intangible astes of the partner(s).

Governing Act of OPC and LLP

  • OPC – According to Section 2(20) a company means an entity incorporated under the Companies Act, 2013 or 1956. The companies Act, 2013 is the governing authority of OPC and MCA along with ROC regulates the activities involving the transaction or business. Since, OPC is registered as private limited company; the incorporated business shall enjoy certain privileges as private company.
  • LLP – Limited Liability partnership is governed by Limited Liability Partnership Act, 2008 and Indian Partnership Act, 1932 shall not be applicable here. In LLP’s either of the parties are personally liable towards the business obligations.

The LLP shall maintain their accounts reflecting statement of affairs and solvency shall be filed by every LLP with the ROC every year.

Difference between OPC and LLP

Limited Liability Partnership

Meaning – any company that’s registered under Limited Liability Act, 2008. LLP is a separate legal entity formed by two or more members, associated together for carrying on a lawful business with a view of profit shall have subscribe their name to the incorporation document and file the same with the ROC for becoming its registered members.

Governing Law – Limited Liability Partnership are governed by Limited Liability Partnership Act, 2008 and not Partnership Act, 1932.

Internal rules and regulations – the internal rules and regulations are governed by the LLP agreement.

Meetings – in LLP form of business, there is no stipulated time for conducting the meeting of partners either periodically or yearly.

Business – each partner has the authority to carry forward the business unless and until there’s a prohibition clause placed in the LLP agreement.

Remuneration – This form of business shares the profits and losses on percentile basis and with no fixed remuneration, unless there exist a clause of remuneration for the partners in the agreement.

Borrowing power – there’s no restriction placed on the borrowing power on the LLP.

Accounts – the LLP shall choose to maintain the accounts on cash or accrual basis.

Auditing – if the capital contribution doesn’t exceed 25/ 40 lakh the audit of LLP is not compulsory.

Property – the property of the LLP belongs to the LLP and not to the individual/ partners of the business.

Liability – the partners can’t be held personally liable apart from the mentioned liability of the partner in the agreement.

Appointment of Company Secretary – appointment of a Company Secretary is not provided in the LLP Act.

One Person Company

Meaning – a OPC has only one person as its member and managing person. The member or proprietor shall not be a member of more than a OPC at any point of time and the said person shall not be a nominee for more than one OPC.

An OPC doesn’t require holding an AGM and need not appoint an independent director. Any company registered as OPC can’t be converted as Section 8 Company, but, after the duration of 2 years the OPC shall be converted into any other company.

Governing Law – companies are governed by Companies Act, 2013 or 1956 and other records are compiled as per the guidelines of MCA and to be registered with ROC.

Internal rules and regulations – the internal rules and regulation of the companies are laid in AoA and MoA (Articles and Memorandum of Association) of the company. The same can be ratified by approaching ROC.

Meetings – there’s no requirement to conduct board meetings.

Business – the business shall be carried forward as mentioned in the Articles and Memorandum of Association.

Remuneration – the profits and losses of the business are carried by the proprietor.

Accounts and auditing- it is mandatory to conduct a statutory audit, submit annual and IT return and has t comply with various procedures as required by the MCA.

Property and Liability – the owner can’t be made personally liable for any losses in the business, in such circumstances the tangible and intangible property of the business shall be utilised.

Appointment of Company Secretary – every company having a turnover exceeding INR 5 Cr. in each of 3 consecutive financial years shall have an appointed whole time company secretary.

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Final words

A private limited company be it LLP or OPC requires more compliance. LLP can involve more than one member in doing business where the ideas and inputs can be put forth by more than a single source and in OPC only one person has to manage and carry out the business and also have limited liability.

Thus, the proprietor shall choose the type of business based on the proposal. After incorporating if the owner wants to change the course of business from LLP to private limited company or OPC into a LLP shall be taken forward to the ROC with the completion of stipulated duration as mentioned in the Act.

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CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.

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