Reasons to Form an OPC, Private Ltd Company or LLP

We will refer to LLP, Pvt Ltd and OPC as a “Corporate company” here since the word ‘Company’ usually could refer to a Proprietorship, Partnership, HUF, or registered partnership as well. 

Let me start with the basics.

1. A Corporate Company is registered with the Ministry of Corporate affairs. In India the ministry details can be found at www.mca.gov.in. 
2. A Corporate company is an unique, separate, non living, judicial, taxable and perpetual entity hence the benefits as we share in this article apply
3. We are not covering a “Ltd” company here since that is Professional level governance.

Once you read the article below please give a read to the differences between the Corporate Companies in our article on “Choosing Between an LLP, Pvt Ltd and OPC.”

Liability

Since a Corporate Company is limited in Liability by the amount you Authorize when forming the company (known as Authorized Capital); your debts are hedged by upto that amount incase the business suffers losses due to a non-criminal reason . 

Having the liability capped is a good benefit as it offers protection to the stakeholders in case of failure of the business. The limit of liability is usually up to the unpaid amount on the Authorized capital.

An example:-

If a company were to go bankrupt and the company has Authorized Capital of 2 Lakhs. From the 2 Lakhs the capital that was paid-up was 1 Lakh then the stakeholders are only liable to pay the remaining 1 Lakh of the un-paid authorized capital. 

In a Proprietorship, Partnership or HUF the owners are 100% liable for all business actions with all their personal assets

Another example :- If an accident occurs in the company and there is a liability, the lability of the CC will be limited to their Unpaid authorized capital however for a Proprietorship, Partnership or HUF it would be all their personal assets. 

*The liability of banks and the Directors guarantees on loans are a different topic of conversation.

Negligence and not following compliances or paying taxes are offences the liability of such actions are usually seeped to the Stakeholders ( not shareholders) . Please talk to a Company Secretary and lawyer for more details.

Credibility & Transparency 

Since the Corporate Company has to regularly submit information attested by Chartered Accountants to the Ministry of Corporate Affairs and this information in a way ensures credibility and transparency a Corporate Company is a more professional method of establishing an organization. For the same reason they are more trustworthy compared to a Non Corporate Company

All the important information about the Corporate Company are available with the MCA for anyone to access on the MCA portal. On request with valid reason MCA can share financial data of Corporate Company as well.

Uniqueness

A name is allotted to each Corporate Company and the details of the company are published on the MCA website. Ensuring your uniqueness being maintained towards a larger sum game towards marketing and good will.

Perpetual 

A Corporate Company is a perpetual entity that means the stakeholders might change but the company identity, evaluation and good will goes on. 

Taxation and Permissibility 

A Corporate Company enjoys a lot more ease and benefits from both Income Tax, RBI and various other government bodies. Lower income tax slabs and more…

Better Inheritance Management

With proper drawn documents in a Corporate Company; if a Stakeholders deceases it may not be necessary for the Heir of the deceased may own the stakeholdership 

*(OPC) is not recognised under Income tax

Separate Entity 

Since a Corporate Company is a separate entity it holds a different PAN, registrations etc, the stakeholders are at better convenience towards their personal filings, freedom to independently pursue opportunities, etc  

It always helps keep owners’ personal finances separate from the companies. Allowing a more professional and progressive company format and privacy to the owners

From an accounting perspective as well it’s better since the money lended to the company draws relevant interest with helps you gauge the actual holding of the company since in a Proprietorship you would usually not pay interest to yourself on lending to your own company

It also leads to better asset management, finance management and credit rating control

Transferability

It is extremely easy and flexible to transfer ownership of a Corporate Company. All of them can continue its existence irrespective of changes of ownership or personal.

1. For a LLP you can change the Partners at any time by changing the agreement and of course filing the relevant forms with the MCA
2. For Pvt Ltd you can change the shares easily post a board approval and share transfer process paying the relevant stamp duty. (The MOA and AOA are the baseline for any possibilities but this is an more advance level of discussion)
3. For an OPC things are different since it’s a One Person company but that can be sold or transferred as well using the share transfer process after making relevant changes to the MOA 

Growth Prospects

It’s easier to become a Ltd company (stock Listed company) if you have been working in one of these entities already since your history and records are maintained.

Special Benefits for a Pvt Ltd entity over LLP or OPC

(we will cover more in the differences between the Corporate Company in the Choosing between the Corporate Company Article) 

Off the other forms of entities Pvt Ltd have 

1. Stock options for ESOP, Stock Ownership, dividends etc. Also added benefit for talent pool retention and possible benefits to other contributors 
2. RBI allows Foreign Direct Investment to Pvt Ltd Companies
3. Easier to Raise Capital
4. More deductions
5. Looking for possible Venture Capitalist funding where stake can be valued and parted with to raise funds?. Its not possible in any other form of entity!
6. Clear differentiation of ownership & Direction in Pvt Ltd – The owners (share holders) are different than Directors and they do not have any liability like the Directors may have.

Some of the Cons 

Just mentioning them briefly here

1. Need to file a couple of more filings each year compared to a usual company. Although it’s easier for an OPC or LLP as filings are lesser
2. Need to always have Two partners in LLP and Two Directors in Pvt Ltd. OPC is just one but then their is an turnover limit
3. Directors, Partners cannot take loans from Corporate Companies as it accounts for their income
4. Need to Maintain Board Resolutions and other manageable but necessary prescribed MCA requirements like Displaying CIN, Maintaining Stamps etc
5. Additional Purview of Companies Act

Disclaimer: The article is not legal or financial or administrative advice. It is mere information shared for the readers entertainment and knowledge of possibilities. While we endeavour to ensure that the data / information, on the website, is accurate and correct, on occasions, the concerned parties may alter or modify their information and systems, as the case may be. Plusgrow  recommends that you do not solely rely on the information available on the website and that you always seek professional advice towards any actions.