One Person Company

The concept of a One Person Company came into existence when the Companies Act 1956 got an overhaul in 2013. A One Person Company, as the name suggests, allows an entrepreneur/ businessman to register his entity as a single person company. This deviation enables him to enter the corporate realm without the compulsions of a private limited company wherein a basic requirement for registering a company is availability of minimum 2 individuals.

Advantages

  • One Person Company is a separate legal entity despite having only one member in contrast to a sole proprietorship where the owner and the proprietorship are one and the same.

  • Limits the liability of the sole member.

  • Going concern.

  • Easy to incorporate.

Disadvantages

  • Mandatory to nominate a Director, one who will take charge, if the concerned Director, comes in harm's way and is unable to discharge his duties.

  • Mandatory to convert a One Person Company to a Private Limited company if the turnover crosses 2 crores in a financial year and is required to file audited financial statements with the Ministry of Corporate Affairs.

  • Thus it becomes essential for any business to consider the benefits and drawbacks of a One Person Company before getting into the process of registering it.

Private Limited Company

Private Limited Companies are ubiquitous in India because of the advantages they offer. Registering a Private Limited Company requires a minimum of 2 members and 2 directors; maximum number of members is 200. As can be gauged from the name, shares in Private Limited Company are held by the promoters. It is mandatory to use the words 'Pvt. Ltd' in the company name as a suffix.

Advantages

  • A corporate entity can be a shareholder too.

  • Companies with Foreign Direct Investment are allowed to appoint foreign nationals as Directors.

  • Greater flexibility in conducting day to day affairs of the company.

  • A Private Limited Company can commerce business immediately on receipt of Certificate of In Corporation.

Disadvantages

  • Shares are not freely transferable; require the consent of shareholders.

  • Number of members is restricted to 50.

  • Cannot raise funds from general public.

This form of company offers a great deal of flexibility to the promoters but has restricted avenues for raising funds. If the industry you want to step into calls for the features stated above, then you may want to consider registering the company as a Pvt. Ltd one.

Limited Liability Partnership

A Limited Liability Partnership (LLP) is a cross between a company and a partnership. In that a LLP combines the features of both the entities. There is limited liability of the owners as in a company as greater operational flexibility as in a partnership firm.

Advantages

  • Even though it is essentially a partnership, there is no requirement for minimum capital contribution.

  • No limit on the maximum number of partners.

  • Liability of a partner is restricted to the share of each of the partners unlike a regular partnership firm where the liability of the partners is unlimited.

  • Separate legal entity. Partners and LLP are separate. A LLP can sue and be sued in its name and not in the name of any of its partners.

Disadvantages

  • Cannot raise funds through the IPO route.

  • Cannot be converted into any other type of company/ form of business this restricting future growth prospects.

  • This type of business model is fairly new and must be opted for after due consideration.

Criteria One Person Company Limited Liability Partnership Private Limited Company Partnership form Sole Proprietorship
Cheaper Cost of formation
Ease formation
Transfer of Ownership
Continuity
Regulations
Flexibility
Availability of Capital
Limited Liability
Ease of Raising Finance
Limited Liability Protection
Tax Advantages
Perpetual Existence
Statutory Compliance
Start Up India Benefits
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