Entrepreneurs are regularly confused about which business structure they should register as. But the available structures are actually so distinct that you shouldn’t be, particularly if you’re wondering whether to register a one-person company (OPC) or limited liability partnership (LLP). Let’s find out why it is so, as well as help you figure out which one is better suited to your business.
Who it’s For
OPC: An OPC is for entrepreneurs who are sure they want to have full control over their business. There can be no other shareholder or director, which also means no board meetings and fewer compliances. However, such a business cannot be very large because the Ministry of Corporate Affairs (MCA) requires all OPCs to become LLPs of private limited companies once their revenues cross Rs. 2 crore.
LLP: An LLP is for businesses, both small and large, that don’t want to raise funding, either from a VC or the general public. For this reason, it tends to be the favoured business structure for legal firms, advertising agencies and web development shops.
Legal Existence
OPC: An OPC has a separate legal existence even though it’s just one person at the helm. This is possible because all OPCs need to have a nominee partner, who is powerless until the death or departure of the promoter, but takes over at this time. As it has a separate existence, it means that the director’s liability is limited.
LLP: An LLP has a separate legal existence, which also makes it possible to limit the liability of the partners.
Tax Benefits
OPC: Just as with a private limited company, there are no general advantages here, though there may be some industry-specific benefits. Tax is, however, to be paid at flat rate of 30% on profits. Dividend Distribution Tax (DDT) applies, as does Minimum Alternate Tax (MAT).
LLP: An LLP has a few advantages over all other business set-ups, particularly if your revenues cross Rs. 1 crore. This is because wealth tax is not applicable. Tax is, however, payable at 30% on profit and MAT and DDT are applicable.
Mandatory Compliances
OPC: All OPCs must maintain books of accounts, comply with statutory audit requirements and submit income tax returns and annual filings with the RoC.
LLP: LLPs must maintain books of accounts, but only need to comply with statutory audit requirements if turnover exceeds Rs. 40 lakh or capital contribution exceeds Rs. 25 lakh. LLPs must, however, submit income tax returns and annual filings with the RoC.