Comparing OPC and LLP: Choose the Best Option for your Upcoming Startup

Many times, individuals are willing to open a startup of their own but feel confused about the business model they want to opt for. If you’re one of these individuals, you’ve landed on the right page. OPC and LLP are two popular choices for opening a startup, but in order to decide which one is the best choice for you, you must be aware about both of them.

OPC and LLP differ in many ways. OPC stands for ‘One Person Company’, while LLP stands for ‘Limited Liability Partnership’. As the name suggests, One Person Company consists of only one person as the company’s owner. Whereas, in a Limited Liability Partnership, a minimum of two people are required to form a ‘partnership’. 

In this Article, we will compare OPC and LLP, so that you can easily decide which business model from these two is the best option for your upcoming startup.

What is a One Person Company (OPC)?

The concept of One Person Company (OPC) was first introduced in the United Kingdom (UK). In India, the business model of OPC was introduced under the Companies Act, 2013. 

Section 2(62) of the Act defines OPC as a company that has only one member. An OPC is incorporated with a single owner at the helm, and this single owner is entitled to all the capital and profits of this company. The single owner of the company must be an Indian citizen, and a non-minor to be eligible for owning an OPC in India. The liability of the owner is restricted to his due subscribed capital, as is the case in a Private Limited Company. An OPC is restricted from issuing shares to the general public or through Stock Exchange Markets. The shares of OPC can only be transferred to the rightful shareholder or nominee in event of the owner’s departure. 

The purpose of introducing the concept of OPC in India was to allow individuals to set up their own company, without the requirement of a business partner. For a startup company, the business model of OPC is a good idea since the entrepreneur’s liability is limited to the capital invested in the company. OPC is a relatively new business model as compared to other various business models such as a LLP, Partnership Firm, Public Limited Company, etc. 

What is a Limited Liability Partnership (LLP)?

The concept of Limited Liability Partnership was introduced in the 1980s in the USA, but in the context of India, LLP was introduced with the enactment of the Limited Liability Partnership Act, 2008. This Act commenced from 31st March, 2009. As described by the Ministry of Corporate Affairs, “LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the flexibility of a partnership. The LLP can continue its existence irrespective of changes in partners. It is capable of entering into contracts and holding property in its own name.” However, an LLP cannot issue its equity shares.

The purpose for the introduction of an LLP in India was to overcome the flaws associated with the traditional partnership, and to provide a better alternative for startups. The flaws that a Limited Liability Partnership has overcome, include unlimited liability, no separate management structure and the firm’s limited existence. Due to these flaws in a partnership, partners face a lot of difficulties when they’re operating a firm. So, the introduction of an alternative, that is LLP, has helped to make things less complicated.

Now that we have discussed OPC and LLP, let’s compare them.

Comparison between OPC & LLP

Here is a handy table of comparison between OPC & LLP:

Conversion of OPC to LLP

There are many times when a business owner/shareholder wants to shift to another business model because they feel like it’d be better for their business. Let’s learn how an OPC can be converted into an LLP:

• Obtaining NOCs from the OPC’s Creditors: The first step is to obtain No Objection Certificates (NOCs) from all the creditors to ensure that they do not have any issue or claims against the conversion.
• Written Consent of the Sole Member: A written consent must be provided by the One Person Company’s sole member where he shows his approval for conversion of the OPC to LLP.
• Preparing documents and submitting to the ROC: Form 17, the application for converting OPC into an LLP, must be completed properly and submitted along with the LLP agreement to the ROC. Apart from this, the following documents are also required to be submitted to ROC: DSCs, DIN, NOCs, Consent of the sole member, Copy of LLP Agreement, Proof of Address & Identity.
• Form 2 and 3 for converting to LLP: To verify the availability of LLP’s proposed name, form 2 must be filed. Once the name is cross checked and made available, form 3 must be submitted for LLP’s incorporation.
• File Forms 14 and 18: File Form 14 and 18 to submit the LLP agreement and the statement of conversion, respectively.
• Obtain Certificate of Incorporation: After the submitted documents are reviewed and verified by the ROC, he will issue the certificate of incorporation which would confirm the conversion of the OPC into an LLP.

Conclusion

OPC and LLP have their own unique features, We hope that after going through this article, you can decide on the business model suitable for your upcoming startup.If you have any doubts or queries, get in touch with Registrationkraft.