What is the Difference Between OPC and LLP?

Last Updated at: September 30, 2020
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OPC vs LLP
The MCA has recently launched the LLP Settlement Scheme, 2020 to provide relief to LLPs troubled by the COVID-19 outbreak. Under this scheme, LLPs are granted a one-time waiver of penalties against delayed filing of certain compliance requirements. Also, various timelines for filing statutory requirements have been extended to enable these entities to make a ‘fresh start’.

 

As part of the ongoing efforts to improve India’s ranking in the doing business report 2021, ministry of labour and employment has completed the reform to integrate the process of registration for GST, EPFO, ESIC and profession Tax for Maharashtra with company incorporation” in tandem with the MCA,” labour ministry said in a statement.

 

There are different types of business structures and you can register your business or company in any one of the business structures. Entrepreneurs must be aware of the benefits of each of the business structure. Here you would know about the actual difference between OPC and LLP type of business structure registration.

Entrepreneurs are regularly confused about which business structure they should register as. But the available structures are 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.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

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 lesser compliance. However, these businesses can’t be very big since all OPCs are required by the Ministry of Corporate Affairs (MCA) to become LLPs of private limited companies once their earnings surpass Rs. 2 crores.

LLP: An LLP is for businesses, both small and large, that don’t want to increase funding, either from a VC or the general public. This is why it tends to be the preferred business structure for law firms, publicity agencies and web development shops.

Begin your business journey

Legal Existence

OPC: An OPC has a distinct legal life despite having only one individual in the forefront. It is likely because all OPCs need a candidate partner, who is helpless before the promoter’s death or departure but takes over at this point. Since the company has an independent identity, the liability of the director 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. One must pay the tax at a flat rate of 30% on profits. Dividend Distribution Tax (DDT) applies, as does the 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 the 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 complying 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 lakhs capital contribution exceeds Rs.25 lakhs. LLPs must, however, submit income tax returns and annual filings with the RoC.

Documents for Incorporation

OPC: Association Memorandum and Articles of Association are the key documents of incorporation.

LLP: On the other hand, the limited liability partnership agreement is the core document for its incorporation.

Account Maintenance and Audit

OPC: It is mandatory to do account maintenance and audit wherever applicable.

LLP: Accounts must be audited if the turnover is greater than Rs.40 lakhs or if the contribution surpasses Rs.25 lakhs.

Management Benefits

OPC: Management remuneration is permissible in the hands of an OPC company as a deduction, and no limit is specified.

LLP: Whereas, management remuneration in the possession of a licensed company subject to limitations is allowed as deduction.

Loans and advances towards the participants by the entity

OPC: When the OPC meets the requirements, it is taxable as considered dividend under section 2(22 e) of Income Tax Act, 1961.

LLP: None of it is taxable. Other than in the case of a private company which has been converted to LLP, it is taxable for the first three years after transition.

Foreign Direct Investment (FDI) in the form of capital or contribution or equity.

OPC: The law doesn’t permit FDI, as it is the prerequisite that an OPC member is an Indian citizen or be a resident in India to be qualified to incorporate a One-Person Corporation, i.e., an OPC member.

LLP: FDI in LLP is permitted in those sectors or activities where 100%   FDI is permitted on an automatic route but with no FDI related performance-based conditions.

Such entry is subject to prior approval by the Government / FIPB.

The laws don’t allow FDI in the following:

(a) Sectors with an automatic route of less than 100 per cent FDI;

(b) Authorized sectors, such as agricultural / planting and print media, and sectors in which FDI is prohibited.

Profit distribution

OPC: OPC private company must pay tax on dividend distribution. The firm waives the profit in the shareholder’s hands.

LLP: Whereas, there is no tax owed on income sharing by the LLP. Profit in partners’ hands is exempt.

The above information offered on the differences between a one-person company and Limited Liability Company can be of great help to start-up owners. The inputs offered above can helps to choose the right business structure of their business. There are certain legal laws and compliance requirements of the above business structures.

 

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What is the Difference Between OPC and LLP?

16804
The MCA has recently launched the LLP Settlement Scheme, 2020 to provide relief to LLPs troubled by the COVID-19 outbreak. Under this scheme, LLPs are granted a one-time waiver of penalties against delayed filing of certain compliance requirements. Also, various timelines for filing statutory requirements have been extended to enable these entities to make a ‘fresh start’.

 

As part of the ongoing efforts to improve India’s ranking in the doing business report 2021, ministry of labour and employment has completed the reform to integrate the process of registration for GST, EPFO, ESIC and profession Tax for Maharashtra with company incorporation” in tandem with the MCA,” labour ministry said in a statement.

 

There are different types of business structures and you can register your business or company in any one of the business structures. Entrepreneurs must be aware of the benefits of each of the business structure. Here you would know about the actual difference between OPC and LLP type of business structure registration.

Entrepreneurs are regularly confused about which business structure they should register as. But the available structures are 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.

Below you’ll find some of the services provided at Vakilsearch that may answer your on the procedure, documents and process flow for a government or tax registration.

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 lesser compliance. However, these businesses can’t be very big since all OPCs are required by the Ministry of Corporate Affairs (MCA) to become LLPs of private limited companies once their earnings surpass Rs. 2 crores.

LLP: An LLP is for businesses, both small and large, that don’t want to increase funding, either from a VC or the general public. This is why it tends to be the preferred business structure for law firms, publicity agencies and web development shops.

Begin your business journey

Legal Existence

OPC: An OPC has a distinct legal life despite having only one individual in the forefront. It is likely because all OPCs need a candidate partner, who is helpless before the promoter’s death or departure but takes over at this point. Since the company has an independent identity, the liability of the director 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. One must pay the tax at a flat rate of 30% on profits. Dividend Distribution Tax (DDT) applies, as does the 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 the 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 complying 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 lakhs capital contribution exceeds Rs.25 lakhs. LLPs must, however, submit income tax returns and annual filings with the RoC.

Documents for Incorporation

OPC: Association Memorandum and Articles of Association are the key documents of incorporation.

LLP: On the other hand, the limited liability partnership agreement is the core document for its incorporation.

Account Maintenance and Audit

OPC: It is mandatory to do account maintenance and audit wherever applicable.

LLP: Accounts must be audited if the turnover is greater than Rs.40 lakhs or if the contribution surpasses Rs.25 lakhs.

Management Benefits

OPC: Management remuneration is permissible in the hands of an OPC company as a deduction, and no limit is specified.

LLP: Whereas, management remuneration in the possession of a licensed company subject to limitations is allowed as deduction.

Loans and advances towards the participants by the entity

OPC: When the OPC meets the requirements, it is taxable as considered dividend under section 2(22 e) of Income Tax Act, 1961.

LLP: None of it is taxable. Other than in the case of a private company which has been converted to LLP, it is taxable for the first three years after transition.

Foreign Direct Investment (FDI) in the form of capital or contribution or equity.

OPC: The law doesn’t permit FDI, as it is the prerequisite that an OPC member is an Indian citizen or be a resident in India to be qualified to incorporate a One-Person Corporation, i.e., an OPC member.

LLP: FDI in LLP is permitted in those sectors or activities where 100%   FDI is permitted on an automatic route but with no FDI related performance-based conditions.

Such entry is subject to prior approval by the Government / FIPB.

The laws don’t allow FDI in the following:

(a) Sectors with an automatic route of less than 100 per cent FDI;

(b) Authorized sectors, such as agricultural / planting and print media, and sectors in which FDI is prohibited.

Profit distribution

OPC: OPC private company must pay tax on dividend distribution. The firm waives the profit in the shareholder’s hands.

LLP: Whereas, there is no tax owed on income sharing by the LLP. Profit in partners’ hands is exempt.

The above information offered on the differences between a one-person company and Limited Liability Company can be of great help to start-up owners. The inputs offered above can helps to choose the right business structure of their business. There are certain legal laws and compliance requirements of the above business structures.

 

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A lawyer with 14 years' experience, Vikram has worked with several well-known corporate law firms before joining Vakilsearch.