The working and functioning of businesses in India are governed by the Companies Act 2013. The regulators have set up distinct rules for One Person Company and Public Company, based on various factors such as ownership rights, transferability rights, Membership rights and so on. The difference between both them can be understood in detail below.
Overview of Companies formed under the Companies Act, 2013
The Companies Act of 2013 divides businesses into various types based on their characteristics and functioning. Section 2(20) of the Companies Act, 2013[1] divides the word “Company” as Any company which is incorporated under the Companies Act 2013 or under any previous acts of company law. It also defines the formation of One Person Company and a Public Company.
Section 3 of the Companies Act 2013 explains the formation of companies. According to this, a company can be formed for any lawful purpose by the following people-
- Seven or more persons can form a company, which can be called a public company.
- A company can be formed by two or more persons, and it can be called a private company.
- A company can also be formed by one person, which can also be called a private/one-person company.
Characteristics of One Person Company
A one-person company or OPC may be defined as a company that has only one member, as defined in section 2(62) of the Companies Act, 2013. One person company is a private ltd company, which has only one member, and there is a prohibition regarding the public invitation for subscription of shares of the company.
Some of the characteristics of one personal company are-
- One personal company can be formed by a company which is limited by the guarantee of shares
- One person company which is determined by shares, shall have a minimum paid-up capital for one lakh rupees
- One person company is restricted from having a right to transfer the shares and prohibits any public invitations for security subscription
Rule 3 of Companies (Incorporation) Rules, 2014 requires the following factors to be checked before incorporating a One Person Company-
- A natural person and also an Indian Citizen shall be eligible to incorporate a Person Company and can be a nominee for the sole member of one person Company.
- A natural person cannot be a member or a nominee of more than one person company at any time.
- One person Company should not be formed for charity purposes.
- One person Company must not include Non-Banking Financial Investment activities and investments in the Securities of anybody corporate.
- The paid-up share capital must be at most Rs. 50 Lakhs.
- The average annual turnover of 3 years should be at most Rs.2 crores.
- One person Company should have at least one director but at most 15 directors.
Characteristics of a Public Company
A public company, as described by section 2(71) of the Companies Act 2013, can be defined as a company which is not a private company and also has a minimum paid-up share capital as prescribed. Public security can raise funds for the public quickly, and there are no limits to the number of shareholders it can accommodate.
The Characteristics of a Public Company can be as follows-
- It is a private company that has a public company as a holding company.
- It must have at least seven members to incorporate a public company
- The transfer of shares is not restricted in a public company.
- A public company issues a prospectus for public to subscribe to the share capital.
- A public company must have atleast three directors and a maximum of fifteen directors.
- Shares are allotted only after receiving of minimum subscription of the share capital.
- A public company can invite and accept public deposits.
Difference between One Person Company and Public Company
One Person Company and Public Company are different from each other in many ways, a few of which are mentioned below-
Definition:
Based on their meanings, the difference between a One Person Company and a Public Company can define one person company as a company where only one person is the member or owner of the company. In contrast, a Public Company is registered in the share market for the public subscription of shares.
Ownership/Membership rights:
There are differences between One Person Company and Public Company based on the ownership/ membership for the same. One personal company can have only one owner, while a Public company must have a minimum of seven owners, which can extend to an unlimited number of owners or members.
Share Capital:
There are differences in share capital between One Person Company and Public Company. Whereas in One Person Company, all the rights are held by a single person, including share capital and profit shares. Whereas in a PLC, the share capital rights and profits are distributed among the members or owners according to the article of association and the ownership of shares.
Share transferability:
The rights of transfer of shares also make One Person Company and Public Company different from each other. Where in One Person Company, the shares cannot be transferred by the owner; the PLC gives the right to its owners or members to transfer the shares to anyone in the market.
Prospectus:
There are also significant differences in the share prospectus of One Person Company and Public Company. Where there is no need to issue a share prospectus in One Person Company, a public company has a mandatory requirement for a prospectus to be given to inviting the public to subscribe to the company’s shares.
Directors:
One Person Company and PLC are also different based on the number of directors, where one person company should have at least one director and can have a maximum of fifteen directors. In contrast, a PLC can have at least three directors and a maximum of fifteen directors.
Quorum:
In One person company, one person needs to be present in the quorum, whereas in a PLC, at least five members need to be present.
Name of Company:
Another difference between them is that “OPC” is used as a part of the name of One person company, and a PLC uses the word “limited” as a part of its name.
Annual Meetings:
Holding an annual general meeting in a one-person company is optional. The director can sign the yearly returns, whereas, in a PLC, it is necessary to call for a statutory meeting.
Raising of Funds:
Lastly, One Person Company and a Public Company differ in raising funds for both. While it is not possible for a one-person company to raise funds by issuing shares as one person owns it, A PLC raises funds by issuing shares to the public in the market.
Conclusion
Most businesses fail because of failure in choosing the correct form of business for them. In One Person Company, the owners get limited liability in single ownership, while there are unlimited liabilities in a public company. While there are many different forms of company registration, there are many differences between them. One Person Company and PLC are entirely different.
Read Our Article:How one can start One-Person Company in India?
