Both
the One Person Company and the Private Limited Company are business entities
fundamentally different from one another in terms of incorporation procedure
and internal operation, besides both are subject to regulation by the Companies
Act 1994. In order to encourage singularly entrepreneurially-minded people to
grow their firms, the One Person Company (OPC) concept was developed. And, the
Private limited companies, were developed primarily to encourage investment in
business enterprises while limiting the liability of individual shareholders.
According
to section 2(1) (ta) of The Companies Act 1994 (CA 1994), a Private Company is
a company that by its Articles of Association restricts the right of transfer
of the share, limits the number of members to fifty, and prohibits invitation
to the public to subscribe to the shares or debentures of the Company. And, as
per section 2(1) (kha) of The Companies Act 1994 (The Companies (Second
Amendment) Act-2020)), a One-Person Company is a company whose only shareholder
is a natural person.
The
most common choice for incorporating a business is a Private Limited Company.
Investors from abroad and locally favor operating as Private Limited Companies.
There are many advantages when operating as a Private Limited Company. Still,
the main one is that it gives investors more control over their business and
allows them to begin operations as soon as registration with RJSC is complete,
provided that the company also has all the necessary licenses. However, In the
case of OPC (One-Person Company), the scenario is different, even though One
individual can choose to register a one-person company (OPC) when starting a
small business to have the benefit of asset protection due to limited
liabilities, compared to sole proprietorship companies, which have unlimited
liability. Despite this and other OPC benefits, there isn't much enthusiasm for
setting up such businesses.
Thus,
a private limited company and a one-person company can be distinguished through
the incorporation, operation process, and management system.
Incorporation:
The
Companies Act, 1994 in Bangladesh provides the legal framework for
incorporating companies in the country. To incorporate a private company one
need to ensure a few things beforehand, such as, the minimum number of members
in a private limited company is two as per section 5 of CA 1994, and the
maximum number of members can be fifty excluding the persons employed in the
company as per section 2(q). And, to incorporate it must have at least two
directors as per section 90(2) of CA 1994. A person or another legal entity,
such as another business, can be a shareholder. In the majority of sectors,
100% local or foreign shareholding is permitted. Once the Bangladeshi business
has completed the incorporation process, shares may be issued at any time or
may be transferred to another individual. Private limited companies are given
restrictions on the right to transfer by shares, per section 2(q) of CA 1994.
The
company to be incorporated must have its own Memorandum of Association and
Articles of Association.The amount of authorized capital has to be stated in
the Memorandum of Association and Articles of Association. There is no minimum
or maximum limit for authorized capital in Bangladesh for local companies.
However, for practical reasons and to obtain full flexibility regarding
expatriation and bringing in foreign expatriates a minimum of USD 50000/- is
required to be invested in the Company. The minimum paid-up capital for
registration of a Bangladeshi company is Taka 1 (local) and USD 50000 $ for a
foreign-owned company. Paid-up capital, which is also known as share capital,
can be increased at any time after the incorporation of the company.
In
Private Limited Companies, The Companies Act of 1994, which deals with the
legislative necessities of Company incorporation, does not outline a
step-by-step process for incorporating a company. The RJSC, the applicable
body, manages it. On its official website, it offers thorough instructions on
how to set up a company, from name clearance through incorporation.
To
incorporate a private limited company, the below-mentioned steps are required:
STEP
1: Documentation
Drafting
of Memorandum of Articles and Articles of Association and other required
documents,
Directors’
resolution to open a new Company in Bangladesh;
Obtaining
and filling up the following forms for registration of the Company to RJSC:
Form
I: Declaration on registration of Company;
Form
VI: Notice of situation of registered office;
Form
IX: Consent of director to act;
Form
X: List of persons consenting to be directors;
Form
XII: Particulars of the directors, manager, and managing agents.
STEP
2: Formalities related to the bank account
1.
Directors shall open a temporary bank account in the name of the proposed
Company with any scheduled bank with the condition that the account shall be
regularized once the Company is duly registered with Company House;
2.
Capital contribution to the bank account;
3.
Encashment certificate from the bank which expresses that the sum required for
capital contribution has been duly dispatched to the temporary bank account of
the proposed organization.
STEP
3: Submission of documents to RJSC
Lastly,
the Application along with the documents executed as listed above should be
submitted to the RJSC.
The
Companies Act, 1994 mentions certain criteria that are necessary to incorporate
a one-person company, only one natural person can be the shareholder. That
requires any natural person to incorporate an OPC for any permissible purpose
by signing the memorandum as the only shareholder. One-person companies are
only formed by humans (OPC).The sole shareholder of the OPC shall be its
Director as well a manager, company secretary, and other employees can be
appointed to manage the OPC. The original shareholder's passing needs a
nominee. The candidate will inherit the business.
The
company to be incorporated must prepare a memorandum of association (MOA) and
articles of association (AOA). As per section 392A, Memorandum and Articles of
Association mean and include Memorandum and Article of Association mentioned in
Schedules 9A and 9B.The paid-up capital shall be a minimum of 2500000 taka and a
maximum of 50000000 taka section 392C suggests in The Companies Act, 1994.
The
incorporation process has been introduced recently and done through RJSC in OPC.
Here is the incorporation procedure of OPC:
Step
1: Documents Preparation
First
of all, the Memorandum of Association (MoA) and Article of Association (AoA)
along with Form (IX) and other documents should be prepared.
Step
2: Name Clearance
To
establish a corporation, one should get a name clearance for the name that a
company wants to use. Foreign shareholder only requires this phase according to
the new regulation set by RJSC. Nevertheless, the locals can select the
company's name in the registration application.
Step
3: Opening a Bank Account and receiving Paid-up Capital
Foreign
shareholders are required for this phase. They must establish a
Bangladeshi-scheduled bank account under the desired business name. After
creating the account, they must deposit the foreign shareholder's shares. RJSC
needs Bank Encashment Certificates for incorporation.
Step
4: Registration of One Person Company (OPC)
On
the RJSC website, all the information should be put. One also needs to upload Form IX and the
Subscriber Page. After completing all the steps, they will be given a bank
payment slip that they can use to pay the government fees and stamp duty.
Step
5: Obtaining an Incorporation Certificate
After
completing the registration process, RJSC will provide digitally signed (i)
Certificate of Incorporation; (ii) MOA and AOA, and (iii) Form XII.
To
incorporate a private limited company, the mentioned process can be followed,
however, it needs to be kept in mind that, unlike OPC, to incorporate a private
limited company, the name clearance is no longer needed.
As
both companies are different in nature, to incorporate as a company they need
to ensure the different criteria that are required for the formation and then
apply to the RJSC as per the different mentioned process.
Operation:
Both private limited company and one-person company operate differently,
Decision-making
process: The decision-making process in private
limited corporations is frequently more complicated because there are more
shareholders and directors involved. At shareholder meetings, significant
decisions might need to be approved by a majority of shareholders, which could
delay decision-making. Whereas, OPCs give the owner, who is also the only
shareholder and director, total discretion over decisions. Operations may
become quicker and more efficient as a result.
Governance
Structure:A formal governance framework is often
followed by private limited companies, which includes regular board meetings,
shareholder meetings (AGMs and EGMs), and the requirement to keep accurate minutes
and records of these meetings. But, In OPC, OPCs have simplified governance
structures. They do not need to hold annual general meetings only one board
meeting every 6 months also OPC does involve other shareholders in
decision-making, reducing administrative burdens, as (OPC) is designed for
single entrepreneurs and, by definition, has a single shareholder. This means
that in an OPC, there can only be one shareholder, and that shareholder is the
owner of the company. This makes it easier to govern a one-person company.
Share
Transfer:The Articles of Association (AOA) of a
Private Limited Company may restrict the transfer of shares. Therefore, it is
necessary to check the Company's Articles of Association before starting the
share transfer process. In Bangladesh, it is typical for the articles of
association of the company to lay down pre-agreed procedures that must be
followed when transferring shares of the firm. If no shareholder is interested
then the shares can be freely transferred to outsiders. On the other hand, the
sole shareholder of OPC can only transfer his entire share in the OPC.Only a
natural person may receive the transfer of the share, and partial transfers are
not permitted. A shareholder of an OPC may only transfer their full share to a
single individual and must transfer all of their shares if they wish to do
so.Section 38 of the Company Act clearly provides rules for the transfer of
shares to foreigners. So, the share in an OPC can be transferred to foreigners
as well.
Compliance
and Reporting:Private limited firms must comply
with increased reporting and compliance standards. In addition to completing
audits and submitting numerous regulatory files to the Registrar of Joint Stock
Companies and Firms (RJSC), they are required to prepare annual financial
statements. Whereas, particularly when it comes to meetings and reporting, OPCs
frequently gain from simplification of compliance procedures. They might not
need to satisfy as many regulatory standards.
As
both of the companies are different in nature, thus, the operation process is
also different in both cases.
Management:Even
in the case of management certain differences can be observed between a private
limited company and a one-person company, these are,
Directors
and Shareholders:In a private limited company, directors
are responsible for the overall management and decision-making of the company.
Shareholders typically elect the directors during annual general meetings.There
is a separation between ownership (shareholders) and management (directors) in
private limited businesses. Shareholders choose directors to oversee daily
operations and corporate strategy.Private limited companies can have multiple
shareholders, allowing for shared ownership and decision-making. The directors
may or may not be shareholders themselves.
In
the case of a one-person company, An OPC in Bangladesh is designed for single
entrepreneurs. As per the Companies Act of 1994, an OPC must have only one
shareholder and one director. So, the individual can hold both positions to
oversee the management system of the company. Also, the director can hire
individuals to work under him to manage the company as per required by the MOA
and AOA.
Meetings:As
per section 81 of The Companies Act, 1994, The first annual meeting of
shareholders (also known as the Annual General Meeting, or AGM) must be held
after incorporation within eighteen (18) months of the date of incorporation.
If the AGM is held within that time frame, the company will not be required to
hold any additional annual shareholders' meetings in the year of incorporation
or the year after. After fifteen months have passed since the company's most
recent annual shareholder meeting, the following one must be convened. In
addition to AGMs, the corporation may convene extraordinary general meetings,
or EGMs, if necessary to discuss items that need shareholder approval. Also, the
private limited company must hold at least one board meeting every three months
and at least four board meetings every year, as per section 96 of the Act.
In
one person company, it is mandatory to have at least one board meeting every 6
months as per section 392F of The Companies Act, 1994. At the end of a
financial year, an OPC must share its financial statement and submit it to the
Registrar. The balance sheet must contain the profit and loss or income and
expenses. The director must sign this balance sheet.
Both
companies have different management criteria that are necessary to manage a
company in full force.
So,
a One-Person Company (OPC) and a Private Limited Company can be compared to
show their differences in incorporation, management, and operation. Private
Limited Companies are appropriate for firms with several stakeholders because
they provide shared ownership and organized decision-making processes. In
contrast, OPCs cater to individual entrepreneurs and offer exclusive ownership,
efficient operations, and direct control. In the end, by observing the
differences it can be established that, both companies have their own
characteristics that distinguish them from one another.
Author
According to section 2(1) (ta) of The Companies Act 1994 (CA 1994), a Private Company is a company that by its Articles of Association restricts the right of transfer of the share, limits the number of members to fifty, and prohibits invitation to the public to subscribe to the shares or debentures of the Company. And, as per section 2(1) (kha) of The Companies Act 1994 (The Companies (Second Amendment) Act-2020)), a One-Person Company is a company whose only shareholder is a natural person.
The most common choice for incorporating a business is a Private Limited Company. Investors from abroad and locally favor operating as Private Limited Companies. There are many advantages when operating as a Private Limited Company. Still, the main one is that it gives investors more control over their business and allows them to begin operations as soon as registration with RJSC is complete, provided that the company also has all the necessary licenses. However, In the case of OPC (One-Person Company), the scenario is different, even though One individual can choose to register a one-person company (OPC) when starting a small business to have the benefit of asset protection due to limited liabilities, compared to sole proprietorship companies, which have unlimited liability. Despite this and other OPC benefits, there isn't much enthusiasm for setting up such businesses.
Thus, a private limited company and a one-person company can be distinguished through the incorporation, operation process, and management system.
Incorporation:
The Companies Act, 1994 in Bangladesh provides the legal framework for incorporating companies in the country. To incorporate a private company one need to ensure a few things beforehand, such as, the minimum number of members in a private limited company is two as per section 5 of CA 1994, and the maximum number of members can be fifty excluding the persons employed in the company as per section 2(q). And, to incorporate it must have at least two directors as per section 90(2) of CA 1994. A person or another legal entity, such as another business, can be a shareholder. In the majority of sectors, 100% local or foreign shareholding is permitted. Once the Bangladeshi business has completed the incorporation process, shares may be issued at any time or may be transferred to another individual. Private limited companies are given restrictions on the right to transfer by shares, per section 2(q) of CA 1994.
The company to be incorporated must have its own Memorandum of Association and Articles of Association.The amount of authorized capital has to be stated in the Memorandum of Association and Articles of Association. There is no minimum or maximum limit for authorized capital in Bangladesh for local companies. However, for practical reasons and to obtain full flexibility regarding expatriation and bringing in foreign expatriates a minimum of USD 50000/- is required to be invested in the Company. The minimum paid-up capital for registration of a Bangladeshi company is Taka 1 (local) and USD 50000 $ for a foreign-owned company. Paid-up capital, which is also known as share capital, can be increased at any time after the incorporation of the company.
In Private Limited Companies, The Companies Act of 1994, which deals with the legislative necessities of Company incorporation, does not outline a step-by-step process for incorporating a company. The RJSC, the applicable body, manages it. On its official website, it offers thorough instructions on how to set up a company, from name clearance through incorporation.
To incorporate a private limited company, the below-mentioned steps are required:
STEP 1: Documentation
Drafting of Memorandum of Articles and Articles of Association and other required documents,
Directors’ resolution to open a new Company in Bangladesh;
Obtaining and filling up the following forms for registration of the Company to RJSC:
Form I: Declaration on registration of Company;
Form VI: Notice of situation of registered office;
Form IX: Consent of director to act;
Form X: List of persons consenting to be directors;
Form XII: Particulars of the directors, manager, and managing agents.
STEP 2: Formalities related to the bank account
1. Directors shall open a temporary bank account in the name of the proposed Company with any scheduled bank with the condition that the account shall be regularized once the Company is duly registered with Company House;
2. Capital contribution to the bank account;
3. Encashment certificate from the bank which expresses that the sum required for capital contribution has been duly dispatched to the temporary bank account of the proposed organization.
STEP 3: Submission of documents to RJSC
Lastly, the Application along with the documents executed as listed above should be submitted to the RJSC.
The Companies Act, 1994 mentions certain criteria that are necessary to incorporate a one-person company, only one natural person can be the shareholder. That requires any natural person to incorporate an OPC for any permissible purpose by signing the memorandum as the only shareholder. One-person companies are only formed by humans (OPC).The sole shareholder of the OPC shall be its Director as well a manager, company secretary, and other employees can be appointed to manage the OPC. The original shareholder's passing needs a nominee. The candidate will inherit the business.
The company to be incorporated must prepare a memorandum of association (MOA) and articles of association (AOA). As per section 392A, Memorandum and Articles of Association mean and include Memorandum and Article of Association mentioned in Schedules 9A and 9B.The paid-up capital shall be a minimum of 2500000 taka and a maximum of 50000000 taka section 392C suggests in The Companies Act, 1994.
The incorporation process has been introduced recently and done through RJSC in OPC. Here is the incorporation procedure of OPC:
Step 1: Documents Preparation
First of all, the Memorandum of Association (MoA) and Article of Association (AoA) along with Form (IX) and other documents should be prepared.
Step 2: Name Clearance
To establish a corporation, one should get a name clearance for the name that a company wants to use. Foreign shareholder only requires this phase according to the new regulation set by RJSC. Nevertheless, the locals can select the company's name in the registration application.
Step 3: Opening a Bank Account and receiving Paid-up Capital
Foreign shareholders are required for this phase. They must establish a Bangladeshi-scheduled bank account under the desired business name. After creating the account, they must deposit the foreign shareholder's shares. RJSC needs Bank Encashment Certificates for incorporation.
Step 4: Registration of One Person Company (OPC)
On the RJSC website, all the information should be put. One also needs to upload Form IX and the Subscriber Page. After completing all the steps, they will be given a bank payment slip that they can use to pay the government fees and stamp duty.
Step 5: Obtaining an Incorporation Certificate
After completing the registration process, RJSC will provide digitally signed (i) Certificate of Incorporation; (ii) MOA and AOA, and (iii) Form XII.
To incorporate a private limited company, the mentioned process can be followed, however, it needs to be kept in mind that, unlike OPC, to incorporate a private limited company, the name clearance is no longer needed.
As both companies are different in nature, to incorporate as a company they need to ensure the different criteria that are required for the formation and then apply to the RJSC as per the different mentioned process.
Operation: Both private limited company and one-person company operate differently,
Decision-making process: The decision-making process in private limited corporations is frequently more complicated because there are more shareholders and directors involved. At shareholder meetings, significant decisions might need to be approved by a majority of shareholders, which could delay decision-making. Whereas, OPCs give the owner, who is also the only shareholder and director, total discretion over decisions. Operations may become quicker and more efficient as a result.
Governance Structure:A formal governance framework is often followed by private limited companies, which includes regular board meetings, shareholder meetings (AGMs and EGMs), and the requirement to keep accurate minutes and records of these meetings. But, In OPC, OPCs have simplified governance structures. They do not need to hold annual general meetings only one board meeting every 6 months also OPC does involve other shareholders in decision-making, reducing administrative burdens, as (OPC) is designed for single entrepreneurs and, by definition, has a single shareholder. This means that in an OPC, there can only be one shareholder, and that shareholder is the owner of the company. This makes it easier to govern a one-person company.
Share Transfer:The Articles of Association (AOA) of a Private Limited Company may restrict the transfer of shares. Therefore, it is necessary to check the Company's Articles of Association before starting the share transfer process. In Bangladesh, it is typical for the articles of association of the company to lay down pre-agreed procedures that must be followed when transferring shares of the firm. If no shareholder is interested then the shares can be freely transferred to outsiders. On the other hand, the sole shareholder of OPC can only transfer his entire share in the OPC.Only a natural person may receive the transfer of the share, and partial transfers are not permitted. A shareholder of an OPC may only transfer their full share to a single individual and must transfer all of their shares if they wish to do so.Section 38 of the Company Act clearly provides rules for the transfer of shares to foreigners. So, the share in an OPC can be transferred to foreigners as well.
Compliance and Reporting:Private limited firms must comply with increased reporting and compliance standards. In addition to completing audits and submitting numerous regulatory files to the Registrar of Joint Stock Companies and Firms (RJSC), they are required to prepare annual financial statements. Whereas, particularly when it comes to meetings and reporting, OPCs frequently gain from simplification of compliance procedures. They might not need to satisfy as many regulatory standards.
As both of the companies are different in nature, thus, the operation process is also different in both cases.
Management:Even in the case of management certain differences can be observed between a private limited company and a one-person company, these are,
Directors and Shareholders:In a private limited company, directors are responsible for the overall management and decision-making of the company. Shareholders typically elect the directors during annual general meetings.There is a separation between ownership (shareholders) and management (directors) in private limited businesses. Shareholders choose directors to oversee daily operations and corporate strategy.Private limited companies can have multiple shareholders, allowing for shared ownership and decision-making. The directors may or may not be shareholders themselves.
In the case of a one-person company, An OPC in Bangladesh is designed for single entrepreneurs. As per the Companies Act of 1994, an OPC must have only one shareholder and one director. So, the individual can hold both positions to oversee the management system of the company. Also, the director can hire individuals to work under him to manage the company as per required by the MOA and AOA.
Meetings:As per section 81 of The Companies Act, 1994, The first annual meeting of shareholders (also known as the Annual General Meeting, or AGM) must be held after incorporation within eighteen (18) months of the date of incorporation. If the AGM is held within that time frame, the company will not be required to hold any additional annual shareholders' meetings in the year of incorporation or the year after. After fifteen months have passed since the company's most recent annual shareholder meeting, the following one must be convened. In addition to AGMs, the corporation may convene extraordinary general meetings, or EGMs, if necessary to discuss items that need shareholder approval. Also, the private limited company must hold at least one board meeting every three months and at least four board meetings every year, as per section 96 of the Act.
In one person company, it is mandatory to have at least one board meeting every 6 months as per section 392F of The Companies Act, 1994. At the end of a financial year, an OPC must share its financial statement and submit it to the Registrar. The balance sheet must contain the profit and loss or income and expenses. The director must sign this balance sheet.
Both companies have different management criteria that are necessary to manage a company in full force.
So, a One-Person Company (OPC) and a Private Limited Company can be compared to show their differences in incorporation, management, and operation. Private Limited Companies are appropriate for firms with several stakeholders because they provide shared ownership and organized decision-making processes. In contrast, OPCs cater to individual entrepreneurs and offer exclusive ownership, efficient operations, and direct control. In the end, by observing the differences it can be established that, both companies have their own characteristics that distinguish them from one another.
Author
Imtrita Hossain Elma Student : North South University. Dhaka LL.B (Hons) |
