Difference between One Person Company v/s Nidhi Company

Sonal Pruthi

16 Jan, 2021

NIDHI stands for National Initiative for Developing and Harnessing Innovations. Nidhi in Hindi means funds or finance. The Nidhi Company is majorly formed to do transactions which involve thrift of funds and reserve funds amongst the members; they also receive deposits and lending to members for benefits.

A Nidhi Company is a type of a non-banking financial institution. It is governed under Section 406 of the Companies Act 2013. Section 406(1) of the Companies Act defines Nidhi Company as a mutual benefit society, which the Central Government by notification has declared to be Nidhi Company. The government, by a notification, releases that particular business cannot be continued by the Nidhi Company or it does not apply to it.

The transactions of the company are regulated as per RBI guidelines.

Features

1. The object of Nidhi Company is to do lending and borrowing business between its members only.
2. It is either governed as the NBFC or banking company, whose main business is lending and borrowing of money to their members.
3. The transactions are of shareholders of the company where RBI has exempted Nidhi from some of its business.
4. It does not require a license from the RBI to start the business
5. Where the members of societies can borrow money, but it is different from Cooperative Societies.
6. The main function is the saving and utilization of funds.
7. Here the money lending to the borrowers (only its members) is in jewels, mortgage of Immovable Property, and only borrower receipts.

Restrictions imposed on Nidhi Companies

• Nidhi Companies are barred from doing business outside the registered members. However, this is an absolute restriction.
• They are not permitted to engage themselves in the business of Chit Funds, Hire Purchase, Insurance, or any other business involved in the investment of shares or debentures.
• The members can be only individuals. The body corporate and trusts are not allowed to be its members.
• Nidhi Company is restricted from lending loans or accepting deposits to any member outside the group.
• They are barred from opening the Current Account with its members. They are permitted to open only saving accounts, as saving is their primary business.
• They are barred from taking payments of the brokerage on deposits and prohibited from advertising.
• Nidhi Company is prohibited from pledging any security against the member’s asset or enters into any partnership agreement, or paying any incentives on the deposits for mobilizing deposits from members.

The only condition attached to Nidhi Company is a ceiling of interest rate payable to members on the deposits with them. The current rate of interest on the deposit is 2 percent.

One Person Company

SEC 2(62) OF COMPANIES ACT 2013 defines One Person Company as a Company in which there is only one person who is a member/shareholder/director. This one person occupies all the positions.

Features

1. One Person/ One Director
   The main feature of this form of company is only one director/one shareholder. This director has complete control over the company. The maximum number of Directors which can be appointed is 15. This is possible only after making amendments to the memorandum.
2. Minimum Paid Up capital
   The minimum requirement is 1 Lakh.
3. Nominee Director
   In the case of OPC, there is a mandatory requirement to appoint the Nominee Director to continue the functions of the company. His position starts after the death of the sole member who has the ultimate control/ownership of the firm. The name of the nominee director must be mentioned in the Memorandum of Association.

The nominee appointed has to be a natural person. This natural person will be one who is a resident of India and has Indian citizenship. There has to be written consent of the nominee, and approval has to be given voluntarily.

4. Legal Formalities
   There are not many legal formalities and compliance burden on the company. Like submission of regularly financial statements or annual returns. These formalities have to be carried out once a year.
5. Restriction on transfer
   OPC offers the restriction on the transfer of shares.
6. No invitation to public
   There is a complete prohibition on the invitation to the public for the subscription of shares
7. OPC has to be prefixed in name
   In the name, it has to mention OPC in it.

Conclusion

In order to have a better understanding of the concept that which is a better option, the chart illustrates the differences between the two:

Comparison between Nidhi Company and One Person Company

It can be concluded that after comparing the OPC and Nidhi Company, both are different types of companies under the Companies Act, 2013^[1]. The companies Act, 2013 defines Nidhi under 406 and OPC under section 2(62). The Nidhi Company in India is one particular public limited company that is governed under the supervision of RBI and as per the Companies Act, 2013. The companies Act, 2013 has clearly laid down that a One Person Company can never be converted into Section 8 and in the Nidhi Company. There is no similarity between these companies. The only similarity is that the provisions related to the Companies Act, 2013 would be applicable to both these companies.

Read our article:One Person Company V/S Private Limited Company: Quick Comparison