Nidhi Company Registration

Nidhi Company Registration

Nidhi Company is a part of non-banking finance companies (NBFC). It is formed for the purpose of lending and borrowing money to its members. Nidhi company promotes the habit of savings among its members and follows the principle of mutual benefit.

Why register for Nidhi Company

Incorporating a Nidhi Company allows such a company to borrow and lend money to its member only. It encourages people to save more. Only members of the Nidhi Company are allowed to contribute to the funds of the Nidhi Company.

Nidhi Company can be formed easily as there is no requirement for obtaining a license from the Reserve Bank of India (RBI). Such companies are registered as public companies and should contain the words Nidhi Limited at the last of the name.

The word, “Nidhi” comes from the word, “Treasure”. Nidhi Companies are very popular in South India. Mutual benefit is the main feature of Nidhi as the main source of funds of Nidhi is from its member only.

Nidhi Companies are registered under the Companies Act. Nidhi Company’s main objective is to promote the habit of thrift, savings among the members.

Nidhi Company has to comply with the directions of the Reserve Bank of India (RBI) as it comes under the class of Non-Banking Financial Companies. RBI has also exempted notified Nidhi’s from complying with certain provisions of the RBI Act.

As per the Nidhi rules 2014, a Nidhi Company is not allowed to do transactions such as leasing on hire purchase finance, chit fund. It cannot give loans to outsiders. Within 12 months of incorporation, the number of members in Nidhi Company must be at least 200.

The process to register as a Nidhi Company is comparatively simple than other forms of NBFCs and also documentation is less. Nidhi Companies provides relief to middle and lower-middle classes by allowing them to deposit their savings and benefits from return on fixed time duration.

Benefits of having Nidhi Company:

  • Can be formed easily: Nidhi Company can be formed only with 7 persons and 3 directors would be required to start the company. Furthermore, the paperwork is also less which makes it easy to incorporate the Nidhi Company.
  • Less risky: Since the borrowing and lending of funds are restricted to its members only, it becomes less risky as it reduces the risk of non-payment of funds. Also, the risk arising from the external factors affecting the functioning of the company reduces. Nidhi companies are considered safest with respect to borrowing and lending money.
  • Perpetual succession: The existence of Nidhi Company is not affected by the existence of its members which means that even if all the member dies the operation of Nidhi will be continued. It is not affected by the existence of its members.
  • Mutual benefit: Nidhi Company borrows and lends money to its members only. It gives rise to mutual benefits. The risk of non-payment is very low as compared to other companies.
  • Capital requirements: As per the Nidhi rules 2014, the minimum capital required for registering Nidhi is ₹5,00,000 lacs only (Five lakh rupees only). This is a very advantageous thing about the Nidhi Company. If we compare the minimum capital requirements of Nidhi Company with other NBFCs we will find that it is very less.
  • No interference from outside: All the operations of the Nidhi Company are directed/restricted to its members only. Therefore no external party can interfere in the operations and management of the company.
  • Exemptions under the Companies Act, 2013: Various exemptions are granted to the Nidhi Company under the Companies Act, 2013. Such exemptions are:
    1. It’s free to make private placement and it will not be deemed as an offer to the public.
    2. It can serve documents to its Nidhi members through post/registered post/speed post/courier or any other mode as may be prescribed.
  • RBI regulations: Nidhi Companies are not required to comply much with provisions of the RBI Act though it is a finance company. These companies are required to follow Nidhi rules 2014. Intervention on the part of RBI would be minimal.
  • Benefits to the members: It is easy and convenient for the members to get loans from its Nidhi Company. Also, the rate of interest is low as compared to the interest rate. Therefore it helps members to adopt the habit of savings.

About Nidhi company registration

  1. Nidhi companies cannot accept deposits from external corporations or individuals.
  2. Nidhi companies are not permitted to perform vehicle finance business in India.
  3. Nidhi companies can accept FD, RD, and saving deposits and can earn an interest maximum of up to 12.5%
  4. Nidhi companies can give loans against security.
  5. Nidhi is not required to comply strictly with the RBI norms.
  6. The operations of Nidhi Company are governed by Nidhi Rules, 2014 and companies Act, 2013.
  7. The operations of Nidhi Company must be limited to the district laws for the first 3 years. After completion of 3 years period further 3 offices can be set up within the same district.
  8. It is mandatory for the Nidhi Company to file annual accounts, audits, and tax returns in the proper format.
  9. There must be a minimum of 200 members in the company within 12 months of registration.
  10. All the borrowings and lending of the Nidhi Company is done exclusively by its members. Nidhi companies are also called Mutual Benefit Societies as they work for the mutual benefit and welfare of all the members.

Requirements for a Nidhi Company registration

  1. It must have 200 members
  2. It has to ensure the ratio of net owned funds to deposit  is not than 1:20
  3. It must have term deposits (unencumbered) of not less than 10% of the outstanding deposits.

If the Nidhi Company satisfies all the conditions mentioned above then such company shall within the period of 90 days from the close of its financial year after the registration be required to file NDH-1 duly certified by practising CA/CS/CWA along with the fees as may be prescribed.

If the Nidhi Company doesn’t comply with the above requirements it shall further request the regional director to extend the time limit for submission of the NDH-1 form; within 30 days from the use of the first financial year.

If even after the 2nd financial year the Nidhi doesn’t meet the above requirements, then the company shall be liable to pay penalties as may be prescribed.

Procedure to register a Nidhi Company

  1. Minimum 7 members and 3 directors are required to form a Nidhi Company.
  2. Application for Director Identification Number (DIN) and Digital Signature Certificate (DSC) is to be made.
  3. After obtaining DIN and DSC, an application in INC-1 to the Ministry of Corporate Affairs (MCA) has to be filed for reserving the name of Nidhi Company.
  4. Memorandum of Association (MOA) and Article of Association (AOA) to be prepared after the name is approved.
  5. Get the incorporation certificate
  6. Apply for PAN and TAN

Documents required for a Nidhi Company

  1. Passport photographs of all the directors.
  2. ID proof of all the directors and members.
  3. Address proof of all the directors and members (Aadhar card/Voter ID).
  4. Address proof of the company. It is to ensure that it is not older than 2 months.
  5. Copy of property paper (if the property is owned by the company).
  6. No Objection Certificate (NOC) from the landlord if the property is rented.

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