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Nidhi Company Registration
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What is Nidhi Organization or Nidhi Bank?

“Nidhi” is a Hindi word, which means finance or fund. The basic concept of nidhi is “Principle of Mutuality ”. Thus they function for the common benefit of all their members/shareholders. Nidhi company registration is done with the intention of cultivating savings among the members and providing finance to the members only. It is allowed to take loans from members and can lend to members only. Therefore, it cannot accept deposits or lend to/from non-members. Nidhi companies existed even prior to the existence of companies Act 1913. 

A nidhi company, is one that belongs to the non-banking Indian finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. They are regulated by the Ministry of Corporate Affairs. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these companies deal with their shareholder-members only.

Nidhi company registration

Do you want to start a finance/loan business in India? Then you are at the right stage because Nidhi Company is the easiest and most affordable way to start a loan business in India. It only requires 7 people with easy documents required to start the Nidhi Company. The minimum capital requirement for Nidhi Company registration is Rs.5 lakh.

Nidhi Company can only do business by accepting deposits and lending money to its members only. It cannot deal with the public directly and can only work with its members. However, one can easily make members under Nidhi Company with few documents and an easy process. Also, Nidhi Company registration is the only form of a company available to start a loan company in India without RBI approval.

Nidhi Company can open three branches after working in the district for three years. Also, to open any branch outside the district, the company will have to take the approval of the RD. Also, Nidhi company cannot operate outside the state. So, if you want to expand your business to another state, you will need to register another Nidhi company.

Fincosolutions is a specialized company for registering and managing Nidhi Companies in India and manages hundreds of companies across India. We have a top consulting company for starting and managing businesses in India.

Benefits of Nidhi Company Membership/Registration

The central goal behind the establishment of Nidhi Company is to encourage its members to save so that they can meet the financial requirements that may arise from time to time. Being critical thinkers, they become self-reliant and can meet all the expenses in the future. And the benefits of registering a company as a Nidhi do not end there.

There are several benefits of registering a Nidhi company. Some of the key benefits include:

  • No External Involvement in the Company’s Management;
  • Easy to lend money to or raise capital or borrowings from group members;
  • Easy to manage;
  • Low capital requirement;
  • Relaxation in the number of compliances;
  • Cost-efficient registration;
  • Many privileges and exemptions are provided under the provisions of the Companies Act, 2013;
  • The Minimal involvement of RBI;
  • Secured investment with lower Rate of Interest;
  • Low level of risk;
  • ociety;
  • Enjoys the status of a separate legal entity
  • Better savings option;
  • Nidhi Company Rules is the Single Regulatory Body;
  • Better substitute of a Credit Co-operative Society;
  • Enjoys the status of a separate legal entity;
  • Fulfilling the financial requirements of the lower and middle-income groups;
  • Simple processing;
  • Easy access to public funds;
  • Limited liability.

Eligibility Criteria for Nidhi Company Registration

Given below are the essential conditions that must be met with for registering or operating a Nidhi Company.

Requirement before Registration

  • Minimum number of shareholders or members – 7
  • Minimum number of Directors -3
  • The minimum capital requirement is of Rs. 5 lakhs
  • DIN for Directors
  • Minimum 3 Directors.
  • No Preference Shares shall be issued.
  • The objective of the company shall be to cultivate the habit of saving by “receiving deposits” from and “lending to” it’s members only for their mutual benefit.

Requirement after Registration

  • By the end of the 1st year, the number of members or shareholders of the Nidhi Company must be 200 at least.
  • NOF should be more than Rs. 10 lakhs.
  • The ratio for NOF to Deposit should be more than 1:20.
  • Unencumbered deposits should exceed 10 % of outstanding deposits.

Documents Required for Nidhi Company Registration

PAN & Photo: PAN & photo are required for each & every director & shareholder in India.
ID Proof: Anyone of the following: Aadhar card, voter ID, Driving license & passport.
Address Proof: Anyone of the following: Bank statement, Mobile bill, Electricity bill, Landline bill.
Registered Office: Electricity bill/rent agreement and copy of No objection certificate
 
*Only scan copies of all documents are required. Hard copies are required only from Non Resident Indians (NRI) or Foreign nationals.
 

Process follow to register Nidhi Company

The Nidhi Company Registration process is simple but will require a professional to complete the same. Further, the procedure has been changed completely by the government to promote ease of doing business. However, instead, the government ends up making the process a little complex. However, Finco solution is specialized in Nidhi Company Registration with an experience of more than 200 Nidhi Company registration and managing hundreds of Nidhi companies across India. Know all 6 steps in Nidhi Company Registration.

Obtain DSC and DIN

First and foremost, the applicant must apply for a digital signature certificate (DSC). Through the DSC, signatures can be provided in digital format. After securing the DSC, the applicant has to apply for the Director Identification Number.

Apply for a Name Approval

In the next step, the applicant has to make an application for name approval to the MCA. During this process, the applicant has to provide three unique names for the Nidhi entity. The names provided must be unique and should not be in conflict with any provision relating to Intellectual Property Rights in India.

Drafting of MOA and AOA 

After the above step, the applicant has to file the prescribed documents with the Registrar of Companies . These documents must be filed through Form-INC 32. Along with this the MOA and AOA must be submitted. When submitting documents, the applicant has to intimate the main objects of forming this entity.

Incorporation Certificate

After reviewing the above documents, the Company will secure the certificate of incorporation. This certificate of incorporation is a testament to the company incorporation process. This will usually be issued by the registrar within 16 to 20 business days.

Applying for PAN and TAN

After securing the certificate of incorporation, the Nidhi Company should apply for PAN and TAN. The TAN can be secured from the respective Income Tax Department.

Opening Bank Account

This is the final step in incorporating the business. It is crucial to open a bank account on behalf of the business for any transactions

Post Incorporation Compliances of Nidhi Company

Mandatory Compliance for Nidhi Company

The required compliances for the Nidhi Company are as follows:

  • Form NDH-1 As per the Form it is required to submit the members’ list within 90 days beginning at the close of each fiscal year on a particular form.
  • Form NDH-2 If you are unable to meet the 200-member target, and is not achieved the requirements of the Company during the initial budget year of the financial year you may be made before the MCA (Ministry of Corporate Affairs) to grant an extension on this Form.
  • Form NDH-3 Other than the one previously mentioned, i.e., NDH-1 Form, half-yearly returns are also required to be filed on Form NDH-3.
  • Annual Return and the ROC– It is mandatory to file annual returns in the MCA via MGT-7. MGT-7.
  • Profit and Loss Statement and the Company’s Balance Sheet– The financial statements, as well as other relevant documents, have to be filed every year, in Form AOC-4.
  • Income Tax Returns (ITR).
  • It must file annual income tax returns (ITR) on or before the 30th of September for the relevant financial year.

General Restrictions on Nidhi Company

In India, the Restrictions applicable to Nidhi Companies in terms of their activities are as follows:

  • Chit funds,
  • Insurance,
  • Leasing finance,
  • Advertise themselves to invite deposits,
  • Hire-Purchase finances,
  • Lotteries,
  • Sell, Mortgage, or Pledge the assets kept with it as collateral security for a loan,
  • Getting into Partnerships in order to carry out lending and borrowing activities,
  • Accepting deposits or lending funds to any other person than its own shareholders,
  • Issuance of preference shares, debentures, or any other type of debt instruments,
  • Issue of Equity Shares of the nominal value at over Rs. 10/- each,
  • Offer its deposit holders equity shares that, too, more ten shares or shares of the worth of more than Rs. 100/-,
  • Open a current account together with its members (although it is permitted to open a Savings Account),
  • Lend to or accept a deposit from a corporate,
  • Pay commission, incentive or fee for the mobilization of deposits,
  • Carry out any other business than lending or borrowing from its members,
  • Hire a Purchase Financer,
  • Pay any brokerage amount for granting a loan to its members.
 

FAQ

A Nidhi Company is a Company which carries on the business of accepting deposits and lending the same on demand. Nidhi Company is similar to NBFC but the only basic difference between the two is that Nidhi Companies accept deposits only from its members. The main aim of these companies is to work for the mutual benefit of its members. These companies are not entitled to carry on the business of Hire Purchase Financing, Insurance, Chit Funds and Acquisition of securities or Issue of any Debt Instruments.

A minimum of three directors and seven shareholders are needed for incorporating a Nidhi Company.

No, a minor is not allowed to become director of a Nidhi Company. Only a person who is a minimum of 18 years old can become the Director of a Nidhi Company.

No, there is no upper limit prescribed for the maximum number of members. However, it is mandatory for a Nidhi Company must have a minimum of two hundred members by the end of the 1st financial year.

No, all the financial transactions have to be made only between the shareholders of the company.

No, Nidhi Company is not allowed to do microfinance business in India. These are because micro finance is a completely different set of business for an NBFC and require more capital to do the same. Hence, Nidhi Company cannot engage itself into micro finance business. Further, since Nidhi Company raise fund from deposits and hence, if it passes the same to member without any security, then there will be great chances of customer default which will ultimately results into bankruptcy of the Nidhi Company.

A Nidhi Company can open up to 3 branches after three years of continuous profit running of the business. Further, these three branches can be opened within the district only. Further, to open any branch outside the district, you will require the Regional Director (RD) permission. Also, a Nidhi Company cannot open a branch outside the state.

Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.

Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.

Nidhi can provide loans to its members only after the members have given/ provided some securities like gold, silver jewelry or any type of financial securities against the loan.

Yes, it is necessary to use the word “Nidhi Limited” in the name of the company. However, the term “Mutual Benefit” can also be used.

The regulations passed by the Ministry of Corporate Affairs and the provision of Nidhi Rules, 2014 act as the regulating authority for Nidhi Company.

A Certificate of Incorporation has lifetime validity, or till the time the company’s name is not struck off by the ROC (Registrar of Companies).

No, Nidhi Company is not qualified to issue unsecured loans. However, it can issue Secured Loans to its shareholders or members.

No, a person cannot borrow again from the Nidhi Company if he has earlier defaulted in a loan.

No, a Nidhi Company is not allowed to operate outside the state in which it is registered.

No, the profits earned from a Nidhi Company cannot be invested in any other business.

A minimum of 6 months and a maximum of 60 months period is prescribed for fixed deposits in a Nidhi Company.

A Nidhi Company can accept deposits only from its Registered Members.

A minimum of 12 months and a maximum of 60 months period is prescribed for recurring deposits in a Nidhi Company.

No, Nidhi Companies are exempted from the core NBFC provisions of the Reserve Bank of India.

A Nidhi Company is not regulated and governed by the provisions of RBI. Moreover, Nidhi Company Registration requires a much smaller amount of capital than Rs 2 Crore paid-up capital requirement for NBFCs.

A Nidhi Company is not regulated and governed by the provisions of RBI. Moreover, Nidhi Company Registration requires a much smaller amount of capital than Rs 2 Crore paid-up capital requirement for NBFCs.

No, a Nidhi Company cannot purchase securities and shares from any other organization.

No, a Nidhi Company cannot purchase securities and shares from any other organization.

No, a Nidhi Company is not allowed to carry out any activity other than Lending and Borrowing.

A director of Nidhi Company can hold their office for 10 consecutive years. However, he is eligible for re-appointment only after the expiry of 2 years, starting from the cessation of his term.

Nidhi Company cannot accept deposits exceeding the limit of twenty times its NOF (Net Owned Funds).

A Nidhi Company is allowed to open only three branches within a district. However, to open more than three branches, the said Company is must seek prior approval of the RD (Regional Director) for every additional branch.

A Director is firstly required to be a member of the said Company, and then, he must comply with the requirements prescribed under Section 152(4) of the Companies Act, 2013.

No, a Body Corporate is not allowed to be admitted as a member or shareholder of a Nidhi Company.

A Nidhi company must be incorporated under the provisions of the Companies Act, 2013, and shall acquire the status of a Public Limited Company.

No, such rules have been prescribed banning a salaried person from becoming a director of a Nidhi Company. However, the employment agreement of the said person may place some restrictions on him or herein doing so.

A Nidhi company cannot be converted into NBFC.

No, Nidhi Company cannot give a vehicle loan

A Nidhi Company is a company that carries on the business of accepting deposits and lending the same on demand. Nidhi Company is similar to NBFC, but the only basic difference is that Nidhi Companies accept deposits only from its members.

Nidhi can deal only in secured loans. Thus it can give loans against the securities mentioned in the law.

The term NOF is the acronym form for the Net Owned Funds. Further, NOF or the Net Owned Fund = Aggregate Paid up share capital + Free Reserves – Accumulated losses (Deferred Revenue Expenditure), and Other Intangible Assets appearing in the Last Audited Balance Sheet.

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