Nidhi Company
Nidhi Company including Incorporation kit and share certificates.
What is Nidhi Company?
A Nidhi Company is a unique type of Non-Banking Financial Company (NBFC) in India, formed with the primary goal of cultivating the habit of savings among its members. These companies operate on mutual benefit principles, facilitating borrowing and lending solely among members. Nidhi Companies are relatively easy to set up since they do not require a license from the Reserve Bank of India (RBI) and are registered as public companies with "Nidhi Limited" in their name.
Mutual Benefit
The main objective of a Nidhi company is to promote savings and thrift among its members. It functions by accepting deposits and providing loans exclusively to its members, ensuring mutual benefit.
Membership
Nidhi companies are exclusively member-based organizations. They do not accept deposits or lend money to non-members, maintaining a closed financial ecosystem.
No External Involvement
Unlike other NBFCs, Nidhi companies do not participate in external financial activities such as leasing, hire-purchase, insurance, or chit fund businesses.
Minimal Capital Requirement
To incorporate a Nidhi company, the minimum capital requirement is INR 10 lakh, making it accessible for small groups aiming to foster mutual financial growth.
Characteristics and Features of Nidhi Companies:
Mutual Benefit:
Nidhi Companies advance the interests of their members by taking deposits and lending money. They operate on principles of mutual trust and group financial support.
Regulation:
Under the Companies Act of 2013, Nidhi Companies are regulated by the Ministry of Corporate Affairs (MCA). They must comply with strict regulations on capital adequacy, lending limits, operational transparency, and regulatory reporting.
Limited Scope:
Unlike banks and NBFCs (Non-Banking Financial Companies), Nidhi Companies have limited scope. They cannot engage in insurance, leasing, or hire-purchase financing. They are restricted to lending and borrowing only among their members.
Membership Criteria:
Members of a Nidhi Company usually share a common interest, such as living in the same area or belonging to the same community. They participate in the company's governance and contribute to its capital.
Corporate Structure:
Nidhi Companies typically have a simple corporate structure, with members electing a board of directors to manage the organization. This ensures democratic control and member accountability.
Financial Inclusion:
Nidhi Companies play a crucial role in promoting financial inclusion in rural and semi-urban areas where traditional banking services may be scarce. They provide a platform for small savers to deposit funds and access credit for various personal and business needs.
Documents Required for Nidhi Company Registration in India
Essential documents needed before and after the registration of a Nidhi Company in India.
1. PAN Card / Aadhar Card
The PAN Card or Aadhar Card is essential for identity verification.
2. Contact details (Email Id & Mobile number)
Provide current contact details to facilitate communication.
3. Latest Bank Statement/Telephone or Electricity bill
A recent bank statement or utility bill for address verification.
4. Voter's ID/Passport/Driver's License
Any of these documents can be used for identity proof.
5. Passport-sized photograph of all directors and shareholders
Photographs of all key personnel for company records.
Requirements After Registration
Membership Quota:
Your Nidhi Company must have 200 members or shareholders before the end of the first year.
Net Owned Funds (NOF):
Your company's NOF should exceed Rs. 10 lakhs.
NOF to Deposit Ratio:
More than a 1:10 should be the ratio of NOF to deposit.
Unencumbered Deposits:
Over 10% of total deposits must be made up of unencumbered deposits.
Nidhi Company Registration Procedure
In India, incorporating a Nidhi Company involves several important procedures, including taking legal action if a member defaults. Here is a detailed walkthrough of the registration procedure:
Step 1: Applying for DIN and DSC
The Nidhi Company's directors are required to obtain a Digital Signature Certificate (DSC) and apply for a Director's Identification Number (DIN). The Ministry of Corporate Affairs (MCA) is responsible for issuing DINs, and all e-filing procedures require DSC. Directors can skip this step if they already have a DIN and DSC.
Step 2: MoA & AoA
Clearly state the main reason for founding the Nidhi Company in the drafts of the Memorandum of Association (MoA) and Articles of Association (AoA). The Registrar of Companies (ROC) must receive these documents and a subscription statement.
Step 3: Name Approval Process
Provide the MCA with your top three suggestions for the Nidhi Company's name. One name will be selected by the MCA for approval. The name that is chosen must be original and not already in use. Approved applications are valid for 20 days.
Step 4: Application for Registration
Directors are required to file an application for registration following name approval. The Memorandum of Association (MoA) and Articles of Association (AoA) are submitted with this application.
Step 5: Certificate of Incorporation (CIN)
The Nidhi Company's Certificate of Incorporation is normally issued by the appropriate authority within 15 to 20 days. The company's distinct Company Identification Number (CIN) is also provided by this certificate.
Step 6: PAN, TAN, and Bank Account
Request a Tax Deduction and Collection Account Number (TAN) and Permanent Account Number (PAN). Next, open a bank account for the Nidhi Company and submit the PAN, MoA, AoA, and Certificate of Incorporation.
Frequently Asked Questions (FAQs)
What are the eligibility criteria for a Nidhi Company?
A Nidhi Company must secure at least 200 members within its first year of operation. Additionally, its net owned funds should be at least ₹10 lakh, calculated as the sum of equity share capital and free reserves, minus accumulated losses and intangible assets.
What activities are restricted for a Nidhi Company?
Nidhi Companies are prohibited from engaging in chit funds, hire purchase finance, leasing finance, insurance, or purchasing securities from any corporate entity.
What is the main function of a Nidhi Company?
A Nidhi Company operates as a type of Non-Banking Financial Company (NBFC) and primarily focuses on borrowing and lending funds among its members.
Is borrowing money allowed for a Nidhi Company?
Yes, a Nidhi Company can borrow money from its members and also provide loans to them as per the regulations laid out for such companies.
What is the maximum term for a director in a Nidhi Company?
Directors in a Nidhi Company can serve up to ten consecutive years. After this period, they must step down before being eligible for reappointment.
What is the primary objective of a Nidhi Company?
The key aim of a Nidhi Company is to promote savings and provide a platform for members to deposit and borrow funds, thereby supporting a culture of thrift and mutual benefit.
What restrictions does rule 6 impose on Nidhi Companies?
Rule 6 prohibits Nidhi Companies from conducting businesses related to chit funds, leasing finance, and hire purchase, thereby limiting their financial activities.
Who oversees the regulation of Nidhi Companies?
Nidhi Companies are regulated by the Ministry of Corporate Affairs, which is responsible for setting guidelines and ensuring compliance with statutory requirements.
What does rule 12 of Nidhi Company cover?
Rule 12 stipulates that a Nidhi Company must obtain a declaration from the Central Government under Section 406 of the Companies Act before commencing its business operations.
What are the penalties for non-compliance in a Nidhi Company?
Nidhi Companies face penalties for non-compliance with regulations, which may include fines, operational restrictions, and other regulatory actions imposed by authorities.