Tax India Firm

A Nidhi Company is a type of non-banking financial company (NBFC) recognized under Section 406 of the Companies Act, 2013 in India. It is primarily established to cultivate the habit of thrift and savings among its members and to lend to its members from the funds pooled together. The key feature of a Nidhi Company is that it deals with its members only and cannot engage with the general public.

Key Features of a Nidhi Company

  • Member-Only Operations: Nidhi Companies can only accept deposits and lend money to their members.
  • Mutual Benefit: The primary goal is to benefit the members through savings and loans, not profit generation.
  • Regulated Entity: Although not regulated by the Reserve Bank of India (RBI) like other NBFCs, Nidhi Companies must adhere to specific rules laid down by the Ministry of Corporate Affairs (MCA).
  • Restrictions on Activities: Nidhi Companies cannot engage in activities like chit funds, leasing finance, insurance, or securities trading.
  1. Advantages of Forming a Nidhi Company
  • Encourages Savings: Nidhi Companies promote the habit of saving among their members.
  • Ease of Borrowing: Members can easily borrow money at lower interest rates than what is typically offered by banks and other financial institutions.
  • Limited Liability: Members have limited liability, meaning their personal assets are protected from the company’s debts.
  • No RBI Approval Required: Unlike other NBFCs, Nidhi Companies do not require RBI approval to start operations.
  • Simple Registration Process: The formation of a Nidhi Company involves a relatively straightforward registration process.

Documents Required for Nidhi Company Registration in India

To register a Nidhi Company in India, you need to provide the following essential documents:

  • Directors Identification Number (DIN)
  • PAN Number (Permanent Account Number)
  • Residential proof and address proof
  • Photographs of the proposed directors and members
  • Identification documents like Aadhar card
  • Proof of the registered business place, such as a rent agreement or lease
  • Ownership proof of the business place
  • NOC (No Objection Certificate) if required
  • Memorandum of Association (MOA)
  • Articles of Association (AOA)

Nidhi Company Registration Procedure 

Step 1: Name Reservation

We help you reserve your desired name with the Ministry of Corporate Affairs (MCA).

Step 2: DSC and DINs

We assist you in obtaining 1 Digital Signature Certificate (DSC) and 3 Director Identification Numbers (DINs).

Step 3: Documents and Approval

We provide support throughout the documentation process. It helps you obtain in-principle approval from RBI.

 

  1. Steps to Form a Nidhi Company
  • Step 1: Choose a Unique Name for Your Company
    • Name Guidelines: The name should be unique and comply with the naming guidelines set by the Ministry of Corporate Affairs (MCA). It should end with “Nidhi Limited.”
    • Name Availability Check: Check the availability of the name with the Registrar of Companies (ROC).
  • Step 2: Prepare and File Incorporation Documents
    • Memorandum of Association (MOA): Draft the MOA, which outlines the company’s objectives, including the primary objective of fostering thrift and savings among members.
    • Articles of Association (AOA): Draft the AOA, which defines the rules and regulations governing the company’s operations.
    • Form INC-9 and DIR-2: Obtain the consent of the first directors and file it along with their identity and address proofs.
    • Incorporation Form: Submit the incorporation form (SPICe+ in India) along with the required documents to the ROC.
  • Step 3: Obtain Certificate of Incorporation
    • After the ROC reviews and approves the documents, you will receive a Certificate of Incorporation, officially recognizing your Nidhi Company.
  • Step 4: Post-Incorporation Requirements
    • Minimum Members: Within one year of incorporation, the Nidhi Company must have a minimum of 200 members.
    • Minimum Net Owned Funds (NOF): The company must maintain at least ₹10 lakhs in net owned funds.
    • Deposit Ratio: The ratio of net owned funds to deposits should not exceed 1:20.
    • Filing of Forms: File necessary forms, such as NDH-1 (for compliance with member and fund requirements), NDH-2 (application for an extension if member requirements are not met), and NDH-3 (half-yearly returns) with the ROC.
  • Step 5: Register for PAN and TAN
    • Apply for the company’s Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  • Step 6: Open a Bank Account
    • Open a dedicated bank account in the company’s name for managing financial transactions.
  • Step 7: Compliance with Nidhi Rules
    • Annual Compliance: File annual returns, financial statements, and other necessary documents with the ROC.
    • Regular Meetings: Conduct regular board and general meetings as required by law.

Nidhi Companies Must Follow Certain Rules

Ensuring the smooth working and legal compliance of Nidhi Companies in India depends heavily on their compliance responsibilities. The following factors include a number of important areas essential to the financial openness and legal compliance of the business:

  1. Proper Book of Accounts Maintenance: Transaction, asset, debt, income, and cost information must be included in exact and current financial records kept by Nidhi Companies. Regulating compliance and financial transparency rests on accurate records.
  2. Annual General Meetings: It is needed of Nidhi Companies to have annual general meetings (AGMs) to address with shareholders important matters like company affairs and financial performance. Annual General Meetings make contact with stakeholders easy as well as accountability and openness.
  3. Yearly Returns and Financial Statements: To provide an intensive image of the actions and financial health of the agency, Companies are needed to post yearly returns and monetary statements with the Ministry of Corporate Affairs.
  4. Complying with the Nidhi Rules, 2014: The Nidhi Companies are subject to the rules that direct their financial, compliance, and operating actions.
  5. Getting Required Permissions from the MCA and RBI: To ensure legal obedience and regulatory control, Nidhi Companies must get permission from regulatory bodies like the MCA and RBI for certain operations or changes inside the company.

 

Benefits of Nidhi Company

Registering a company as a Nidhi in India offers a range of advantages that extend beyond the primary objective of fostering savings among members. Here are key points emphasizing what is Nidhi company benefits:

  • Easy Formation: Nidhi Companies boast a straightforward and hassle-free formation process with minimal requirements, making it accessible for those looking to establish such entities.
  • Non-Compliance with RBI: Nidhi Companies are not bound by the Reserve Bank of India (RBI) guidelines, allowing them to set their own operational rules and regulations.
  • Lower Risk: Transactions involving lending, borrowing, or depositing are carried out by members of the Nidhi Company, reducing financial risks and ensuring a sense of security within the community.
  • Economic Registration: The registration process for a Nidhi Company is cost-effective when compared to other Non-Banking Financial Company (NBFC) registration procedures, which facilitates easier access to business loans and financing options.
  • Savings Promotion: Nidhi Companies play a pivotal role in promoting a culture of saving among the Indian population, thereby contributing to financial prudence.
  • Net-Owned Funding System: Nidhi Companies typically adopt a cost-effective net-owned funding system, which can enhance their business growth prospects by efficiently utilizing their own resources and funds.

Restrictions on Nidhi Companies

Nidhi companies have certain rules they must follow to keep their focus on serving their members. They are not allowed to:

  • Advertise for deposits from the public.
  • Get involved in chit funds.
  • Provide leasing or hire-purchase financing.
  • Run lotteries.
  • Offer insurance services.
  • Sell, mortgage, or use assets as security.
  • Partner with others for lending and borrowing.
  • Take deposits or lend money to people who aren’t their members.
  • Issue certain types of shares or debt instruments.
  • Exceed a limit on the value of shares.
  • Open current accounts for members (though savings accounts are fine).
  • Lend to or take deposits from corporations.
  • Pay commissions or fees for attracting deposits.
  • Do any business beyond borrowing and lending to members.
  • Get involved in hire-purchase financing.
  • Pay fees for loans to brokers.

Get A Free Consultation

FAQ'S

Frequently Asked Questions

A Nidhi Company is a type of non-banking financial company (NBFC) recognized under Section 406 of the Companies Act, 2013 in India. It is a mutual benefit company that primarily operates for the benefit of its members by accepting deposits from them and providing loans or advances to its members. Unlike banks, Nidhi Companies do not have a banking license but are regulated by the Ministry of Corporate Affairs (MCA). They mainly focus on encouraging savings and providing affordable credit to their members.

To register a Nidhi Company, the following eligibility criteria must be met:

  • Minimum Number of Members: A minimum of 7 members and 3 directors are required. All members must be individuals and not other entities.
  • Name Reservation: The name of the Nidhi Company must include “Nidhi Limited” and must not be identical or similar to an existing company or trademark.
  • Minimum Capital Requirement: Although there is no specified minimum capital requirement under the Companies Act, 2013, it is advisable to have a reasonable amount of capital to start operations effectively.
  • Registered Office: The company must have a registered office in India and must maintain proper records of its business operations.

Other Compliance: The company must comply with various provisions related to corporate governance and financial regulations as prescribed by the MCA

The registration process for a Nidhi Company involves several steps:

  1. Obtain Digital Signature Certificate (DSC): The directors of the company must acquire DSCs for online filing of documents.
  2. Obtain Director Identification Number (DIN): Each director must obtain DIN by applying through the MCA portal.
  3. Name Reservation: File an application for name reservation through the MCA portal using Form SPICe+.
  4. Draft Memorandum and Articles of Association (MOA & AOA): Prepare and submit the MOA and AOA outlining the company’s objectives and internal rules.
  5. File Incorporation Documents: Submit the incorporation documents along with the MOA, AOA, and other required forms to the Registrar of Companies (ROC) using Form SPICe+.
  6. Obtain Certificate of Incorporation: Upon approval, the ROC will issue a Certificate of Incorporation, officially recognizing the Nidhi Company.

     7.Apply for PAN and TAN: Post incorporation, apply for a Permanent Account           Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.

Key features of a Nidhi Company include:

  • Mutual Benefit: Nidhi Companies primarily benefit their members by providing easy access to financial services like loans and deposit facilities.
  • Regulation: They are regulated by the Ministry of Corporate Affairs (MCA) and must adhere to specific compliance and reporting requirements.
  • Deposit and Loan Operations: They can accept deposits only from their members and lend money to members at competitive interest rates.
  • Limited Activities: Their activities are restricted to borrowing and lending among members only; they cannot engage in any other financial activities.
  • Dividend Distribution: Nidhi Companies can distribute dividends to members, subject to compliance with statutory requirements.

Nidhi Companies must adhere to several compliance requirements:

  • Annual Returns: File annual returns with the ROC, including financial statements, auditor’s report, and compliance certificates.
  • Auditor Appointment: Appoint a qualified auditor to audit the company’s financial statements.
  • Share Capital: Maintain a minimum share capital as required by regulations and ensure proper records of transactions.
  • Regulatory Filings: Submit quarterly and annual reports on the company’s deposit and loan activities to the MCA.
  • General Meetings: Hold annual general meetings (AGMs) and file minutes of meetings with the ROC.
  • Regulatory Compliance: Comply with the rules laid down by the Nidhi Rules, 2014, and other relevant regulations.

While the Companies Act, 2013, does not specify a minimum share capital requirement for a Nidhi Company, it is recommended to have a minimum paid-up capital of ₹10 lakhs. This amount helps ensure the company’s ability to manage its operations and meet regulatory requirements effectively.

No, Nidhi Companies are restricted to accepting deposits only from their members. They cannot accept deposits from non-members or the general public. This limitation is designed to ensure that the company operates on a mutual benefit basis, focusing solely on its members.

Nidhi Companies can provide various types of loans to their members, including:

  • Personal Loans: For personal needs such as medical expenses or education.
  • Secured Loans: Loans backed by collateral such as property or fixed deposits.
  • Emergency Loans: For urgent financial needs of members.
  • Business Loans: Loans for starting or expanding a business, subject to the company’s lending policies.

The interest rates and terms for these loans are usually competitive and determined by the company’s internal policies.

Nidhi Companies face several restrictions, including:

  • No Commercial Activities: They cannot engage in commercial activities such as trading or investing in stock markets.
  • No Non-Member Deposits: They cannot accept deposits from or provide loans to non-members.
  • No Financial Intermediaries: They cannot act as intermediaries or engage in activities reserved for banks and other financial institutions.
  • Limited Investments: They have restrictions on investments and are generally allowed to invest only in specified securities and assets.

Benefits of forming a Nidhi Company include:

  • Ease of Formation: Relatively simple and cost-effective compared to other financial institutions.
  • Mutual Benefit Structure: Focuses on the welfare of its members by providing financial services at competitive rates.
  • Tax Benefits: Possible tax advantages due to the mutual benefit nature of the company.
  • Community Support: Encourages savings and provides financial support within a close-knit community or group.
  • Less Regulation: Compared to banks and NBFCs, Nidhi Companies face fewer regulatory requirements, making them easier to manage.