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NIDHI (National Initiative for Developing and Harnessing Innovations) Company is a financial institution or a type of NBFC that is involved in depositing and lending money to its members. NIDHI Company is registered under the Companies Act, 2013, and is managed, as per the RBI’s guidelines.
Benefits of its Registration
Nidhi company registration has several benefits for the people bringing the company together. Some of the major benefits of Nidhi company registration are discussed in detail below:
- Easy Formation: The formation of a Nidhi company is a simple process. There are very few requirements for the formation of a Nidhi company. Some of the primary things to be kept in mind for the formation are listed below:
- A minimum of 7 members is required. 3 of these 7 members are appointed as directors of Nidhi company
- The simple and hassle-free documentation process
- Easy-to-do registration
- Even after being a different type of NBFC, the registration process is comparatively simple for Nidhi companies.
- No Compliance with RBI
As we suggested above, Nidhi companies do not have to comply with the RBI regulations. This non-compliance gives the company the freedom to inculcate better and different rules for its functioning. Complying with RBI’s regulations would have made it difficult for Nidhi companies to formulate their own rules and regulations which is a major point that differentiates them from other NBFCs.
- Less or No Risk
Since all the lending and depositing transactions are performed by members of the company, it lowers the financial risk taken by the company. In Nidhi companies, only the members are involved with the financial transactions which make it safe and easy to track the person depositing or borrowing funds from the company.
- Certainty on Savings
The basic objective of Nidhi companies is to promote the culture of savings among the people of India. This objective makes the concept of Nidhi companies certain and trustworthy. Nidhi companies make sure that they will never jeopardize the savings of their members where ever they invest. Savings is an important practice to be inculcated in individuals of all age groups of society.
- Net-owned Funding System
Nidhi companies follow the net-owned funding system. Net-owned funding refers to the transaction where the owner invests an amount in the business to raise funds for the same. In Nidhi companies, the ratio of net-owned funding is 1:20, which means if an owner invests Re. 1 in his/her business he/she can raise a fund of Rs 20 for his/her business. This feature of Nidhi companies makes it cost-effective for owners to invest in new business ventures and grow their company with more capital and diversify their business.
Nidhi company rules and regulations concerning incorporation of Nidhi Company?
The Nidhi Company rules and regulations concerning Nidhi Company Incorporation are-
- Nidhi Company must get registered as a public company as per the Nidhi Rules, 2014.
- The minimum paid-up equity share capital must be at least five lahks INR.
- The name of the Nidhi Company must end with the words ‘Nidhi Limited.‘
- Preference shares can’t get issued by Nidhi Companies according to the Companies Act of 2013.
- The Memorandum of Nidhi Companies must specify that their objects must revolve around the cultivation of saving habits amongst its members, deposits acceptance from as well as lending to its members for the sake of mutual benefit.
- A Nidhi Company needs to have a minimum of three directors along with seven shareholders for getting registered as a Nidhi Company.
- From incorporation within a one-year time limit, Nidhi Company must accumulate 200 members.
- The Net Owned Funds should be at least 10 lahks or more. Net Owned Fund is a blend of paid-up equity share capital and free reserves.
- Deposits must not be more than 20 times of Net Owned Funds.
- Nidhi Rules, 2014 specifies that unencumbered term deposits need to be equal to or more than 10% of the outstanding deposits.
Requirements for Nidhi Company
- A Nidhi company to be incorporated under this Act shall be a Public Company; It shall have a minimum paid-up equity share capital of 5,00,000/-;
- No preference shares shall be issued. If preference shares had already been issued by a Nidhi Company before the commencement of this Act, such preference shares are to be redeemed by the terms of issue of such shares;
- The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits; It shall have the words ‘Nidhi Limited’ as part of its name.
- Requirement after Incorporation: Every Nidhi shall, within a period of one year from Incorporation, ensure that it has— Minimum number of members should be 200.
- Net owned funds shall be Rs.10,00,000/- or more (‘Net owned funds’ means the aggregate of paid-up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet); Ratio of net owned funds to deposit shall be not more than 1:20 Unencumbered term deposits of not less than 10% of the outstanding deposits as specified in Rule 14.
Some of the key restrictions on Nidhi companies are:
- Deposit limit: A Nidhi company cannot accept deposits exceeding 20 times its net owned funds, as per the latest audited financial statements. None of the Nidhi Companies should start a current account with their members.
- Membership limit: A Nidhi company can only have a maximum of 200 members.
- Investment limit: A Nidhi company cannot invest more than 15% of its net owned funds in shares, bonds, or debentures issued by companies. No Nidhi Company should conduct the business, such as hire purchase finance, insurance/acquisition of securities issued by any of the body corporates, chit fund, and leasing finance. No Nidhi Company should pledge any asset lodged by the members of the Nidhi Company as securities.
- Lending limit: A Nidhi company cannot lend more than Rs. 2 lakhs to any of its members, and the total loan amount cannot exceed 25% of the net owned funds. None of the Nidhi Companies should go ahead with deposit acceptance or lending to any party or individual other than their members/shareholders.
- Branch expansion: A Nidhi company cannot open more than three branches in a district without the prior approval of the Registrar of Companies (ROC). No Nidhi Company needs to acquire other companies by buying securities or controlling the Board of Directors of different companies or entering into any arrangement for bringing changes in the management unless a Special Resolution gets passed in a general meeting and acquired approval from the associated Regional Director.
- Objectives and activities: A Nidhi company can only engage in activities related to the promotion of thrift, savings, and mutual benefit among its members, and cannot engage in any other business activities.
The process of registering a Nidhi company in India ?
Obtain a Digital Signature Certificate (DSC): The first step is to obtain a digital signature certificate for the proposed directors of the Nidhi company.
- Apply for Director Identification Number (DIN): The next step is to apply for a Director Identification Number (DIN) for the proposed directors of the Nidhi company. This can be done online through the MCA portal.
- Reserve a name for the company: Once the DIN is obtained, the next step is to reserve a unique name for the Nidhi company through the MCA portal. The name should not be identical or similar to any existing company or trademark.
- Draft and file the Memorandum and Articles of Association (MOA & AOA): The MOA and AOA of the Nidhi company must be drafted by the Companies Act, 2013, and must be filed with the Registrar of Companies (ROC) along with the requisite fees.
- Obtain Certificate of Incorporation: Once the MOA and AOA are approved by the ROC, a Certificate of Incorporation will be issued, and the Nidhi company will be registered.
- Apply for PAN and TAN: The Nidhi company must apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) with the Income Tax Department.
- Apply for Nidhi Company License: After registration, the Nidhi company must apply for a license with the Regional Director of the Ministry of Corporate Affairs (MCA) in the prescribed format along with the requisite fees.
How we can help ?
- Registration process: Legal experts can guide the promoters of the Nidhi company through the entire registration process, from obtaining digital signatures and Director Identification Number (DIN) to drafting and filing the Memorandum and Articles of Association (MOA & AOA) with the Registrar of Companies (ROC).
- Compliance: Nidhi companies are subject to certain restrictions and regulations, and we can help ensure that the company complies with all legal requirements. This includes ensuring that the company does not exceed the maximum deposit limits, membership limits, investment limits, and lending limits and that it does not engage in any activities outside its stated objectives.
- Licensing: After registration, Nidhi companies must obtain a license from the Regional Director of the Ministry of Corporate Affairs (MCA) to commence operations. We can help prepare and file the license application and ensure that all necessary documents are in order.
- Legal advice: We can provide ongoing legal advice to Nidhi companies on various matters, including corporate governance, taxation, and compliance with laws and regulations.
- Dispute resolution: In the event of any disputes or legal issues, We can represent Nidhi companies in court and help resolve the matter in the company’s favor.
- Given below is a list of documents one requires for Nidhi company registration:
- Passport-sized photographs
- No Objection Certificate (NOC) (signed by the landlord/owner)
- Digital Signature (DSC)
- Director Identification Number (DIN) of directors
- Memorandum of Association of the company (MoA)
- Articles of Association of the company (AoA)
- PAN CARD: This is necessary for the filing of the financial transactions made by the company. A PAN card is also necessary for the taxation process of the company
- Address Proof: Bank Statement, Driving License, Residence Card or any other Government issued identity proof having the address
- Residential Proof: Mobile Bill, Telephone Bill, Electricity Bill, and Bank Statement
- Passport: Passports are only compulsory for companies whose director is a foreign nationals. A passport is not a mandatory document for Indian directors of Nidhi companies
- Registered Office Proof: Registered office proof for Nidhi company registration because of the importance of the same in the issue of government-supported schemes and loans
- It is important to note that the NIDHI company registration application can be filled out online. Once the NIDHI Company registration fee is fully paid, the registration form is submitted and sent for further processes of approval. Once submitted the NIDHI Company registration process is completed.