Nidhi Company Registration

What is a Nidhi Company?

“Nidhi” means a company incorporated with the object of Cultivating the habit of thrift and Savings amongst its members, Receiving deposits from, and Lending to, its members only, for their mutual benefit, and Which complies with rules of Chapter XXVI of Companies Rules, 2014.  Nidhi, in the Indian context, means “TREASURE.” However, in the Indian financial sector, it refers to any mutual benefit society notified by the Central / Union Government as a Nidhi Company. They are created mainly for cultivating the habit of thrift and savings among their members. 

Nidhi Company Registration.

The companies doing this business, viz. borrowing from members and Lending to members only, are known under names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company.

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These loans are more prevalent in South India and are highly localized single-office institutions. They are mutually beneficial societies because their dealings are restricted only to the members, and membership is limited to individuals. The principal source of funds is the contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured. The deposits mobilized by Nidhi’s are not much compared to the organized banking sector. 

Since Nidhi’s come under one class of NBFCs, RBI is empowered to issue directions to them regarding their deposit acceptance activities.

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However, in recognition of these Nidhi’s deal with their shareholder-members only, RBI has exempted the notified loan’s from the core provisions of the RBI Act and other directions applicable to NBFCs. As of date (February   2013), RBI does not have any specified regulatory framework for Nidhi’s.

Nidhi Company is registered under the Companies Act and notified as a Nidhi company by the Central Government under Section 620A of the Companies Act, 1956. 

It is a non-banking finance company doing the business of Lending and borrowing with its members or shareholders. 

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Required Documents for Nidhi Company Registration:

Documents required in the Procedure of Nidhi Company Registration are:

•          Copy of Director’s PAN Card
•          Passport size photograph of Directors
•          Copy of Aadhaar Card/ Voter identity card of directors
•          Copy of Rent agreement (If rented property)
•          Electricity/ Water bill (Business Place)
•          Copy of Property papers (If owned property)
•          Landlord NOC (Format will be provided)

Why do we need Nidhi Company Registration?

There are several advantages of starting a Nidhi Company in India. We will have a look into some of these:

Limited RBI regulatory compliance

Nidhi Companies need to incorporate themselves as Public Limited Companies with the MCA. And it’s not mandatory for them to get an RBI license to operate. However, they need to comply with the less stringent Nidhi Rules, 2014 and the Companies Act 2013 for their financial activities. They have the much-needed ease of regulatory compliances

Less Risky proposition

As per provisions of the rules, 2014, a Nidhi Company can provide loans to and accept deposits from its members only. This makes it a less risky proposition as the risk of loan default is less as compared to other businesses of similar nature. Also, as all financial activities are restricted to the members-only, there is less risk of external factors affecting the working of such companies. However, it’s one of the safest and the easiest ways of inviting deposits from the public. Register them as members.

Limited capital requirement

As mentioned in the Nidhi Rules, 2014, the minimum capital requirement to register a Nidhi Company is  10 Lakhs only.

Simple procedure of formation

The process of forming this type of company is fairly simple. You just need 7 members to start with, a few simple documents and then need to incorporate your company with the MCA through a simple registration process.

Uninterrupted operations

The normal operations of a Nidhi Company are not uninterrupted even at the death, insolvency, insanity or retirement of any member, thanks to the practice of perpetual succession. However, the Company will remain in operation irrespective of any such inevitable change in any type of membership.

Applicability:

• The Central Government made ‘Nidhi Rules, 2014’ to carry out the objectives of ‘Nidhi’ companies. These rules shall apply to Every Company declared as a Nidhi or Mutual Benefits under Section 620A(1)of the Companies Act, 1956.
• Every Company functioning on the lines of a Nidhi company or Mutual benefit society but has either not applied for or has used for and is awaiting notification to be a Nidhi or Mutual Benefit Society under Section 620A(1)of the Companies Act, 1956.
• Every Company incorporated as a Nidhi according to the provisions of Section 406 of the Companies Act, 2013. 

Requirements for Nidhi Company registration:

• 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/-
• The Company shall issue no preference shares. If a Nidhi Company had already issued preference shares before the commencement of this Act, such preference shares are to be redeemed following the terms of the issue of such claims.
• The Company’s object shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and Lending to its members only for their mutual benefit.
• It shall have the words’ Nidhi Limited’ as part of its name; Requirement after Incorporation: Every Nidhi shall, within 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; General restrictions. Rule 6 provides general limits. According to this Rule, no Nidhi shall- Carry on the business of Chit Fund, Hire Purchase Finance, Leasing Finance, Insurance, or Acquisition of Securities issued by anybody corporate.
• Issue Preference Shares, Debentures, or Any Other Debt Instrument by any name or form; Open any Current Account with its members.
• Acquire another company by; Purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or Enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi.
• Carry on any business other than the business of borrowing or Lending in its name; Accept Deposits from or lend to any person other than its members; Pledge any of the assets lodged by its members as security.
• Take Deposits from or lend money to anybody corporate.
• Enter into any Partnership Arrangement in its borrowing or lending activities.
• Issue or cause to be issued any advertisement for soliciting deposit.
• Pay any brokerage or incentive for mobilizing deposits from members, for the deployment of funds, or for granting loans.

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