Nidhi Company

About Nidhi Company

The feature that differentiates Nidhi Company from other companies, NBFCs etc. is that “Nidhi” deals with “deposits from” and “loans to” it’s members (shareholders) only, and works for the mutual benefits of it’s members. Accordingly, certain exemptions have been provided to these companies in respect of annual compliances and taxation.

Nidhi Companies in India are formed, governed, and regulated by Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.

The objective of incorporating a Nidhi Company is to encourage savings amongst its members. And to fulfil this objective of cultivating the habit of saving amongst its members. Nidhi companies are allowed to take a deposit from and lend to the members only. In other words, the funds contributed to a Nidhi company come only from its members (shareholders) and are to be used only by the shareholders of the Nidhi Company.
The name “Nidhi” in Nidhi Company means “treasure” and it originates from the Hindi vocabulary.

Nidhi Company is a certain category of NBFC. Though not directly regulated by the RBI, still RBI has powers to issue directives for them related to their deposit acceptance activities. Moreover, because these “Nidhis” deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.

Nidhi Company Registration

Section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 is comprising of all the provisions which are in relation to the “incorporation and governance of the Nidhi Companies in India”.

The guidelines and directives for the Nidhi Companies are also issued by the RBI. These are mainly related to financial activities and investments by companies including the NBFCs.

Because of “Nidhi Companies” being engaged in the business of deposits and loans by its members only, certain exemptions have been provided to these companies, by the RBI.

The interest charged on the loans under a Nidhi Company is quite reasonable. The purposes these are sought for, includes, manufacturing/renovation of houses or child’s education, etc. The loans are provided against security only.

The deposits under Nidhis do not earn much interest as compared to deposits in the organized banking sector.

All lending and borrowing of the Nidhi Companies is done by it’s members, exclusively. Hence, such companies are also referred to as Mutual Benefit Societies. Because they work for the mutual benefit and welfare of all members.

If you are looking to start a business in financing or loans in India, then Nidhi Company is the best option for it.

Benefits of Starting a Nidhi Company

The central goal behind establishing a Nidhi Company is to encourage it’s members to save so that they can meet their financial requirements which arise from time to time. By being critical thinkers, they become self-sufficient and would meet all future expenses that may come up. And the benefit of getting a company registered as Nidhi doesn’t end there.

There are many more advantages to forming a Nidhi Company. Some are listed below:

Liability is Limited: Liability of Directors and shareholders of the Nidhi Company is limited. In case the company suffers from any loss and faces, financial distress in the course of it’s business activity, the personal assets of any of the Directors or members are not at risk of being seized by banks, creditors, and government.

Less Regulations: “Nidhi” companies are governed under the Nidhi Rules, 2014. The Central Government is the regulating authority, which controls it’s activities and operations. Guidelines imposed by the RBI on “Nidhis” are very few.

Better Credibility: “Nidhi” companies enjoy better credibility as opposed to any other member-based organizations like Trusts, Cooperative Societies or NGOs.

Better Option for Savings: The main purpose of a Nidhi Company’s incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves the other goal of it’s registration of being mutually beneficial. The Nidhi Companies are to “lend and borrow money” to and from it’s shareholders/members only.

Easy Access of Public Funds: The loans from the Nidhi Company come at a cheaper rate than loans from banks and other NBFCs, for it’s shareholders. And the process of obtaining the loan and customized services are much more convenient and quicker.

Ease of Fund: Nidhi Company is the safest and the cheapest way of inviting deposits from the general public. You just need to take them as registered members.

Micro Banking: Nidhis provide banking services to the remote and rural public of India which still is based in far-off locations and is, hence, devoid of accessing finance from national banks and NBFCs.

It acts as a “Better Credit Co-operative Society”: Nidhi Company is a close substitute for credit co-operative society. And, therefore, more preferred by the small financer. Once a Nidhi company has been registered, the members can avail of all the benefit’s of a credit co-operative society.

Simple Processing: Borrowing and lending to known persons, belonging to the same group, is much less complicated than dealing with banks, where the procedure is impersonal and fixed.

Easy Registration Process: The process to register a “Nidhi Company” with LegalRaasta is quite simple and transparent. You don’t need to take any license from RBI. You just have to incorporate your company as a public limited one with the MCA.

Single Regulatory Body: After the Amendment in Companies act 2013, Nidhi Companies are overseen by Nidhi Company Rules.

Low Capital Requirement: Ministry of Corporate Affairs (MCA) commands the minimum capital requirement of Rs.5 lakhs for the incorporation of a “Nidhi”. And, within 1-year, the capital has to be raised to at least Rs.10 lakhs. The Fees, DIN, DSC & Other Expenses are approx. Rs.25-30,000. These include Government fees that differ from State to State.

Fulfilling the needs of Lower & Middle-income groups: Nidhi Companies play an important role in meeting the needs of lower and middle-income groups by providing them financial help without complex formalities and documentation.

Easier Eligible: People getting minimum wages and belonging to lower strata are usually unable to take loans from traditional banks because of their high eligibility criteria. For them, Nidhi Company is a good option to obtain finance because of fewer conditions.

No External Involvement: Nidhi Companies take funds from their members and further provides loans to their members only. All transactions are done within this group only. So, no external factors are affecting the working of these companies. The investors/members themselves oversee the operations of the company.

Separate Entity: Nidhi Company is a separate legal entity that can acquire assets and incur debts in it’s own name.

Requirements for a “Nidhi Company Incorporation”

Requirement before Registration

  1. Minimum number of shareholders or members – 7
  2. Minimum number of Directors -3
  3. The minimum capital requirement is of Rs. 5 lakhs
  4. DIN for Directors
  5. Minimum 3 Directors.
  6. No Preference Shares shall be issued.
  7. 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

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

Documents Required

  1. Passport Sized photographs of all the directors.
  2. ID proof of all the designated directors and shareholders. (PAN card and Passport are valid).
  3. Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).
  4. Address Proof of the Company. Make sure that the address proof is not older than 2 months.
  5. Copy of the Property papers (if the property is owned).
  6. NOC (No-Objection-Certificate) from the owner (if the property is rented).

Compliances for Nidhi Company

  1. NDH-1 Form: A Nidhi Company has to submit the list of members within 90 days at the end of every financial year, in this Form.
  2. NDH-2 Form: It can request MCA for an extension in this Form, in case it has not been able to add 200 members in it’s first financial year.
  3. NDH-3 Form: Other than the above NDH-1 Form, a half-yearly return is also required to be filed in NDH-3 Form.
  4. Annual Returns with ROC: The Nidhi Company has to file it’s Annual Returns with MCA through Form MGT-7.
  5. Profit & Loss Statement and Balance sheet: The financial statements and other related documents are to be submitted, annually, in Form AOC-4.
  6. Income Tax Returns: Nidhi Company, like all other businesses, must file it’s Annual Income Tax Returns by 30th September of the following financial year.

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