Nidhi Company Registration
Nidhi Company Registration
A Nidhi Company in India is a non-banking financial Company (NBFC) that operates under the regulatory framework of the Nidhi Rules, 2014 and is governed by Section 406 of the Companies Act, 2013. Operating as a public limited company, its primary purpose is to encourage thrift and savings among its members while facilitating financial assistance through lending. This article comprehensively explores the various aspects of Nidhi Companies and Nidhi Company Registration in India.Register Now!
What is Nidhi Company?
A “Nidhi company” is a company that exclusively manages deposits from and extends loans to its members (shareholders), operating to benefit its members mutually.
Consequently, specific exemptions have been granted to Nidhi Companies regarding their annual compliance requirements and tax assessments.
Law Governing Nidhi Company in India
In India, Nidhi Companies are established, regulated, and governed by Section 406 of the Companies Act, 2013, the Companies (Nidhi Companies) Rules of 2014, and Chapter XXVI of the Companies Rules, 2014.
The Purpose and Nature of Nidhi Companies
The primary objective behind establishing a Nidhi Company is to foster savings among its members. Nidhi companies can accept deposits from and provide loans exclusively to their members. Notably, the financial resources a Nidhi company accumulates originate solely from its members and are intended solely for the benefit of the Company’s investors.
“Nidhi” in Nidhi Company derives from the Hindi language, signifying “treasure.”
Nidhi Companies fall under a distinct category of Non-Banking Financial Companies (NBFCs). While they are not directly regulated by the Reserve Bank of India (RBI), the RBI possesses the authority to issue directives concerning their deposit acceptance activities.
Furthermore, because Nidhi companies exclusively engage with their members (shareholders), they enjoy exemptions from the core provisions of the RBI Act and other regulatory guidelines applicable to conventional NBFCs. Consequently, a Nidhi Company is a legally sound entity for accepting deposits from and extending loans exclusively to a specific group of members.
Benefits of Nidhi Company
The advantages of registering a company as a Nidhi extend beyond this initial goal.
- Easy Formation: Simple and hassle-free formation process with minimal requirements.
- Non-Compliance with RBI: Nidhi Companies are not bound by Reserve Bank of India guidelines, allowing them to establish their own rules.
- Lower Risk: Transactions involving lending, borrowing, or depositing are conducted by members, reducing financial risks.
- Economic Registration: Cost-effective registration compared to other NBFC registration processes, facilitating access to business loans.
- Savings Promotion: Promotes a culture of saving among Indian people.
- Net-Owned Funding System: Adopts a cost-effective net-owned funding system, enhancing business growth prospects.
Restrictions on Nidhi Companies
While Nidhi companies primarily engage in non-banking financial activities, they are subject to restrictions that prevent them from involving external factors in their operations. These restrictions include:
- Publicizing themselves to solicit deposits
- Participating in chit-funds
- Offering leasing finance or hire-purchase finances
- Engaging in lotteries
- Providing insurance services
- Selling, mortgaging, or pledging assets held as security for loans
- Entering partnerships for lending and borrowing activities
- Accepting deposits from or lending funds to individuals other than their shareholders
- Issuing preference shares, debentures, or any other debt instruments
- Issuing equity shares with a nominal value exceeding Rs. 10/- each
- Allowing shareholders’ equity shares to exceed ten or shares with a value exceeding Rs. 100/-
- Opening current accounts for their members (although savings accounts are allowed)
- Lending to or accepting deposits from corporations
- Paying commissions, fees, or incentives for deposit mobilization
- Conducting any business other than borrowing and lending to their members
- Engaging hire-purchase financiers
- Paying brokerage fees for granting loans to their members
Required Documents for Nidhi Company Registration in India
The following is a list of documents necessary for the registration of a Nidhi Company in India:
- Directors Identification Number (DIN)
- PAN number
- Residential proof and address proof
- Photographs of the proposed directors and members
- Identification documents such as 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 Incorporation Requirements
Certain essential conditions must be satisfied to register and operate as a Nidhi Company. These requirements are divided into two categories: before and after registration.
Requirements before Registration
- Minimum number of shareholders or members: 7
- Minimum number of Directors: 3
- Minimum capital requirement: Rs. 5 lakhs
- Directors must obtain a DIN (Director Identification Number)
- A minimum of 3 Directors is required.
- Issuance of Preference Shares is not allowed.
The Company’s objective must focus on cultivating the habit of saving by receiving deposits from and lending to its members exclusively for their mutual benefit.
Requirements after Registration
- By the end of the 1st year, the Nidhi Company must have at least 200 members or shareholders.
- Net Owned Funds (NOF) should be more than Rs. 10 lakhs.
- The NOF to Deposit ratio should be greater than 1:20.
- Unencumbered deposits must exceed 10% of outstanding deposits.”
- Compliances for Nidhi Company
Nidhi Companies must adhere to various compliance measures to ensure smooth operations and regulatory compliance. These include:
- NDH-1 Form: Nidhi Companies must submit a list of members within 90 days at the end of each financial year using this form.
- NDH-2 Form: If a Nidhi Company has yet to reach a membership of 200 in its first financial year, it can request an extension from the MCA using this form.
- NDH-3 Form: Apart from the NDH-1 Form, a half-yearly return must be filed using this form.
- Annual Returns with ROC: Nidhi Companies must file their Annual Returns with the Ministry of Corporate Affairs (MCA) using Form “MGT-7.”
- Profit & Loss Statement and Balance Sheet: The Company’s financial statements and related documents must be submitted annually in Form “AOC-4.”
- Income Tax Returns: Similar to other businesses, Nidhi Companies must file their Annual Income Tax Returns by September 30th of the following fiscal year.”
Deposits and Loans
Let’s delve into the regulations governing deposits and loans within a Nidhi Company.
Deposits under Nidhi Company
- A Nidhi company can accept three types of deposits: Savings Deposit, Fixed Deposit (FD), and Recurring Deposit.
- Nidhi companies can offer a maximum interest rate of 12.5% on FDs and RDs and 6% on savings accounts.
- Nidhi companies can hold deposits of up to 20 times the funds invested.
Loans from Nidhi Company
- Nidhi Companies can accept three types of securities for loans: Gold, Property, and Others (such as LIC, FD, etc.).
- While Nidhi Companies cannot engage in microfinance as a business, they can lend at an interest rate of up to 20% against security.
Nidhi Company Registration Procedure
If a member fails to repay a sum, a Nidhi Company has the legal recourse to take action.
Step 1: Applying for DIN and DSC
The initial step involves the Directors of the Nidhi Company applying for the Director’s Identification Number (DIN) and Digital Signature Certificate (DSC). The MCA issues DIN, while DSC is used for all e-filing procedures. Directors who already possess both DIN and DSC can skip this step.
Step 2: MoA & AoA
The Memorandum of Association (MoA) and Articles of Association (AoA) must specify the primary purpose of incorporating a Nidhi company. These documents are to be filed with the Registrar of Companies (ROC) along with a subscription statement.
Step 3: Name Approval Process
To initiate the registration of a Nidhi Company, individuals must propose three preferred names to the MCA. The MCA will then select one of these names for approval. The chosen name for the Nidhi Company must be distinctive and yet to be in use. Once approved, this name remains valid for 20 days.
Step 4: Application for Registration
After receiving name approval, the directors are required to apply for registration. This application includes the submission of the Articles of Association (AOA) and Memorandum of Association (MOA).
Step 5: Certificate of Incorporation (CIN)
The process typically takes 15-20 days for the relevant authority to issue the Certificate of Incorporation for the Nidhi Company. This certificate also includes the Company’s unique Company Identification Number (CIN).
Step 5: PAN, TAN, and Bank Account
Lastly, you must apply for Permanent Account Number and Tax Deduction and Collection Account Number. Subsequently, you must open a bank account by submitting the Certificate of Incorporation, MoA, AoA, and PAN.
Nidhi Company Registration Process with IndiaFilings
IndiaFilings plays a pivotal role in simplifying and expediting the Nidhi Company registration process in India. Leveraging expertise and experience in company incorporation, we assist entrepreneurs and businesses in navigating the regulatory complexities of forming a Nidhi Company. With our comprehensive support, from initiating the application for the Director’s Identification Number (DIN) and Digital Signature Certificate (DSC) to obtaining name approval and preparing the essential documents.
With IndiaFilings guidance, entrepreneurs can efficiently complete registration, ensuring compliance with the Companies Act, 2013, and related regulations.
Ready to start your Nidhi Company registration with ease? Contact IndiaFilings today and let our experts guide you through the process. Contact us now!Register Now!