What is Nidhi Company and how it works?

Nidhi Companies belong to the Non-banking financial companies structure. Registering a Nidhi Company allows a Nidhi to borrow from its members and lend to the members.

Nidhi Companies are registered in India are created to cultivate the habit of thrift and savings among its members. The funds that are contributed to a Nidhi Company are only from its members.

For Incorporating a Nidhi Company, no license is required from the Reserve Bank of India. Hence, the formation of the Nidhi Company is easy. Nidhi Companies are registered as Public Companies and should have Nidhi Limited at the last of the name.

It should also be noted that the Nidhi Companies fall under the purview of the Reserve Bank of India as the functioning of Nidhi Companies is similar to NBFCs.

How to incorporate a Nidhi Company

How to incorporate a Nidhi Company in India?

To incorporate a Nidhi Company in India, at least seven members are mandatory, out of which three should be the designated directors. However, the Nidhi Company should acquire at least 200 members within one year of commencement.

For registering a Nidhi Company, it is necessary to have a minimum equity share capital of Rs. 5 lakh. But it is to be noted that the Net Owned Funds (NOF) must be increased to Rs 10 lakhs within one year of registration. While Registering as a Nidhi Company in India, it is necessary to first incorporate into a Limited Company under the Companies Act, 2013.

While Nidhi Company Registration, it necessary to ensure that the objective mentioned in the Memorandum of Association is to cultivate the habit of thrift and savings among the members, receiving and lending to its members only for its mutual benefit.

Post incorporation as a Limited Company, the Nidhi Company should meet the following capacities:

  • Not have less than two hundred shareholders (members)
  • Have Net owned funds of 10 lakh rupees or more
  • Have encumbered deposits of not less than ten percent of the outstanding deposits.
  • Have a ratio of Net owned funds to deposit of not more than 1:20.

Net owned Funds?

The aggregate of paid-up equity capital and free reserves is reduced by the accumulated losses and intangible assets appearing in the last audited balance sheets.

Suppose at the end of one year from commencing, the Nidhi Company cannot meet the above requirement. In that case, the Company may apply to the Regional Director in Form NDH-2 for an extension of time within thirty days close from the first financial year.

Even after the second Financial year the Nidhi Company is unable to meet the requirements for a Nidhi Company. The Nidhi Company should not accept any further deposits from the commencement of the second financial year until it complies with the Provisions for operating as Nidhi Company

What are the documents required to register a Nidhi Company?

The following documents are required to incorporate a Nidhi Company.

  • Directors Identification Number
  • PAN number of the shareholders as well the Directors
  • Residential Proof of the shareholders and directors
  • Photographs
  • Identification Documents such as the Aadhar card
  • Rent agreement or lease agreement of the Registered office
  • If the office is owned, then ownership information or the registered office address must be provided
  • NOC if required
  • MOA
  • AOA
  • MCA form

How to register a Nidhi Company?

An individual can get Nidhi Company registration by following this 6 step guide.

  • 1

    The first step begins with acquiring the Digital Signature Certificate of the applicants; after the DSC is obtained, the applicant should apply for the Director Identification Number.

  • 2

    Next, the applicant has to make an application to MCA for name approval. The names provided should be unique and should not go against any provisions relating to intellectual property rights.

  • 3

    Once the application is made, the applicant must file prescribed documents to the ROC. The documents must be filed through INC form 32, and along with this, MOA and AOA should be submitted. the applicant has to intimate the main objective of forming the entity while submitting the documents

  • 4

    An incorporation certificate will be provided after reviewing the Incorporation Certificate. This certificate is issued by the registrar within 15 Days.

  • 5

    The next step is when the Nidhi Company is required to apply for PAN and TAN.

  • 6

    This is the final step while Incorporating a Nidhi Company. At this stage, it is necessary to open a Bank account on behalf of the business for any transaction.

What are the post Incorporation compliances for a Nidhi Company?

After the Registration of a Nidhi Company is done, there are different compliances which the applicant must be aware of

Form NDH 1

The list of members has to be submitted within 90 days of Incorporation.

Form NDH 2

This to be filed when there is an extension of the request to meet the target of 200 members.

Form NDH 3

It is necessary to file half yearly requirements to be filed along with form NDH 1

The profits and loss statement and Balance sheets are to be submitted as per the requirements of the Company on an annual basis. This is done through form AOC 4

A Nidhi Company is required to file Income Tax Returns as per the Income Tax Act requirements.

A Nidhi Company must have Net Owned funds that are more than Rs. 10 lakhs. The ratio must be in the proportion of 1:20 Basis.

What are the advantages of getting a Nidhi Company Registration?

Firstly, to Incorporate a Nidhi Company Limited Capital is required. But it should be noted that it is necessary to first incorporate as a limited Company.

The major objective of this form of entity is to raise funds from the public. This is also a type of NBFC that carries out activities such as accepting deposits from the members. So, a Nidhi Company can raise funds easily.

The Companies are registered under section 406 of the Companies Act 2013; this form of entity is based on the mutual benefit principle. The primary beneficiaries are the members of the shareholders of the entity. Hence, a Nidhi Company easily provides loans to its members.

An applicant can select a group of members to carry out this process. Once the Nidhi Company is registered, there is no need to involve any external management.

There are fewer Compliances as compared to other forms of entities. Under the RBI act, Nidhi companies are exempted from carrying out a different form of Compliances.

Under the Companies act, this form of entity would secure the status of limited liability. Also, this form of entity is independent of the members and Directors.

As the Nidhi Companies are similar to the NBFCs, they have to comply with the requirements of the NBFC, and the entities are exempt from a specific provision of the RBI act.

Compared to the credit societies that are regulated by the societies registration Act, there are fewer Compliances for Nidhi Companies. Hence, when an individual wants to adhere to fewer compliances, he can opt for Nidhi Company.

Restrictions on Nidhi Company

Here are some limitations for Nidhi Companies. As per rule 6 of the Nidhi Rules, 2014, a Nidhi Company shall not :

  • Carry a business of Chit fund, hire purchase finance, lease finance, or acquisition of securities issued by anybody Corporate.
  • issue preference shares, debentures, or any other debt instrument by any name or form whatsoever.
  • Open Current account with its members.
  • Acquire another Company by the 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 the general meeting and also obtain the previous approval of the Regional Director having jurisdiction over such Nidhi Company.
  • Carry on any business other than the business of borrowing or lending in its name: Provided that Nidhis, which have adhered to all the provisions of these rules, may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty percent of the gross income of the Nidhi at any point of time during a financial year.
  • Accept deposits or lend to anyone other than its members;
  • Pledge away any of the assets lodged by its members as security;
  • Take deposits or lend money to anybody from corporate;
  • Enter into any partnership arrangement in borrowing or lending activities;
  • Issue or cause to be issued any advertisement in any form for soliciting deposit
  • Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or granting loans.

IndiaFilings has a team of professionals Comprising Chartered accountants, Company Secretaries, lawyers, and finance professionals.

We have helped thousands of businesses register different forms of entities and maintain Post Incorporation Compliances.

Our business consultants' team provides proper guidance and support with constant monitoring, which will help your business grow.

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Last updated: Dec 10, 2021


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