Nidhi Company is a type of Non-Banking Financial Company (NBFC). It is formed to borrow and lend money to its members. It inculcates the habit of saving among its members and works on the principle of mutual benefit. These companies typically operate in the southern part of the country. Nidhi Company isn’t required to receive the license from Reserve Bank of India (RBI), hence it is easy to form. It is registered as a public company and should have “Nidhi Limited” as the last words of its name.
Basics of Nidhi Company
- Nidhi Company is also known as Mutual Benefit company. It promotes the skill of saving and effective utilization of funds within its members.
- Anybody can register a Nidhi Company In India; As there are fewer compliances and legal formality that needs to be taken care of.
- Apart from its members , A Nidhi Company cannot deal with anybody else who is not a member of the company.
- The minimum capital requirement for Nidhi Company is five Lacs with at least seven members needed to incorporate a company.
Regulatory framework on Nidhi Company
Nidhi company are Companies that are Registered under the Companies Act . Nidhi companies registered and recognized under section 406 of the Companies Act, 2013 and is regulated by Ministry of Corporate Affairs or MCA. Nidhi companies are controlled by Nidhi Rules, 2014. They are incorporated as the Public Limited company and therefore , they must abide with two set of rules, pertaining to the Public limited company as per Companies Act, 2013 and Nidhi rules, 2014. There is no need to seek RBI approval to register the company, as RBI has specifically exempted this category of NBFC in India.
Activities Prohibited in a Nidhi Company
Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business. It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.
Also, it can’t advertise itself to ask for any deposits.
Number of members
Minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.
Share Capital and Owners’ Funds
A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company. Nidhi Company can’t issue preference shares.
Documents required for registration
- Proof of the registered place of business (Ownership documents/ rent or lease agreement)
- No Objection Certificate (signed by the owner/ landlord)
- Identity proofs
- Address proofs of the members
- Photos of the members
- PAN card copies of the members
- Digital Signature (DSC)
- Director Identification Number (DIN) of the directors
- Memorandum of Association of the company (MoA)
- Articles of Association of the company (AoA)
Only one object will be mentioned in MoA of the company: “cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit..”
Conditions to be fulfilled for getting ‘Nidhi’ status
Within one year of its registration
- Nidhi Company should have minimum 200 members within one year from commencement
- Also, the net owned funds should be 10 lakh rupees or more. Net owned funds = Equity share capital + free reserves (-) accumulated losses (-) intangible assets
- Unencumbered term deposits must be 10% or higher of the outstanding deposits
- The ratio of net owned funds to deposits shouldn’t be more than 1:20
If Nidhi Company satisfies all above conditions, it should file NDH-1 along with prescribed fees within 90 days from the end of the first financial year after incorporation. The form must be duly certified by practicing CA/ CS/ CWA.
Extension of another financial year can be availed upon submission of NDH-2 to the Regional Director within 30 days from the end of the first financial year.
If even after the second financial year, it doesn’t fulfill the requirements, it can’t accept deposits till it complies with the provisions, and also penalty will be imposed.
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