Nidhi Company Registration

Dynamic economic landscape, the need for accessible and inclusive financial services is more important than ever. Nidhi Companies have emerged as a unique solution, containing the spirit of community-driven financial growth. These specialized Non-Banking Financial Companies (NBFCs) operate under the purview of the Companies Act 2013, with a primary focus on fostering a culture of savings and providing micro-lending services among their members.

What is Nidhi Company?

Nidhi Company is a type of NBFC (a non-banking finance company) registered under Section 406 of the Companies Act 2013. Its primary function is to accelerate lending money between the prime members of the company. By doing so, the members of the company are encouraged to save money and put them into the company. The company then gives loans or advances to its member (or shareholders) and buys government securities/stocks/debentures/ bonds with the deposits. The Ministry of Corporate Affairs controls this type of company, and the RBI keeps an eye on all its money matters.

The Purpose and Nature of Nidhi Companies

Nidhi Companies serve a distinct purpose in the Indian financial landscape, primarily focused on promoting savings among their members. These companies are unique in that they can accept deposits from and offer loans exclusively to their members. The term “Nidhi” in Nidhi Company, derived from Hindi, signifies “treasure.”

Nidhi Companies fall within the category of Non-Banking Financial Companies (NBFCs). While they do not fall under direct regulation by the Reserve Bank of India (RBI), the RBI holds the authority to issue directives regarding their deposit acceptance activities.

What sets Nidhi Companies apart is their exclusive engagement with their members, who are also shareholders. This exclusive relationship grants them exemptions from certain core provisions of the RBI Act and other regulatory guidelines that apply to traditional NBFCs. As a result, a Nidhi Company is a legally sound entity for accepting deposits and providing loans exclusively to a specific group of members, making it a unique financial institution in India. Understanding what is Nidhi company comes down to these key characteristics and purpose distinguishing it from other forms of companies.

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.

Nidhi companies have certain rules they must follow to keep their focus on serving their members. They are not allowed to:

Advertise for deposits from the public.
Get involved in chit funds.
Provide leasing or hire-purchase financing.
Run lotteries.
Offer insurance services.
Sell, mortgage, or use assets as security.
Partner with others for lending and borrowing.
Take deposits or lend money to people who aren’t their members.
Issue certain types of shares or debt instruments.
Exceed a limit on the value of shares.
Open current accounts for members (though savings accounts are fine).
Lend to or take deposits from corporations.
Pay commissions or fees for attracting deposits.
Do any business beyond borrowing and lending to members.
Get involved in hire-purchase financing.
Pay fees for loans to brokers.

Benefits of Nidhi Company

Easy Formation: Nidhi Companies boast a straightforward and hassle-free formation process with minimal requirements, making it accessible for those looking to establish such entities.
Non-Compliance with RBI: Nidhi Companies are not bound by the Reserve Bank of India (RBI) guidelines, allowing them to set their own operational rules and regulations.
Lower Risk: Transactions involving lending, borrowing, or depositing are carried out by members of the Nidhi Company, reducing financial risks and ensuring a sense of security within the community.
Economic Registration: The registration process for a Nidhi Company is cost-effective when compared to other Non-Banking Financial Company (NBFC) registration procedures, which facilitates easier access to business loans and financing options.
Savings Promotion: Nidhi Companies play a pivotal role in promoting a culture of saving among the Indian population, thereby contributing to financial prudence.
Net-Owned Funding System: Nidhi Companies typically adopt a cost-effective net-owned funding system, which can enhance their business growth prospects by efficiently utilizing their own resources and funds

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)

Nidhi Company Incorporation Requirements

Requirements before Registration:

Minimum Shareholders or Members: A minimum of 7 members is required to initiate the registration process.
Minimum Directors: You must have a minimum of 3 directors to form the company.
Minimum Capital: A minimum capital of Rs. 5 lakhs is essential to kickstart your Nidhi Company.
Director Identification Number (DIN): Directors must obtain a Director Identification Number (DIN).
Number of Directors: At least three directors are necessary to establish the company.
No Preference Shares: Issuing preference shares is not permitted.
Focus on Savings: The Company’s primary objective should be to promote the habit of saving by receiving deposits from and lending to its members exclusively for their mutual benefit.

Requirements After Registration:

Membership Quota: By the end of the first year, your Nidhi Company must have at least 200 members or shareholders.
Net Owned Funds (NOF): Your company’s NOF should exceed Rs. 10 lakhs.
NOF to Deposit Ratio: The NOF to deposit ratio should be greater than 1:20.
Unencumbered Deposits: Unencumbered deposits must be over 10% of outstanding deposits.

Nidhi Company Registration Procedure

Step 1: Applying for DIN and DSC

Directors of the Nidhi Company must apply for Directorâ??s Identification Number (DIN) and acquire a Digital Signature Certificate (DSC). DIN is issued by the Ministry of Corporate Affairs (MCA), while DSC is essential for all e-filing processes. Directors with pre-existing DIN and DSC can bypass this step.

Step 2: MoA & AoA

Draft the Memorandum of Association (MoA) and Articles of Association (AoA), specifying the primary purpose of establishing the Nidhi company. These documents, along with a subscription statement, need to be filed with the Registrar of Companies (ROC).

Step 3: Name Approval Process

Propose three preferred names for the Nidhi Company to the MCA. The MCA will choose one name for approval. The selected name must be unique and not currently in use. Once approved, it remains valid for 20 days.

Step 4: Application for Registration

After securing name approval, directors must submit an application for registration. This application includes the submission of the Articles of Association (AOA) and Memorandum of Association (MOA).

Step 5: Certificate of Incorporation (CIN)

Typically, it takes 15-20 days for the relevant authority to issue the Certificate of Incorporation for the Nidhi Company. This certificate also provides the unique Company Identification Number (CIN) for the company.

Step 6: PAN, TAN, and Nidhi Bank Account

Apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). Subsequently, open Nidhi bank account by submitting the Certificate of Incorporation, MoA, AoA, and PAN

Compliance for Nidhi Company

NDH-1 Form: Submitting a list of members within 90 days at the end of each financial year using this form.
NDH-2 Form: If your Nidhi Company has yet to reach a membership of 200 in its first financial year, you can request an extension from the Ministry of Corporate Affairs (MCA) using this form.
NDH-3 Form: Filing a half-yearly return apart from the NDH-1 Form.
Annual Returns with ROC: Filing annual returns with the MCA using Form “MGT-7.”
Financial Statements: Submitting the company’s financial statements and related documents annually in Form “AOC-4.”
Income Tax Returns: like other businesses, Nidhi Companies must file annual income tax returns by September 30th of the following fiscal year.

What are the conditions to get Nidhi status?

A Nidhi company must not accept deposits from its members or lend money to them if:
- it violates the Nidhi Company New Rules or their provisions,
- the central government has denied its application in Form NDH -4,
Any public company that wishes to be declared as a Nidhi company must submit Form NDH-4 within 120 days from the date of its formation.
The Company must include a declaration that all of its directors and promotors are fit and proper persons along with Form NDH-4.
The minimum paid-up share capital has increased from 5 lakhs to 10 lakhs.
Nidhi Company that existed before the enforcement of Nidhi Company New Rules must comply with all the requirements within 18 months from the date of enforcement.
The filing of Form NDH 1 within 90 days from the Company’s incorporation is not required for the companies formed on or after the enforcement of Nidhi Company New Rules.
The Net owned funds requirement for Nidhi company has changed from 10 lakhs to 20 lakhs.
If a Nidhi company wants to open more than three branches outside the district or any branch outside the district, it must apply in Form NDH 2.

FAQs

What are the provisions applied to Nidhi Company?

The norms and regulations of the Companies Act of 2013 apply to Nidhi Businesses because they are like public companies. RBI regulates the interest rate on deposits that Nidhi Businesses can pay. However, RBI has given Nidhi Companies an exemption from this regulation. Therefore, the main provisions of RBI do not affect them. Nidhi Rules, 2014.

What is a DSC (Digital Signature Certificate)?

When filing documents through the Internet, it is important to establish the identity of the sender or signee electronically. The Ministry of Corporate Affairs (MCA) requires that Directors use their Digital Signature to sign certain application documents. This ensures the authenticity and security of the documents being filed.