Nidhi Company

A Nidhi Company is a type of NBFC and it has been formed under section 406 of the Companies Act, 2013. It is engaged in the business of receiving deposits and lending loans to its members and stakeholders for their mutual benefits. It develops a habit of thrift and savings amongst its members.

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NATURE OF NIDHI COMPANY

At least 7 people are required to start a Nidhi Company out of which three of them will act as its Directors.

Nidhi Companies are registered Limited Companies involved in taking deposits and lending to their members. The activities of a Nidhi Company does fall under the purview of Reserve Bank of India, as it is similar to an NBFC. However, as Nidhi Companies ONLY deal with shareholder-members money, RBI has exempted Nidhi Companies from the core provisions of the RBI and other regulations applicable to an NBFC.

RESTRICTIONS ON NIDHI COMPANY

The following are some of the restrictions a Nidhi Company is subject to under Nidhi Rules, 2014. As per Rule 6 of Nidhi Rules, 2014, a Nidhi Company shall NOT:

Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
Issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
Open any current account with its members;
Acquire another company by 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 its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;
Carry on any business other than the business of borrowing or lending in its own 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 per cent of the gross income of the Nidhi at any point of time during a financial year.
Accept deposits from or lend to any person, other than its members;
Pledge any of the assets lodged by its members as security;
Take deposits from or lend money to anybody corporate;
Enter into any partnership arrangement in its borrowing or lending activities;
Pay any brokerage or incentive for mobilising deposits from members or for the deployment of funds or for granting loans.

DOCUMENTS FOR NIDHI COMPANY REGISTRATION

PAN of Directors and Shareholders.
ID Proof of Directors and Shareholders. (Voter ID, AADHAR, Driving License, Passport)
Address Proof of Directors and Shareholders (Bank Statement/ Electricity bill/ Mobile bill/ Telephone Bill)
Passport size Photographs.
Property Ownership Documents of Registered office premises:

owned: Electricity bill + Ownership Documents + NOC (if required)
rented: Electricity bill + Rent Agreement + NOC Apart from all these documents.

NIDHI COMPANY REGISTRATION

To start a Nidhi Company in India, the first step is to incorporate a Limited Company, under the Companies Act, 2013. Hence, it requires a minimum of three Directors and seven shareholders to start the Limited Company incorporation process. During incorporation of the Nidhi company, care must be taken to ensure that the object of the Limited Company mentioned in the Memorandum of Association is that of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

Post incorporation of the Limited Company, within a period of one year from the commencement, the Nidhi Company must meet all of the following criteria:

not have less than two hundred members (shareholders);
Have Net Owned Funds (NOF) of ten lakh rupees or more;
Have unencumbered term deposits of not less than ten per cent of the outstanding deposits; and
Have a ratio of Net Owned Funds to deposits of not more than 1:20.

FAQs FOR NIDHI COMPANY

Q1. How do I start a Nidhi Company?

Conditions to be fulfilled for getting ‘Nidhi’ status

Nidhi Company should have minimum 200 members within one year from commencement.
Also, the net owned funds should be 10 lakh rupees or more. …
Unencumbered term deposits must be 10% or higher of the outstanding deposits.

Q2. Who can open a Nidhi Company?

A Nidhi company is registered as a Public Limited Company. Hence, the requirements for incorporation of a Nidhi company covers a minimum of three Directors and Seven Shareholders.

Q3. What is Nidhi Company Registration?

Q4. Is RBI approval required for Nidhi Company?

No, Nidhi Company does not require any RBI approval for its registration in India. Nidhi Company is one of the categories of NBFC which has been specifically exempted by the RBI from its core provisions including registration requirement etc.

Q5. What is the rules of Nidhi Company?

Public business registration is required under the Nidhi Rules of 2014 for Nidhi Company. There must be a minimum of five lakh INR in paid-up equity share capital. Ending the company’s name with “Nidhi Limited” is mandatory. According to the 2013, Companies Act, Nidhi Companies cannot issue preference shares.

Q6. Who controls Nidhi Company?

The Ministry of Corporate Affairs regulates the fundamental aspects of a Nidhi company. The structure of Nidhi company in India is formed under Section 406 of the Companies Act, 2013.

Q7. Is Nidhi Company legal?

Nidhi Companies are registered and recognised under Section 406 of Companies Act, 2013 and are regulated by the Ministry of Corporate Affairs on MCA. These Companies are controlled by Nidhi Rules, 2014. There is no need to seek prior approval of RBI as RBI has specifically exempted this category of NBFC in India.

Q8. What is minimum capital requirement of Nidhi Company?

The minimum capital requirement to start a Nidhi Company is Rs. 10 lakh (Increased via Nidhi (Amendment) Rules, 2022. Since Nidhi Company is registered as a Public Limited Company and must have “Nidhi Limited” as the last words of its name.

Q9. What are the benefits of Nidhi Company?

Benefits to the members

Nidhi Company works with the objective of increasing savings of its members.
It is very easy to make donations and get loans from the company for its members.
The loans given to the members at a lower rate compared to the market rate hence it attracts the members to do more savings.

Q10. What is rate of interest in Nidhi Company?

National Initiative for Developing and Harnessing Innovation. (NIDHI)

NIDHI COMPANY