NIDHI COMPANY

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Nidhi Company

Nidhi company refers to a non-bank financial sector entity recognized under section 406 of the Companies Act, 2013. Nidhi company registration allows Nidhi to borrow from its members and lend to members.
Nidhi company are established to cultivate the habit of thrift and saving among its members. All the funds contributed to a Nidhi company come solely from its members.
No license is required from the Reserve Bank of India to set up a Nidhi company. Hence, the formation of the Nidhi company is extremely 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 Nidhi companies operate under the jurisdiction of the Reserve Bank of India, as the functioning of Nidhi companies is similar to NBFCs.

Benefits of Nidhi Company

Easy Formation
A Nidhi company is formed through an extremely simple process. The establishment of the Nidhi company requires a minimum of seven members, three of whom are appointed to the board, with a simple and hassle-free documentation process.
Non-Compliance With Reserve Bank Of India
The Nidhi company does not have to follow the instructions of the Reserve Bank of India. Therefore, Nidhi Company is free to impose its own rules.
Less Risk
Loans, borrowings or deposit transactions are only made by members, which reduces the risk of financial problems for the Nidhi company.
Economical Registration
Registering a Nidhi company is much easier and more cost- effective than other NBFC registration procedures, so it doesn't affect the director's finances. It also helps the Nidhi company in getting business loans whenever required for the growth of the company.
Certainty Of Savings
The concept and objective of a Nidhi company are to promote the saving among Indian people.
Net-Owned Funding System
A Nidhi company follows a net owned funding system, i.e., a transaction in which it invests money in the business to raise funds for it. This feature makes a Nidhi company profitable for owners and helps them grow their business.

Procedure of Nidhi Company

1
DSC And DIN Obtained From The MCA Certification Agencies

The first step for all the directors is to obtain a Digital Signature Certificate (DSC) and Directors Identification Number (DIN) from the MCA certificate authority. The agency charges a standard fee for providing such services and seeks basic documentation for it.

2
Name Approval

The best three suggested names for your Nidhi company must be proposed to the MCA, and one of these names will be accepted by the MCA. The name of the Nidhi company must be unique. These approved names are only valid for 20 days.

3
Application For Registration

Once the name is approved, the directors shall file an application for registration with the Articles of Association (AOA) and Memorandum of Association (MOA).

4
Certificate Of Incorporation

It takes 15-20 days for the competent authority to issue a certificate for incorporation of a Nidhi company. This certificate also includes the company's Company Identification Number (CIN).

Documents Required for Nidhi Company

Nidhi Company Registration - Basic:

  • Directors Identification Number, i.e., DIN
  • PAN number of the proposed directors and members
  • Proof of residence and address proof of proposed directors and members
  • Passport size photo of the proposed directors and members
  • Identification Documents like Aadhar card
  • Registered documents of business premises such as lease or rent agreement
  • Ownership proof of the business place in case the premises are owned
  • NOC if required
  • Memorandum of Association (MOA)
  • Article of Association (AOA)

Eligibility Criteria of Nidhi Company

Seven Members
A minimum of seven members is required to form a Nidhi company. Out of these, three should be designated as the directors. However, it should acquire a minimum of 200 members within one year of commencement.
Share Capital
Further, the company must have a share capital of at least Rs 5 lakhs to register as a Nidhi company. This entire amount has to be paid up. However, the Net Owned Funds (NOF) must be increased to Rs 10 lakhs within a year of registration.
Outstanding Deposits
At least 10% of its outstanding deposits should comprise of un-encumbered term deposits
NOF
The prescribed ratio of NOF to deposit should be 1:20, where 10% of the total deposits are in a fixed deposit account of a nationalised bank.

FAQs

Q. Is Nidhi company legal in India?
Nidhi companies are liable to operate in line with Nidhi Rules, 2014. They are registered in the nature of a public limited company, and therefore, they are bound to follow the provisions of Nidhi rules, 2014 and Companies Act, 2013.
Q. Can the director take a loan from Nidhi company?
Yes, Nidhi companies are legally permitted to render loans to their directors or their relatives in their capacity as members. Such transactions must be reflected in the annual accounts in the footnote section.
Q. Does Nidhi company require RBI registration?
Nidhi company is not mandated to secure the RBI's consent; therefore, it is easy to incorporate. It is incorporated as a public company and must have affixed "Nidhi Limited" at the end of its name.
Q. Who regulates Nidhi company?
MCA acts as a primary regulatory body for Nidhi companies in India. It reserves right to roll out guidelines relating to deposit acceptance activities
Q. Can Nidhi companies accept deposits in cash?
No, such entities are prohibited from accepting deposits in cash. Keep in mind that the maximum deposit acceptance limit for these companies has been limited to 20 times the NOF as reflected in the latest Audited Financial Statements.

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