What is a Nidhi Company?
A Nidhi company is registered under Section 406 of the Companies Act, 2013 and is classified as an NBFC.
It is a type of entity which has been incorporated under Section 20A of the Companies Act, 1956. There are certain rules that must be followed by a Nidhi Company in India. This type of Company is primarily formed with an intent of inculcating the habit of saving money among its members. Thus, a major source of funding for the Nidhi Company comes from the contribution from the members in the form of savings. With the facility of saving money, it also provides its members some other mutual benefits.
The deposits gathered by these entities are used for its members or shareholders. The company provides loans or advances, acquires government-issued stocks, bonds, debentures, securities, etc. from the money to increase its business.
A Nidhi company is regulated by the Ministry of Corporate Affairs (MCA). However, all its financial dealings are monitored by the RBI (Reserve Bank of India).
Nidhi Company Registration Process
According to Section 406 of Companies Act, 2013 “Nidhi” means a company which has been incorporated with the object of cultivating the habit of thrift and savings among its members. It also gives its members lending facilities for their mutual benefit. It complies with all the rules prescribed by the Central Government for the regulation of this class of companies. One can understand the benefits of Nidhi company registration by clicking here.
Nidhi companies are governed by the Provisions of Companies Act 2013. Hence such type of Companies are registered with Ministry of Corporate Affairs (MCA). A Nidhi Company needs to be incorporated under the Companies Act and shall be working as a public company. It should have a minimum paid up equity share capital of five lakh rupees. Furthermore, all the Directors are mandatorily required to be members of Nidhi.
Nidhi Company can be registered online. It’s a hassle-free process and is completely online. Muds Management is a preferable brand for many corporates seeking Nidhi Company Registration.
Following are the details of Nidhi Companies Registration Process:-
1. Obtaining Director Identification Number (DIN):
The proposed Directors who can also be the Promoters of the Nidhi Company and the applicants for Nidhi Company Registration have to apply for DIN in the Prescribed E-Form. It may be noted that the E-form must be signed by the proposed Directors through Digital signature only. Hence, one needs to first get the Digital signatures for directors.
2. Name approval:
The Applicants are required to get a suitable name approved from MCA . Such proposed Names should be appropriate and suggestive of the company’s business as per the name availability guidelines issued by MCA. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name. It may be noted that from 26th January 2018 the MCA has simplified the Name availability search and registration process. Now, to apply for the Name approval of a Nidhi Company one does not require the DSC of applicants.
3. Submission of Incorporation Documents:
Once the name is approved, by MCA, the Applicants need to file various documents for Nidhi Company incorporation with MCA through prescribed E-Forms. Such E-forms are filed online with MCA through (www.mca.gov.in)
4. Approval and Certificate of incorporation:
Once all the documents and Forms have been filed and the Registration fee and stamp duty paid, It typically takes around 15-25 days to get the incorporation certificate of Nidhi Company. An incorporation certificate is a proof that all the formalities regarding the incorporation have been completed. The certificate of Incorporation contains the Corporate Identity Number (CIN) of the Company.
Checklist for Nidhi Company Registration
Following is the detailed Checklist for incorporation of a Nidhi Company
Following Documents of Members/Directors
- Copy of PAN Card
- Passport size photograph
- Copy of Aadhaar Card/ Voter identity card
Proof of Registered office
- Copy of Rent agreement of office premises executed on the name of Company (If rented property).
- Copy of Electricity/ Water bill of registered office
- NOC from the Landlord or owner of the property that he has no objection concerning use of his property’s premises as the registered office of Company.
- Declarations and Affidavits from proposed 1st Directors of Nidhi Company in the prescribed format.
- Form DIR-2 from all the proposed Directors
- Memorandum of Association and Articles of Association
Note:- No Nidhi company will have any other objective mentioned in its Memorandum of Association other than the object of cultivating the habit of thrift and savings among its members, receiving deposits from them, lending to its members only, and working for their mutual benefit.
Requirements for Nidhi Company Registration / Assets of Nidhi Company Registration Online
It requires seven people to start the Nidhi Company in India. Further, the initial capital required for Nidhi Company registration is Rs.5 lakh. Additionally, the company needs to comply with these four important requirements too:
- Nidhi Company registration online applicant’s Net Owned Fund to Deposit ratio should not exceed 1:20.
- For Nidhi Company registration 200 Members must be added by the company within one year.
- Rs.10 lakh capital should be raised by the end of the first year by the company looking for Nidhi Company registration online.
- Prior to application for Nidhi Company registration, the Company should keep at least 10% in the fixed deposit in any scheduled commercial bank.
Restrictions On Nidhi Company
A company that has successfully availed Nidhi Company registration must know that there are certain restrictions imposed on Nidhi companies under Nidhi Rules, 2014, which does not permit the following activities.
These restricted activities are:
a) Nidhi Companies are not allowed to carry on the business of:
- Chit Fund
- Hire Purchase Finance
- Leasing Finance
- Insurance
- Acquisition of Securities
b) They cannot issue debentures or any debt instruments in any form or issue preference shares.
c) They are not permitted to acquire any other company without obtaining the prior approval of the Regulatory authority.
d) A Nidhi Company is not allowed to carry on any business activity other than borrowing or lending.
e) Such Companies are not permitted to provide vehicle loans.
f) A company having Nidhi Company registration is not allowed to accept deposits from any other person except its members.
There are several other norms to be followed to form a Nidhi company. There should be at least seven members out of which three should be designated as directors. Additionally, the company must have a minimum equity share capital of Rs 5 lakhs and the entire amount has to be paid up. However, within a year of Nidhi Company registration, the Net Owned Funds (NOF) must be increased to Rs 10 lakhs. Thus, it is clear that the elementary business of a Nidhi Company is to empower lending money between the members of the company only.
Laws Applicable to Nidhi Companies in India
The laws applicable to Nidhi companies in India are the Companies Act, 2013, and the Nidhi Companies Rules, 2014. There are numerous guidelines laid down by the RBI for the functioning and regulation of a Nidhi company.
1. Companies Act, 2013
Since a Nidhi company is incorporated as a Public Limited Company under Section 406, it is bound by various provisions of the Act that are applicable to a public company in India.
2. Nidhi Companies Rules, 2014
The rules came into force to provide uniform standard rules for the incorporation, membership, prohibitions, net owned funds, etc. of the Nidhi company.
3. RBI Guidelines on Nidhi Companies
Since a Nidhi company falls under the class of Non-Banking Financial Companies, the RBI is authorized to issue directions in relation to deposit acceptance activities. Unlike other NBFCs, no RBI approval is necessary for a Nidhi Company registration.
Difference Between Chit Fund and Nidhi Company
| Chit Fund | Nidhi Company |
|---|---|
| Chit Fund Companies are regulated by the respective State Governments Laws. | Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India |
| Chit implies a transaction by which a person goes into an agreement with a specified no. of persons, that everyone should subscribe a certain amount of capital (or a certain amount of gain instead), by the method of periodical installments over a definite period and that each such subscriber might, in his turn, as determined by part or by auction or by delicate or in such other manner as might be specified in the chit agreement, be entitled to the prize amount. | It is an NBFC doing the business of lending and borrowing with its members and shareholders. Further Nidhi companies are not required to obtain any license from RBI. |
| Chit Fund companies are usually formed as Partnership firms with unlimited Liability. | A Nidhi Company has to be incorporated as a Limited Liability Company. pursuant to provisions of Companies Act 2013. |
Nidhi Company Registration Fees
There are various components of fee for Nidhi Company registration of a Company. It may be noted that fees can be submitted for the Nidhi Company Registration through online mode.
Registration fee for Nidhi Company registration is payable to the Ministry of Corporate Affairs
This fee depends on the authorized capital of the Company. Greater the Authorised Capital greater is the fee for Nidhi Company registration. Besides, there a fee of Rs 1000 is applicable on name approval and Rs 500 is applicable on DIN registration per Director.
Stamp Duty
Stamp duty is payable on Memorandum of Association and Articles of Association. Since stamp duty is a state subject, the amount varies from state to state.
Branches
1) A Nidhi Company cannot open branches on its wish. It can do so only when it has earned a net profit (after tax deductions) constantly for the three preceding years.
2) In short, after successfully earning profits for a span of three years, a Nidhi Company can open up to three branches in the district.
3) Before opening its branches, a Nidhi Company is required to submit the financial statement and the annual return with the Registrar on prescribed time.
Loans
There are certain limitations for Nidhi Companies in lending loans. Following limits are set against the deposit made-
- If the deposit is two crores then a Nidhi company can give a loan amount of 2 lakhs.
- If the deposit is more than two crores but less than 20 crores, then a loan amount of 7.50 lakhs can be awarded by a Nidhi company.
- If the deposit is more than 20 crores but less than 50 crores, then a Nidhi company can extend a loan amount of 12 Lakhs.
- If the deposit is more than 50 crores, then a loan amount of 15 lakhs can be sanctioned by a Nidhi Company.
A Nidhi company is authorized to grant loans to its members only against the following securities:
- The members can be given loans against the securities of gold, silver, and jewellery and immovable property. The repayment period of such loans must not exceed one year in case of gold, silver, and jewellery.
- If the loan is to be extended against immovable property, then the loan shall not exceed 50% of the value of the property which has been offered as security and the period of repayment of such loan shall not exceed 7 years.
- Loan can also be given to the members against fixed deposits, National Savings Certificates, and other Government securities and insurance policies.
Acceptance of Deposits by Nidhi Companies
- A Nidhi company must not accept deposits that exceed 20 times of its Net Owned Assets. This must be calculated as per its last audited financial statement.
- A Nidhi company shall accept the fixed deposits for a minimum period of 6 months and a maximum period of 60 months.
- All recurring deposits accepted by a Nidhi company shall be for a minimum period of 12 months and a maximum period of 60 months.
- If the recurring deposits are related to mortgage loans, then the maximum period of recurring deposits of a Nidhi company shall correspond to the repayment period of such loans granted by Nidhi.
- The maximum balance in a savings deposit account of a Nidhi company at any given time must not exceed Rs.1,00,000. The interest paid by Nidhi on such accounts must not exceed 2% above the rate of interest payable to savings bank accounts by the nationalized banks.
- A Nidhi company shall pay interest for fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the RBI which the NBFC can pay on their public deposits.
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