What is Nidhi Company?
A Nidhi Company is a business entity that focuses on handling deposits from and providing loans to its members, who are also shareholders. The main purpose of a Nidhi Company is to promote thrift and savings among its members, while also offering financial assistance through lending.
Specific exemptions and relaxed regulations are granted to Nidhi Companies in India with regards to their annual compliance requirements and tax assessments, making them a one-of-a-kind financial institution designed to promote mutual benefits among their members.
The statutory regulations controlling Nidhi Companies in India contain Section 406 of the Companies Act, 2013, the Companies (Nidhi Companies) Rules of 2014, and Chapter XXVI of the Companies Rules, 2014.
Regulatory Constraints for Nidhi Companies
Nidhi companies must comply with particular guidelines to ensure their commitment to serving their members. They are restricted from:
- Advertise to attract deposits from the general public.
- Engage in chit fund activities.
- Provide financing options through leasing or hire-purchase agreements.
- Conduct lottery operations.
- Extend insurance services to customers.
- Utilize, mortgage, or sell assets as collateral.
- Collaborate with partners for lending and borrowing purposes.
- Accept deposits or lend money to non-members.
- Issue specific types of shares or debt instruments.
- Exceed the prescribed limit on the value of shares.
- Establish current accounts for members, while savings accounts are permissible.
- Engage in lending or accepting deposits from corporations.
- Offer commissions or fees for attracting deposits.
- Conduct any business activities beyond the scope of borrowing and lending to members.
- Participate in hire-purchase financing arrangements.
- Pay fees to brokers for loan transactions.
Mandatory Documents for Nidhi Company Registration
The formation of a Nidhi Company in India mandates the provision of certain essential documents.
- Director Identification Number (DIN)
- Permanent Account Number (PAN)
- Residency proof and address verification
- Images of the intended directors and shareholders
- Identity papers like Aadhar card
- Confirmation of the business address, for example, rental agreement or lease
- Proof of ownership of the business location
- No Objection Certificate (NOC) when necessary
- Memorandum of Association (MOA)
- Articles of Association (AOA)
Benefits offered by Nidhi Company
Creating a business as a Nidhi in India offers a range of advantages that go beyond the primary goal of encouraging savings among members. Here are some key perks:
- User-friendly Formation: – The formation process of Nidhi Companies is designed to be uncomplicated and hassle-free, with minimal prerequisites. This ensures that individuals interested in establishing such entities can easily access this opportunity.
- Funding System Owned by the Network: – Nidhi Companies usually implement a cost-effective net-owned funding system, which can enhance their business growth prospects by efficiently utilizing their own resources and funds.
- Non-Adherence of RBI: – Unlike traditional financial institutions, Nidhi Companies have the freedom to set their own operational rules and regulations, as they are not bound by the regulations of the Reserve Bank of India (RBI).
- Promotion for Saving: – Nidhi Companies play a vital role in instilling a habit of saving among the Indian population, thus fostering financial wisdom.
- Minimize the chance of risk: – Nidhi Company members execute transactions involving lending, borrowing, or depositing to minimize financial risks and ensure a sense of security within the community.
- Enrolling for Economic Activities: – Registering a Nidhi Company is a cost-efficient process when contrasted with other Non-Banking Financial Company (NBFC) registration methods, enabling smoother access to business loans and financing choices.
Nidhi Company Incorporation Criteria
To form and operate a Nidhi Company in India, several steps must be completed, which are separated into requirements before and after registration.
- Minimum criteria for shareholders or members: – To begin the registration process, a minimum of 7 members is required.
- Minimum Required Directors: – In order to establish the company, a minimum of 3 directors must be present.
- 3. Minimum Investment: -To kickstart your Nidhi Company, it is essential to have a minimum capital of Rs. 5 lakhs.
- Director Identification Number (DIN): – Directors are required to obtain a Director Identification Number (DIN).
- Count of Directors: – A minimum of three directors are required to start the firm.
- Absence of preference shares: – The issuance of preference shares is strictly prohibited.
- Direct Attention to Saving: – The primary objective of the company should be to promote the habit of saving by exclusively receiving deposits from and lending to its members for their mutual benefit.
Post-Registration Obligations
- NOF to Deposit Ratio: – The NOF to deposit ratio needs to be above 1:20.
- Net Owned Funds (NOF): Ensure that your company’s net operating funds (NOF) are above Rs. 10 lakhs.
- Membership Limits: – It is mandatory for your Nidhi Company to have at least 200 members or shareholders by the completion of the first year.
- Unrestricted Funds: – Unrestricted deposits are required to be greater than 10% of total deposits.
Registering a Nidhi Company: A Step-by-Step Guide
Step 1 Applying for the issuance of DIN and DSC: –
Directors of the Nidhi Company are required to obtain a Director’s Identification Number (DIN) and acquire a Digital Signature Certificate (DSC). The DIN is issued by the Ministry of Corporate Affairs (MCA), and the DSC is necessary for all e-filing procedures. However, directors who already possess a DIN and DSC can skip this particular step.Step 2 MoA and AoA: –
When setting up the Nidhi company, don’t forget to draft the Memorandum of Association (MoA) and Articles of Association (AoA) to clearly define its primary objective. Once you have these documents in place, make sure to file them with the Registrar of Companies (ROC) along with a subscription statement.Step 3 Approval Process for Naming: –
Provide the MCA with three name choices for the Nidhi Company. They will select one name to be authorized. Make sure the name is distinct and not already taken. Once it’s given the green light, it’s valid for 20 days.Step 4 Application for Enrolment: –
Upon obtaining name approval, directors are required to apply for registration, which entails providing the Articles of Association (AOA) and Memorandum of Association (MOA).Step 5 Certificate of Incorporation (CIN): –
In most cases, the appropriate body issues the Nidhi Company’s Certificate of Incorporation within 15-20 days. This certificate also grants the company its unique Company Identification Number (CIN).Step 6 Permanent Account Number (PAN), Tax Deduction, Collection Account Number (TAN), and bank account: –
Don’t forget to apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) first. Once you’ve done that, simply submit the Certificate of Incorporation, MoA, AoA, and PAN to open a bank account for the Nidhi Company.
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FAQ’s for Nidhi Company Registration
The Company is required to have an address in India for its registered office. This address can be a commercial, industrial, or residential property where communications from the MCA will be received.
A Nidhi company in India needs to have a minimum of 3 directors and 7 shareholders for registration.
The Director must be 18 years or older and must be a human being.
When submitting documents online, a Digital Signature is utilized to establish the identity of the sender or signee electronically. The Ministry of Corporate Affairs (MCA) requires Directors to use their Digital Signature when signing particular application documents.
Once a Nidhi Company is established, it will remain operational and in existence provided that it adheres to the annual compliance requirements. A minimum of 200 shareholders is mandatory for a Nidhi Company, along with meeting other stipulated criteria within the first year of incorporation. Failure to meet annual compliance obligations may lead to the Nidhi Company being required to refund the deposits.
The Director Identification Number is a special ID given to every Director, whether they’re already part of a Company or planning to be. It’s a must for all Directors, and it never expires. Just remember, each person can only have one Director Identification Number.
Nidhi Company Registration is under the purview of the Ministry of Corporate Affairs, which ensures proper regulation of these companies.
It’s not necessary for you to be physically present at our office or any office to register a Nidhi Company.