Nidhi Company Registration

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:

1. Advertise to attract deposits from the general public.
2. Engage in chit fund activities.
3. Provide financing options through leasing or hire-purchase agreements.
4. Conduct lottery operations.
5. Extend insurance services to customers.
6. Utilize, mortgage, or sell assets as collateral.
7. Collaborate with partners for lending and borrowing purposes.
8. Accept deposits or lend money to non-members.
9. Issue specific types of shares or debt instruments.
10. Exceed the prescribed limit on the value of shares.
11. Establish current accounts for members, while savings accounts are permissible.
12. Engage in lending or accepting deposits from corporations.
13. Offer commissions or fees for attracting deposits.
14. Conduct any business activities beyond the scope of borrowing and lending to members.
15. Participate in hire-purchase financing arrangements.
16. 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.

1. Director Identification Number (DIN)
2. Digital Signature Certificate (DSC)
3. Address proof of the directors and shareholders
4. Images of the intended directors and shareholders
5. Identity papers like Aadhar card
6. Confirmation of the business address (rental agreement or lease)
7. Proof of ownership of the business location
8. No Objection Certificate (NOC) when necessary
9. Memorandum of Association (MOA)
10. 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.
• Funding System Owned by the Network: Nidhi Companies usually implement a cost-effective net-owned funding system, enhancing growth prospects with efficient fund management.
• Non-Adherence of RBI: Unlike traditional financial institutions, Nidhi Companies have the freedom to set operational rules as they are not bound by RBI regulations.
• Promotion for Saving: Nidhi Companies instill a habit of saving among members, fostering financial wisdom.
• Minimize the chance of risk: Transactions are among members only, minimizing risks and increasing security.
• Enrolling for Economic Activities: Registering as a Nidhi Company is cost-efficient compared to NBFC registration methods.

Nidhi Company Incorporation Criteria

1. Minimum criteria for shareholders or members – To begin the registration process, a minimum of 7 members is required.
2. Minimum Required Directors – In order to establish the company, a minimum of 3 directors must be present.
3. Minimum Investment – A minimum paid-up capital of Rs. 5 lakhs is required.
4. Director Identification Number (DIN) – Required for each director.
5. Count of Directors – Minimum 3 directors needed.
6. Absence of preference shares – Issuance of preference shares is strictly prohibited.
7. Direct Attention to Saving – The company’s objective is to promote saving by receiving deposits and lending only to members.

Post-Registration Obligations

1. NOF to Deposit Ratio – The NOF to deposit ratio needs to be above 1:20.
2. Net Owned Funds (NOF) – Ensure your company’s NOF is above Rs. 10 lakhs.
3. Membership Limits – Minimum 200 members or shareholders by end of first year.
4. Unrestricted Funds – Required to be greater than 10% of total deposits.

Registering a Nidhi Company: A Step-by-Step Guide

1. Step 1: Apply for DIN and DSC – Obtain Director Identification Number and Digital Signature Certificate.
2. Step 2: Draft MoA and AoA – Define the company’s primary objective and file with ROC.
3. Step 3: Approval Process for Naming – Provide 3 unique names to MCA; approval valid for 20 days.
4. Step 4: Apply for Enrolment – Directors must apply for registration with AoA and MoA.
5. Step 5: Certificate of Incorporation (CIN) – Issued within 15–20 days, including Company Identification Number.
6. Step 6: Apply for PAN, TAN, and Bank Account – Submit incorporation documents to open a bank account for the company.