Last Updated On:
May 28, 2020, 8:31 p.m.
Nidhi is a company which has been incorporated as a Nidhi, with the object of cultivating the habit of thrift and saving amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit. It is a category of Non-Banking Financial Company (NBFC) that does not require any license from the Reserve Bank of India (RBI). It is a company registered under the Companies Act, 2013.
Features of Nidhi Company:
- No RBI Requirement - Nidhi Company does not require RBI registration to do loan business in India.
- Members under Nidhi Company - Nidhi Company can deal with its members only & has to make a minimum of 200 members.
- Branches for Nidhi Company - Nidhi Company can open three branches after three years within the district.
- Interest on Loan - Nidhi Company can earn a maximum of 20% interest on loan on reducing balance method.
- Interest on Deposits - Nidhi Company can accept FD, RD & savings and can earn 12% rate of interest.
- Loan against security - Nidhi Company can lend only against gold, property, FD, Government securities.
Advantages of Nidhi Company:
- Liability of Directors and shareholders of the Nidhi Company is limited.
- Nidhi companies enjoy better credibility as opposed to any other members based organizations like Trusts, Cooperative Societies, or NGOs.
- Nidhi Company is the safest and the cheapest way of inviting deposits from the general public.
- Nidhi Companies take funds from their members and further provides loans to their members only. All transactions are done within this group. So, there are no external factors affecting the working of these companies. The investors or members themselves oversee the operations of the company.
- Borrowing and lending to known persons, belonging to the same group, is much less complicated than dealing with banks, where the procedure is impersonal and fixed.
- Nidhi Company is a separate legal entity that can acquire assets and incur debts in its own name.
- Ministry of Corporate Affairs (MCA) commands that the minimum capital requirement of Rs. 5 lakhs for Nidhi. And, within 1-year, the capital has to be raised to at least Rs. 10 lakhs.
Who can Register as a Nidhi Company?
Nidhi company is incorporated as a Public Limited Company under the Companies Act, 2013. Therefore, there should be at least 3 Directors and 7 Shareholders to incorporate a Nidhi Company.
Documents Required while registering for Nidhi Company:
- PAN and photo are required for each and every director and shareholder in India.
- ID Proof – Aadhaar card or voter ID or Driving license or passport is required.
- Address Proof - Bank statement or Mobile bill or Electricity bill or Landline bill is required.
- Registered office - Electricity bill or rent agreement (If the property is owned) and additionally a copy of No objection certificate (NOC) is also required in case of a rented property.
Requirements for Nidhi Company:
Pre-requirements for Nidhi Company –
- A company must be a “public company” to be incorporated as a Nidhi Company.
- Minimum of Rs. 5 Lakhs of paid-up equity share capital is required to run a Nidhi Company.
- There is a prohibition on Nidhi company to issue preference shares.
- In case any preference shares have been issued before the incorporation process. Then those shares must get redeemed as per the terms of the issue.
- The objective of a Nidhi should be clear. Primarily the object of Nidhi company must be to foster the habit of thrift and savings among its members. Secondly, the company must receive and lend deposits to its members for mutual benefits.
- Every company that embraces the activities of a Nidhi shall have the last words as ‘Nidhi Limited’ at the end of its name.
Post Requirements for Nidhi Company –
- Within a year of its incorporation, a Nidhi Company shall have at least 200 Members. Along with that, the company must have the Net Owned Funds of Rupees 10 Lakhs or more.
- It shall have Unencumbered Term Deposit of not exceeding 10% of its Outstanding Deposits.
- The Net owned fund to deposits ratio should be more than 1:20.
- ‘Net owned funds’ means the aggregate of paid-up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet.
- If the company does not meet the above requirements within one year of its incorporation, then it shall seek an extension from RD in Form NDH-2 within 30 days of First Financial Year’s closure. Regional Director (RD) shall permit such orders as may consider appropriate within 30 days of receipt of Application for the extension.
How to Register as a Nidhi Company?
- First of all, a limited company can only apply for registration as a Nidhi Company.
- There should be a minimum of 7 members and 3 Directors to register as a Nidhi Company.
After you obtain the above things we shall proceed towards the registration process:
- Firstly, you should apply for Director Identification Number (DIN) and Digital Signature (DSC).
- After you obtain the DSC and DIN issued by (MCA), file an application in Form INC – 1 to the Ministry of Corporate Affairs (MCA) for reservation of name of your Nidhi Company.
- Ensure that your name of the company should be unique and should not be the same as other companies. Also, in the case of Nidhi company the name should end with “NIDHI LIMITED”.
- Once your name gets approved by MCA, then you should draft your Memorandum of Association and Articles of Association keeping in mind the objectives of your company.
- Application for incorporation as a Nidhi Company is to be made through eForm SPICe (INC-32). Forms to be attached along with the eForm are as follows -
- Memorandum of Association
- Articles of Association
- PAN Card of subscribers
- Id proof of Subscribers
- Address Proof of Directors
- Address proof of Registered Office
- Latest utility bill of Registered Office
- NOC of the owner
- Consent and Declaration from the first Director in form DIR-2
- Self-Declaration from first directors and Subscribers in form INC-9
- After the incorporation certificate has been received, then you should apply for Permanent Account Number and Tax Deduction and Collection Account Number in the name of the company.
- At last, you should open a current Bank Account in the name of the company.
Prohibited Activities to be performed by Nidhi Companies:
The main aim of the company is to serve its member in whatsoever way. There are many activities which are prohibited in Nidhi Company some of which are as follows –
- Advertise themselves to invite deposits
- Chit funds
- Leasing Finance
- Sell, pledge or mortgage the assets kept with it as security for a loan
- Entering into a partnership for carrying out any lending and borrowing activities
- Pay any brokerage for granting a loan to its members
- Carry on any other business than borrowing and lending to its members
- Pay commission, fee or incentive for mobilizing deposits
- Lend to or take a deposit from a corporate
- Open a current account with its members (though it is allowed to open a Savings Account)
- Issue preference shares, debentures or any other debt instruments
- Taking deposits or lending funds to someone other than its shareholders
Compliances after Incorporation of Nidhi Company:
- NDH - 1: NDH - 1 is a yearly statement filed with the ROC in terms of Nidhi Rules within 90 days from the closure of Financial Year. If this return is not filed timely, then you will lose the Nidhi Company status from the central government.
- NDH - 2: Application to MCA for an extension, if it not able to add 200 members in its first financial year within 90 days of First Financial Year’s closure and Regional Director may after receiving the application give orders within 30 days.
- NDH - 3: NDH - 3 is a half-yearly return filed in order to check whether the Nidhi company is working as per the rules or not. This return is to be filed within 30 days from the closure of half year.
- MGT - 7: Nidhi Company has to file Annual Returns to MCA every year through Form MGT – 7 like any other company.
- AOC -4: Balance Sheet and Profit & Loss statements are to be submitted every year to MCA through Form AOC – 4 like any other company.
- Income Tax Returns: Like any other company, Nidhi companies also have to also file their income tax return by 30th September of the subsequent financial year.
- GST Registration: GST registration is required if anyone crosses the threshold limit.