Nidhi Company Registration
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What is Nidhi Company?
A Nidhi Company is a type of non-banking financial company (NBFC) in India, recognized under Section 406 of the Companies Act, 2013. The primary purpose of Nidhi Companies is to encourage savings among their members and provide loans to them. These companies operate on a mutual benefit basis and focus on the following activities:
Key points about Nidhi Companies:
- Members Only: Nidhi companies work exclusively for their members.
- Lending and Depositing: They mainly deal with the borrowing and lending of money between their members.
- Regulation: Nidhi companies are regulated by the Ministry of Corporate Affairs (MCA) and follow specific guidelines under the Companies Act.
- No External Involvement: These companies cannot accept deposits or lend money to non-members.
- Risk Management: They promote the principle of self-help and mutual benefit, and operate with fewer risks as they serve their own members.
Benefits of Nidhi Company Registration:
Limited Regulatory Compliance: Nidhi Companies are less regulated by the Reserve Bank of India (RBI) compared to other NBFCs, making compliance and operational management simpler.
Encourages Savings: As a mutual benefit society, a Nidhi Company encourages its members to save regularly, helping to develop financial discipline.
Low Risk of Default: Since Nidhi Companies only accept deposits and give loans to their members, the risk of bad debts and defaults is typically lower.
Simple and Easy Loans: The process for providing loans is simpler than that of banks, making it easier for members to access credit. Interest rates are generally lower.
Limited Liability: The liability of the members (shareholders) is limited to the amount of their contribution, protecting personal assets in case of any financial troubles.
No Outside Interference: Nidhi Companies operate within a defined group of members, preventing external parties from influencing decision-making.
No RBI Approval Required: Unlike other NBFCs, a Nidhi Company does not require an RBI license to operate. However, it must still comply with the rules and regulations of the Companies Act, 2013.
Tax Benefits: Nidhi Companies can enjoy certain tax advantages under the Indian Income Tax Act.
Long-term Investments: These companies are a good option for long-term investments and financial security for members.
Minimal Capital Requirement: The capital requirement to register a Nidhi Company is quite low compared to other financial institutions (INR 5 Lakhs).
How to Register a Nidhi Company:
- Company Name Approval: Submit an application to the Ministry of Corporate Affairs (MCA) for approval of the company name.
- Prepare Required Documents: These include the company’s MOA (Memorandum of Association) and AOA (Articles of Association), as well as details of directors and shareholders.
- Incorporation: After submitting the documents and payment of fees, the MCA issues a certificate of incorporation.
- Post-Incorporation Compliance: Fulfill conditions like maintaining a minimum of 200 members within one year of incorporation, etc.
1. Minimum Requirements for Incorporation
Company Type: It must be incorporated as a Public Limited Company.
Minimum Shareholders/Members: A Nidhi Company must have at least 7 members (shareholders) at the time of incorporation.
Minimum Directors: There must be a minimum of 3 directors on the board of the company.
Capital Requirement:
- At the time of incorporation, the minimum paid-up equity share capital should be INR 5 lakhs.
- The company must not issue preference shares, only equity shares are allowed.
Shareholder to Loan Ratio: The company must ensure that the ratio of net owned funds to deposits does not exceed 1:20.
2. Name of the Company
- The name of the company must end with the words “Nidhi Limited” to signify its nature as a Nidhi company.
3. Director Identification Number (DIN)
- All directors must have a valid Director Identification Number (DIN), which is mandatory under the Companies Act.
4. Filing of MOA and AOA
- The company must prepare and submit the Memorandum of Association (MOA) and Articles of Association (AOA) during the registration process. The objective stated in the MOA should focus on encouraging thrift and savings among members.
5. Registered Office
- The company must have a registered office address in India. Proof of the registered office address (such as rent agreement or utility bills) must be submitted.
6. Digital Signature Certificate (DSC)
- A Digital Signature Certificate (DSC) is mandatory for at least one director. This is required for signing and submitting documents electronically.
7. Minimum Number of Members After Incorporation
- Within one year of incorporation, the Nidhi Company must have a minimum of 200 members.
8. Compliance with the Nidhi Rules
- After incorporation, the company must comply with the following:
- Net Owned Funds: The company must maintain net owned funds of at least INR 10 lakhs or more within one year of incorporation.
- Deposits: The ratio of net owned funds to deposits must not exceed 1:20.
- No Preference Shares: A Nidhi Company cannot issue preference shares. If preference shares were issued prior to incorporation, they must be redeemed following the terms.
9. No External Borrowings
- Nidhi Companies are prohibited from accepting deposits or lending to anyone other than their members. They cannot raise funds from external sources like banks or financial institutions.
10. Restrictions on Business Activities
A Nidhi Company is limited to certain types of financial activities. They cannot engage in:
- Chit funds
- Leasing finance
- Insurance business
- Securities or stock brokering
11. Documentation Required for Incorporation
- ID Proof: PAN card and Aadhar card of all directors and shareholders.
- Address Proof: Bank statement, electricity bill, or telephone bill.
- Office Address Proof: Proof of registered office address, such as a rental agreement or utility bill.
- Passport-size Photographs of directors and shareholders.
- Digital Signature Certificate (DSC) for directors.
12. Post-Incorporation Compliance
- After incorporation, the Nidhi Company must:
- File returns and compliance documents annually with the Registrar of Companies (RoC).
- Maintain proper records of members, deposits, and loans.
- Ensure that it follows the Nidhi Rules, 2014, to maintain its status as a Nidhi Company.
Nidhi Company Registration Online FAQs
Unlike other Non-Banking Financial Companies (NBFCs), a Nidhi Company is focused on promoting savings among its members and operates on a mutual benefit basis. It deals only with its members and is subject to simpler regulatory requirements.
Nidhi Companies must adhere to several annual compliance requirements, such as:
- Filing financial statements and annual returns with the Registrar of Companies (RoC).
- Filing Form NDH-1 (Return of Statutory Compliances) within 90 days from the end of the financial year.
- Filing Form NDH-3 (Half-Yearly Return) within 30 days from the conclusion of each half-year.
- Maintaining a net owned funds-to-deposits ratio of 1:20 and ensuring that deposits do not exceed this limit.
Yes, a Nidhi Company can open branches, but it can only do so after 3 years of continuous profitability and if it has met all regulatory requirements. It must notify the Registrar of Companies (RoC) before opening any branch.
Yes, a Nidhi Company can declare dividends to its shareholders. However, dividends are subject to the company’s profits, and the MCA’s guidelines for dividend distribution must be followed.
A Nidhi Company is a type of Non-Banking Financial Company (NBFC) incorporated under Section 406 of the Companies Act, 2013. It is formed with the purpose of promoting the habit of saving and thrift among its members. Nidhi Companies primarily deal with accepting deposits and lending money to their members.
Nidhi Companies typically offer the following types of loans:
- Gold Loans: Secured against gold or jewelry.
- Loan against Property (LAP): Secured against immovable property.
- Loan against Fixed Deposits: Loans secured by members' fixed deposits.
As per Nidhi Rules, 2014, a Nidhi Company can charge a maximum interest rate of 7.5% above the highest interest rate offered on deposits. For example, if a Nidhi Company offers 5% interest on deposits, the maximum rate of interest charged on loans can be 12.5%.
No, Nidhi Companies are primarily regulated by the Ministry of Corporate Affairs (MCA) under the Nidhi Rules, 2014. The Reserve Bank of India (RBI) has exempted Nidhi Companies from its core provisions since they deal only with their members.
The minimum paid-up equity share capital required for incorporating a Nidhi Company is INR 5 lakhs. Additionally, within one year of incorporation, the company must ensure that it maintains net owned funds of INR 10 lakhs.
No, a Nidhi Company can only accept deposits from its registered members. It cannot accept deposits or lend to anyone outside its membership.
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