Nidhi Company Registration
Are you planning to start a Nidhi Company in India but feeling overwhelmed with the registration process? We understand that the legal formalities can seem daunting to a first-time entrepreneur. But fret not, as we have got you covered. In this blog post, we will guide you through the entire process of Nidhi Company registration in India. So, grab a cup of coffee and let’s get started!
1. Introduction to Nidhi Companies in India
Nidhi companies in India are created with the aim of promoting thrift and savings among its members. These companies are allowed to borrow and lend funds only from and to its members who are also shareholders in the company. While Nidhi companies are small when compared to the banking sector, they hold significant importance in cultivating the habit of savings in a group of people. As per the Nidhi Rules 2014, these companies have certain restrictions such as they cannot engage in chit fund business, leasing and hire purchase finance, insurance or financing the acquisition of securities issued by any body corporate. They cannot issue preference shares, debentures, or any other debt instruments by any name or form. Nidhi companies can only carry out the business of borrowing or lending in their own name and cannot open current accounts with their members. However, these rules do allow Nidhi companies to offer locker facilities on rent to their members. Overall, a Nidhi company can be defined as a registered limited company that takes deposits and lends funds to its members only.
2. Objectives of Nidhi Company
Nidhi companies are created with a specific aim of inculcating the habit of thrift and savings among their members. Their primary objective is to create a pool of funds by tapping into the savings of their members and then lending this money back to the same members who need it. By doing so, Nidhi companies promote a sense of financial discipline and responsibility among individuals. These companies offer a simple way of accessing funds for individuals or groups who might otherwise struggle to get credit through formal banking channels. Nidhi companies primarily deal with shareholder-members’ money without venturing into other financial activities. This model brings in transparency and maintains a friendly atmosphere in the company. Moreover, the rules and regulations for Nidhi companies are less stringent than those for NBFCs, which makes it an attractive option for those willing to start a loan and financing business in India.
Starting a Nidhi company in India is relatively easier, as compared to other conventional financial institutions. To register a Nidhi company, one needs to follow some guidelines as set out in the Companies Act, 2013, and Nidhi Rules, 2014, such as adding at least 200 members during the first year of the company’s incorporation. Also, the company must use the words ‘Nidhi Limited’ in its name and have a minimum Net Owned Fund (NOF) of ₹ 10 Lakhs. Nidhi companies can borrow only from their members and lend the collected funds back to their members who need them. Additionally, certain restrictions apply to Nidhi companies, such as not undertaking the business of chit fund, hire purchase finance, leasing finance, insurance, or acquisition of securities issued by any body corporate. The creation of Nidhi companies taps into individual savings to promote savings habits and responsible borrowing, thus benefitting all members of the company.
3. Restrictions on a Nidhi Company under Nidhi Rules 2014
A Nidhi Company is a type of NBFC that is formed with the aim of inculcating the habit of saving and thriftiness among its members. However, there are certain restrictions in place that Nidhi Companies must adhere to under Nidhi Rules 2014. These restrictions are designed to ensure that the company remains focused on its key objectives. One of the key restrictions is that Nidhi Companies cannot conduct any business activities other than borrowing and lending on behalf of its members. This ensures that the company operates within its defined scope and does not deviate from its core objectives. Additionally, Nidhi Companies are not allowed to issue preference shares, debentures, or other debt instruments in their name. This is to ensure that the company functions solely for the benefit of its shareholders and members.
Furthermore, Nidhi Companies are only allowed to accept and lend money to their shareholders or members. They cannot accept or lend money to anyone else. This restriction ensures that the company remains focused on its key objective of promoting saving habits among its members. Additionally, Nidhi Companies are not allowed to get into any partnership arrangements involving borrowing or lending. This ensures that the company does not engage in any activities that fall outside its core objectives.
Another important restriction that Nidhi Companies must adhere to is that they cannot accept deposits that exceed 20 times the amount of money owned by the company. This limit is designed to prevent the company from taking on excessive financial risks. Nidhi Companies must also have a minimum of three directors and seven shareholders and must have at least 200 members within one year of establishment. These restrictions are designed to ensure that the company operates in a transparent and accountable manner.
4. Process of registering a Nidhi Company
Starting a Nidhi Company in India is a simple process that involves registering a Limited Company with the Companies Act 2013. The company must have a minimum of three directors and seven shareholders to begin the incorporation process. During the registration process, it is crucial to ensure that the stated objective of the company in the Memorandum of Association is to cultivate thrift and saving habits among its shareholders and lending and receiving deposits from them for mutual benefit. The Nidhi Company eligibility criteria mandate that the company must have a minimum of 200 shareholders, net-owned funds of at least Rs. 10 lakh, and a net-owned funds to deposit ratio of 1:20 or less. The company must also have a minimum of 10% of unencumbered term deposits of the outstanding deposits. Finally, the company’s name must always contain “Nidhi Limited.”
5. Benefits of forming a Nidhi Company
A Nidhi Company is a type of non-banking financial company incorporated to encourage thrift and savings among its members. Here are some of its benefits:
1. Easy and Quick Formation – The formation process of a Nidhi Company is simple and quick. It requires only 7 members, out of which 3 members will be Directors. The company can be registered within 10-15 days.
2. No RBI License required – Unlike other finance companies, a Nidhi Company doesn’t require a license from the Reserve Bank of India.
3. Minimum Documentation – Minimum documentation is required to establish a Nidhi Company. Only PAN card, Aadhaar card, and voter ID card are necessary.
4. Limited RBI intervention – RBI intervention is minimum in the functioning of Nidhi Companies because they follow Nidhi Rules 2014 issued by the central government.
5. Low Capital Requirement – The minimum capital requirement for a Nidhi Company is just Rs. 500,000. This is comparatively lower than other finance companies. Members can invest money within two months from the date of registration.
Overall, a Nidhi Company provides a safe and secure platform for its members to invest and receive loans at lower rates than the market. They operate solely for the benefit of their members and are exempted from several Acts of law.
6. Exemptions provided to Nidhi Companies
A Nidhi Company is a type of company that aims to cultivate the habit of thrift and savings among its members. The company collects money from its members and gives out loans with security to its members only. This type of business model is ideal for those who want to start a Nidhi Company. They make money from the difference in rates of interest charged on loans and deposits. To make things easier for Nidhi Companies, exemptions have been provided for certain compliances under the Companies Act. The Ministry of Corporate Affairs released a notification on June 5, 2015, elaborating on the exemptions available to Nidhi Companies. These exemptions include the service of documents to members, private placement, and limitations on the further issue of share capital.
According to Section 20(2) of the Companies Act, a company may serve any document to its members by various means, including post, courier, or electronic mode. However, for Nidhi Companies, documents need only be served to those members who hold shares in excess of Rs. 1000 in face value or more than 1% of the total paid-up share capital of the company. For other shareholders, a public notice may be circulated in the district where the registered office of the company is located. Similar exemptions have also been given under Section 136(1) of the Companies Act, where the financial statements may be kept at the registered office along with its enclosures instead of being sent to each member holding shares.
Private placement is another area where exemptions have been provided for Nidhi Companies. The entire Section 42 of the Companies Act is applicable to all companies except for the Nidhi Companies. Nidhi Companies are exempt from sub-section (1), Explanation II to sub-section (2), sub-sections (4), (6), (8), (9), and (10) of Section 42. This means that Nidhi Companies can make multiple private placements at the same time and can accept subscription money in cash. They can invite any number of persons for private placement without any restriction on the maximum number of persons. They can issue private placement to any person without issuing an offer letter and without recording their name as well.
Under Section 62 of the Companies Act, the further issue of share capital is regulated. However, this entire section is not applicable to Nidhi Companies. This means that Nidhi Companies can issue shares or requests to subscribe to its shares to any number of people during the fiscal year. They are permitted to make private placements to any number of people without being considered a public offer. Furthermore, Nidhi Companies may take cash for the subscription of shares.
All these exemptions have made it easier for Nidhi Companies to operate and conduct their business. These exemptions allow them to save time and reduce the costs associated with compliance. It is advisable for those who want to start a Nidhi Company to familiarize themselves with these exemptions and take advantage of them to ensure smooth operations.
7. Requirements for starting a Nidhi Company
To start a Nidhi Company in India, one must fulfill certain requirements prescribed by the Governing Authority.
First and foremost, the Minimum number of members required is seven, out of which at least three members should be designated as Directors of the company.
Additionally, a minimum equity share capital of Rs. 5 lakhs is mandatory.
Nidhi Companies must have a limited company status under the Company Act 2013 and reflect their intention to foster the habit of thrift and savings among the members in their Memorandum of Association (MOA). These criteria are crucial to commence the registration process promptly.
A Nidhi Company is recognized as a non-banking finance company that borrows and lends funds to its members. Its primary objective is to cultivate saving and thriftiness amongst its members, with no involvement from third parties.
8. Management and administration of a Nidhi Company
Management and administration of a Nidhi Company is quite straightforward.
The members of the company elect a board of directors who are in charge of the overall management and administration of the company.
The board of directors is required to hold regular meetings to discuss the affairs of the company. They are also responsible for ensuring that all the compliances under the Companies Act 2013 and the Nidhi Rules 2014 are met.
The directors of a Nidhi Company have a fiduciary duty towards the members and are required to act in the best interests of the members at all times. The Board of Directors of a Nidhi Company must consist of at least three directors who are individuals over the age of 18. However, there is no limit to the maximum number of directors. The board of directors is responsible for appointing a chairman and other officers of the company. The articles of association of the company must specify the powers of the board of directors.
A Nidhi Company is required to maintain proper books of accounts and other records in accordance with the Companies Act 2013. The books of accounts must be kept at the registered office of the company and must be audited by a chartered accountant. The company must also file its annual return with the Registrar of Companies and must comply with other requirements of the Companies Act 2013 and the Nidhi Rules 2014. The company is required to conduct an annual general meeting of its members where the audited accounts of the company are presented to the members.
In case of any dispute between the members and the company, the members can approach the Registrar of Companies for resolution of the dispute. The Registrar of Companies has the power to adjudicate on disputes between members and the company. In case of any non-compliance by the company, the Registrar of Companies has the power to impose penalties on the company and its officers.
In conclusion, the management and administration of a Nidhi Company is quite simple and straightforward. The board of directors is responsible for running the affairs of the company in the best interests of the members. The company must comply with all the requirements of the Companies Act 2013 and the Nidhi Rules 2014. The company is required to maintain proper books of accounts and must file its annual return with the Registrar of Companies. In case of any disputes, the members can approach the Registrar of Companies for resolution of the same.
9. Loan and deposit activities of a Nidhi Company
A Nidhi Company is a type of company that borrows and lends funds amongst its members. This form of non-banking Indian finance aims to instill the habit of thrift and savings among its members.
companies are allowed to take deposits only from their members, making them insignificant in comparison to the banking sector. Since Nidhi companies are registered as limited companies, they must adhere to certain compliance requirements. To initiate the registration process, a minimum of three directors and seven shareholders are required to start the Limited Company incorporation process. The Memorandum of Association must also state the company’s objective is to cultivate a saving habit and receive deposits and lend only to members for mutual benefit.
The primary function of a Nidhi Company is to borrow and lend funds amongst its members. Nidhi companies are restricted from carrying out activities such as insurance, leasing finance, hire purchase finance, chit fund, and acquisition of securities issued by any body corporate. Such restrictions have been put in place by the Nidhi Rules 2014. The company’s activities are overseen by the Reserve Bank of India since they resemble that of an NBFC. However, since Nidhi companies only deal with shareholder-members’ funds, they are exempted from core provisions of the RBI and other regulations applicable to an NBFC.
Nidhi companies are formed to encourage thrift and savings among its members. As such, the companies are allowed to accept deposits only from its members and lend to them. This funding is not available to anyone outside the member’s circle. A Nidhi Company is registered as a limited company and must hence comply with specific compliance requirements. To initiate the registration process, a minimum of three directors and seven shareholders must start the Limited Company incorporation process. Additionally, the objective of the Limited Company as stated in the Memorandum of Association should cultivate thrift and savings amongst its members by taking deposits and lending to members only for mutual benefit.
Nidhi companies are created to encourage the habit of saving money among its members. They are allowed to borrow from its members and lend to its members. Such funding is not available to anyone outside the member circle. Nidhi Rules 2014 have imposed various restrictions concerning the company’s activities. For instance, a Nidhi Company is not allowed to issue preference shares, debentures, or any other debt instrument by any name or in any form whatsoever. Neither can it enter into any partnership arrangement in its borrowing or lending activities. Furthermore, it is not allowed to enter into any arrangement for the change of its management unless it has passed a special resolution in its general meeting.
Nidhi companies are incorporated to cultivate a saving habit among its members. They are allowed to borrow from its members and lend to its members only. Compliance to the Nidhi Rules 2014 is necessary for the registered limited company. During the registration process, the Memorandum of Association should state the company’s objective of cultivating a saving habit amongst its members. A Nidhi Company is also required to have a minimum of three directors and seven shareholders. Finally, its certificate of incorporation must state the suffix Nidhi Limited in its name as per compliance requirements.
10. Compliance and taxation requirements for Nidhi Companies
Nidhi companies are registered as public limited companies with the principal objective of encouraging thrift and savings among its members.
These non-banking financial companies engage in borrowing and lending money within their membership for mutual benefit. Nidhi companies fall under the regulatory purview of the Companies Act 2013 and Nidhi Rules 2014.
Compliance requirements for Nidhi companies can be broadly classified into pre-incorporation, post-incorporation, and event-based compliances. Pre-incorporation compliances include having a minimum of seven members, three directors, minimum paid-up capital of Rs. 5 lakh and ensuring that the suffix ‘Nidhi Limited’ is included in the company name.
The company must cultivate the habit of savings among members as its primary objective. The company must register as a public company, and trusts or minor body corporates cannot be members.
Post-incorporation compliances require a minimum of 200 members within one year, net owned funds of Rs.10 lakhs, with no preference share issuance, and a net-owned fund to deposit ratio not exceeding 1:20.
Unencumbered term deposits should not be less than 10% of the outstanding deposits. Lending or borrowing money for any purpose other than for mutual benefit amongst members is not allowed.
Nidhi companies cannot perform activities such as chit fund leasing finance and hire purchase, acquire securities issued by body corporates, or open current accounts with its members.
Special resolution passed in a general meeting approving acquisitions, arrangements, and concessions is mandatory, and taxation laws applicable to non-banking financial companies.
11. Advantages of Nidhi Company registration in India
Nidhi companies have become a popular option for small financiers in India due to the numerous benefits that come with their registration. These companies operate in the non-banking finance sector with the aim of promoting thrift and savings among their members.
Nidhi companies operate by borrowing and lending money among their members for mutual benefit. The registration process is simple, requiring a minimum of seven members with three serving as directors.
Additionally, a Nidhi company does not require a license from the Reserve Bank of India. The capital requirement for registration is minimal, with a minimum capital requirement of Rs. 500,000.
Nidhi companies follow specific rules and regulations, with minimal intervention from the Reserve Bank of India.
The net owned fund ratio is 1:20, providing secured investments with minimal risk. Nidhi companies also enjoy exemptions and privileges under the Companies Act 2013.
The benefits of Nidhi company registration extend only to its members, ensuring no external intervention in the company’s operations or management.
12. Disadvantages of Nidhi Company registration in India
Nidhi Company registration in India comes with a set of disadvantages and restrictions. Nidhi Companies belong to the non-banking finance category, and their objective is to facilitate lending money among their core members. However, these companies can’t accept deposits from the public, limiting their funds. Also, after a year, they must have a minimum of 200 members with a net-owned fund of Rs. 1000000. Nidhi Companies cannot undertake leasing finance, chit fund, acquisition of securities, or insurance. They can’t open current accounts for members, accept deposits from non-members, pledge assets for security, issue preference shares or debentures, pay brokerage, or advertise. Therefore, Nidhi Companies operate under strict limitations, hindering their growth. If you plan to register a Nidhi Company, ensure that you consider these disadvantages before starting the registration process.
13. Frequently Asked Questions about Nidhi Company Registration in India
Nidhi Company registration in India has become quite popular in recent years. Here are some frequently asked questions that might help clear your doubts about the same.
Are deposits with Nidhi Company safe and secure?
Yes, deposits made with the Nidhi Company are safe and secure as the Ministry of Corporate Affairs and Reserve Bank of India has framed certain rules and regulations to ensure protection and security of deposits.
Who can become a shareholder/member of Nidhi Company?
Any person above the age of 18 years as per age proof is eligible to become a member of Nidhi Companies.
What are the documents required to create a Nidhi Company?
Digital Signature Certificate of all directors, Directors Identification of all directors, Copy of Identity Proof, Registered Office Address Proof, and if the registered address could be a rented premise then rent agreement with rent receipt.
What are the requirements for registration of a Nidhi Company anywhere in India?
A Nidhi Company is registered as a Public Limited Company with a minimum of Three Directors and Seven Shareholders. The main objective of a Nidhi Company is to nurture and promote a habit of thriftiness and savings among its members and accept deposits from or lend loans only to its members for the mutual benefit.
What are the post-incorporation requirements for a Nidhi Company?
Within a period of one year from the date of commencement of its activities, a Nidhi Company must satisfy the following conditions: It must have at least Two Hundred members/shareholders, a minimum Net Owned Funds (NOF) of Rs Ten Lakhs, the unencumbered Term deposits must be at least 10% of the Outstanding deposits, and the ratio of NOF to the Deposits should not be greater than 1:20.
Remember, Nidhi Companies are not allowed to carry out businesses/activities related with hire purchase financing insurance, leasing finance, chit funds acquisition of securities issued by any corporate body, etc., or issue any debt instruments in any form.
14. Documents required for Nidhi Company registration in India
Nidhi Company registration in India is a mandatory process for any entity that wants to operate as a Nidhi Company in the country. The process involves the submission of several documents to the Registrar of Companies. In this article, we will discuss the documents required for Nidhi Company registration in India.
1. Identity Proof: The identity proof of all the proposed directors and shareholders of the Nidhi Company is required. This can be in the form of a PAN card, Aadhar card, driving license, passport, or voter ID card.
2. Address Proof: The address proof of all the proposed directors and shareholders of the Nidhi Company is required. This can be in the form of a utility bill, bank statement, ration card, or lease agreement.
3. Digital Signature Certificate (DSC): A DSC is mandatory for Nidhi Company registration in India. This is required for signing the electronic documents that are submitted during the registration process.
4. Director Identification Number (DIN): A DIN is a unique identification number that is mandatory for all the proposed directors of the Nidhi Company. This can be obtained by filing Form DIR-3 with the Ministry of Corporate Affairs.
5. Memorandum of Association (MOA): The MOA is a legal document that outlines the objectives and scope of the Nidhi Company’s business activities. It is required to be submitted during the registration process.
6. Articles of Association (AOA): The AOA is a legal document that contains the rules and regulations that govern the internal operations of the Nidhi Company. It is also required to be submitted during the registration process.
7. Consent Letters: The consent letters of all the proposed directors and shareholders of the Nidhi Company are required. These letters should state their consent to become directors and shareholders of the Nidhi Company.
8. Affidavits: The affidavits of all the proposed directors and shareholders of the Nidhi Company are required. These affidavits should state that they are not disqualified under the Companies Act, 2013.
9. Form INC-9: This is a self-declaration form that is required to be submitted by all the proposed directors and shareholders of the Nidhi Company. It should state that they have not been convicted or debarred from any economic offences.
10. Certificate of Incorporation: If the Nidhi Company is being formed as a subsidiary of another company, then a Certificate of Incorporation of the parent company is required.
11. Board Resolution: A board resolution is required to be passed by the proposed directors of the Nidhi Company. This resolution should state the adoption of the MOA and AOA, appointment of the first directors, and approval of the registered office address.
12. Rent Agreement: If the registered office of the Nidhi Company is on rent, then a rent agreement between the owner of the property and the Nidhi Company is required. This agreement should be submitted as proof of the registered office address.
13. NOC from the Owner: If the registered office of the Nidhi Company is owned by someone else, then a No Objection Certificate (NOC) from the owner is required. This NOC should state that the owner has no objection to the Nidhi Company using the property as its registered office.
14. PAN Card: The PAN card of the Nidhi Company is required. This card is issued by the Income Tax Department and contains a unique identification number for the Nidhi Company.
In conclusion, these are the important documents required for Nidhi Company registration in India. All these documents must be submitted to the Registrar of Companies along with the registration application. Once the application is approved, the Nidhi Company can commence its business activities in India.