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Checklist for Incorporating a Nidhi Company

incorporating nidhi company

Checklist for Incorporating Nidhi Company

Nidhi Company is one of the most renowned structure to commence finance business for the community and by the community. Here is a checklist for Incorporating a Nidhi Company –

What you should know before Nidhi Registration Process?

1. Nidhi Company is made with the aim of cultivating the habit of savings amongst the member, receiving deposits from and lending to its members only for their mutual benefit.
2. Companies which are performing the Nidhi Business known by different names such as Permanent Funds, Mutual Benefit Funds, Mutual Benefit Company, etc.
3. As Nidhi falls under one class of NBFC, RBI is empowered to issue commands in subject related to deposit acceptance activities. However, RBI has exempted Nidhi’s from the core provisions of RBI Act and directions applied on NBFC registration. Nidhi Company is one of the categories of Non-Banking Financial Company (NBFC) that does not require any Reserve Bank license

Requirements for a Nidhi Company Registration:

Within a period of 1 year of the starting of the rules, the company must ensure that it has the following –

1. Minimum number of members should be 200
2. The ratio of net owned funds to deposit should not be more than 1:20
3. Net owned funds should be Rs. 10,00,000/- or more.
4. Burden less term deposit of not less than 10% of the outstanding deposits as specified in Rule 14.

Conditions while issuing of loan to members –

A Nidhi company provides loans only to its members. It is subject to the following limits –

  • Rs 2,00,000/- where the total deposits from members is less than 2 crores.
  • Rs 7,50,000/- where the total deposits from members is more than 2 crores but less than 20 crores.
  • Rs 12,00,000/- where the total deposits from its members is more than 25 crores but less than 50 crores.
  • Rs 15,00,000/- where the total deposits from members is more than 50 crores.

Membership –

1. A Nidhi company shall not admit a body corporate or trust as a member.
2. Each Nidhi Company will ensure that the membership is not reduced to less than 200 members at any time.

General Restrictions on Nidhi Company:

No Nidhi shall carry on –

1. The business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities by anybody corporate.
2. Issue preference shares, debentures, or any debt instrument by any name or in any form whatsoever.
3. Open any current account with member.
4. Acquire another company by purchase of securities or Control the composition of the Board of Directors of any other company in any manner whatsoever. Carry on any business other than the business of borrowing or lending in its own name;
5. Accept Deposits from or lend to any person, other than its members;
6. Pledge any of the assets lodged by its members as security;
7. Take Deposits from or lend money to anybody corporate;
8. Enter into any Partnership Arrangement in its borrowing or lending activities;
9. Issue or cause to be issued any advertisement in any form for soliciting deposit;
10. Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
11. Enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi.

A minor cannot be taken as a member. However, the deposits may be accepted in the name of a minor if they are made by the natural or the legal guardian who is a member of Nidhi.

Conclusion :

The main point taken out is that the Companies Act 2013 gives significant importance to the Nidhi Companies. The ease of Nidhi Company Registration Process has brought the interest of promoters in forming Nidhi Companies rather than working under NBFC companies. With a small funding, a common and average businessman can now start Nidhi Companies and enjoy the business of Financing. But the Companies Act put a number of strict rules which needs to be followed. If not, regulators will penalize and wind up as huge number of investors and public is involved in such companies.

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