What is a Nidhi Company?
A Nidhi company is registered under Section 406 of Companies Act, 2013 and is classified as an NBFC.
“Nidhi” means a company which has been incorporated under Section 20A of the Companies Act, 1956 as a Nidhi and there are certain Nidhi company rules to be followed in India. A Nidhi Company is primarily formed with the intent of developing the habit of savings among its members and only for their mutual benefit. Therefore, a major source of funding for the Nidhi Company is the contribution from the members.
The deposits, thus, gathered are then used for its members or shareholders and the company provides loans or advances, acquires government-issued stocks, bonds, debentures, securities, etc.
A Nidhi company is regulated by the Ministry of Corporate Affairs and all its financial dealings are monitored by the RBI.
Nidhi Company Registration Process
According to Section 406 of Companies Act 2013 “Nidhi” means a company which has been incorporated as a Nidhi with the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for regulation of such class of companies. Look here for the benefits of Nidhi company registration.
Nidhi companies are governed by the Provisions of Companies Act 2013. Hence such type of Companies are registered with Ministry of Corporate Affairs (MCA). A Nidhi to be incorporated under the Act shall be a public company and shall have a minimum paid up equity share capital of five lakh rupees. Further all the Director are mandatorily required to be members of Nidhi.
Nidhi Company can be registered online. It’s a completely hassle free online process and Muds is a brand in Nidhi Company Registration.
Following is the detailed Nidhi Companies Registration Process:-
1. Obtaining Director Identification Number (DIN):
The proposed Directors who may also be the Promoters/Applicants of Nidhi Company have to apply for DIN in the Prescribed E-Form . It may be noted that Such E-form has to be signed by the proposed Directors by Digital signature only. Hence, one needs to first get the Digital signature
2. Name approval:
The Applicants are required to get a suitable name approved from MCA . Such proposed Names should suitable and suggestive of company businessas per the name availability guidelines issued by MCA. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name. It may be noted that From 26 th January 2018 the MCA has simplified the Name availability process. Now to apply for Name of a Nidhi Company we do not require the DSC of applicants
3. Submission of Incorporation Documents:
Once the name is approved, by MCA the Applicants need to file various documents for incorporation of Nidhi Company with MCA through prescribed E-Forms. Such E-forms are filed online with MCA through (www.mca.gov.in)
4. Approval and Certificate of incorporation :
Once all the documents and Forms have been filed and Registration fee and stamp duty paid ,It typically takes 15- 25 days to get the incorporation certificate of Nidhi Company. Incorporation certification is a proof that all the formalities regarding the incorporation have been complied with. The certificate of Incorporation contains the Corporate Identity Number (CIN) of such Company.
Checklist for Nidhi Company Registration
Following is the detailed Check list for incorporation of a Nidhi Company
Following Documents of Members/Directors
- Copy of PAN Card
- Passport size photograph
- Copy of Aadhaar Card/ Voter identity card
Proof of Registered office
- Copy of Rent agreement of office premises executed on the name of Company.(If rented property)
- Copy of Electricity/ Water bill of registered office
- NOC from Landlord that he has no objection for using his premises as the registered office of Company.
Declarations and Affidavits from proposed 1 st Directors of Nidhi Company in the prescribed Format.
Form DIR-2 from all the proposed Directors
Memorandum of Association and Articles of Association
Note :- No Nidhi shall have any object in its Memorandum of Association other than the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.
Requirements for Nidhi Company Registration / Assets of Nidhi Company Registration Online
It requires seven people to start the Nidhi Company in India. Further, the initial capital required for Nidhi Company registration is Rs.5 lakh. However, company needs to comply four important requirements:
- Nidhi Company registration online applicant’s Net Owned Fund to Deposit should not exceed 1:20.
- For Nidhi Company registration 200 Members should have been added by the company within one year.
- Rs.10 lakh capital should be raised by the end of first year by the company looking for Nidhi Company registration online.
- Prior to applying for Nidhi Company registration the Company should keep at least 10% in the fixed deposit in any scheduled commercial bank.
Restrictions On Nidhi Company
A company that has successfully availed Nidhi Company registration must know that there are certain restrictions imposed on Nidhi companies under Nidhi Rules, 2014, which does not permit some activities.
These restricted activities are:
a) Nidhi Companies are not allowed to carry on business of:
- Chit Fund
- Hire Purchase Finance
- Leasing Finance
- Acquisition of Securities
b) They cannot issue debentures or any debt instruments in any form or issue preference shares.
c) They are not permitted to acquire any other company without obtaining the prior approval of the Regional Director.
d) A Nidhi Company is not allowed to carry on any business activity other than borrowing or lending.
e) Such Companies are not permitted to provide vehicle loans.
f) A company which has Nidhi Company registration is not allowed to accept deposits from any other person except its members.
There are several norms to be followed to form a Nidhi company like there should be at least seven members out of which three should be designated as directors. Within one year of its commencement, the company should acquire a minimum of 200 members.
Additionally, the company must have a minimum equity share capital of Rs 5 lakhs and the entire amount has to be paid up. However, within a year of Nidhi Company registration, the Net Owned Funds (NOF) must be increased to Rs 10 lakhs.
Thus, it is clear that the elementary business of a Nidhi Company is to empower lending money between the members of the company only.
Laws Applicable to Nidhi Companies in India
The laws applicable to Nidhi companies in India are the Companies Act, 2013 and the Nidhi Companies Rules, 2014. There are numerous guidelines laid down by the RBI for the functioning and regulation of a Nidhi company.
a) Companies Act, 2013
Since a Nidhi company is incorporated in the nature of Public Limited Company under Section 406, it is bound by various provisions of the Act that are applicable to a public company in India.
b) Nidhi Companies Rules, 2014
The rules came into force to provide uniform standard rules for the incorporation, membership, prohibitions, net owned funds, etc. of the Nidhi company.
c) RBI Guidelines on Nidhi Companies
Since a Nidhi company falls under one class of Non-Banking Financial Companies, the RBI is authorized to issue directions in relation to deposit acceptance activities. Unlike other NBFCs, no RBI approval is necessary for a Nidhi Company registration.
Difference Between Chit Fund and Nidhi Company
|Chit Fund||Nidhi Company|
|Chit Fund Companies are regulated by the respective State Governments Laws.||Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India|
|Chit implies a transaction by which a person goes into an agreement with a specified no. of persons, that everyone should subscribe a certain entirety of money (or a certain amount of grain instead), by method for periodical installments over a definite period and that each such subscriber might, in his turn, as determined by part or by auction or by delicate or in such other manner as might be specified in the chit agreement, be entitled to the prize amount .||It is an NBFC doing the business of lending and borrowing with its members and shareholders. Further Nidhi companies are not required to obtain any license from RBI.|
|Chit Fund companies are usually formed as Partnership firms with unlimited Liability.||A Nidhi Company has to be incorporated as a limited Liability Company. pursuant to provisions of Companies Act 2013.|
Nidhi Company Registration Fees
There are various components of fee for Nidhi Company registration of a Company. It may be noted that fees can be done for Nidhi Company Registration online.
- Registration fee for Nidhi Company registration is payable to Ministry of Corporate Affairs
This fee depends on the authorized capital of the Company. Greater the Authorised Capital greater is the fee for Nidhi Company registration. Beside this a fee of Rs 1000 is applicable on name approval and Rs 500 is applicable on DIN registration per Director.
- Stamp Duty
Stamp duty is payable on Memorandum of Association and Articles of Association. Since stamp duty is a state subject therefore the amount varies from state to state.
1) A Nidhi Company cannot open branches on its wish. It can do so only when it has earned a net profit (after tax) constantly during the three preceding years.
2) In short, after successfully earning profits for a span of three years, a Nidhi Company can open up to three branches in the district.
3) Before opening its branches, a Nidhi Company is required to submit the financial statement and the annual return with the Registrar on time.
There are certain limitations for Nidhi Companies in permitting loans. Following limits are set against the deposit made-
- If the deposit is two crores then a Nidhi company can give a loan amount of 2 lakhs.
- If the deposit is more than two crores but less than 20 crores, then a loan amount of 7.50 lakhs can be awarded by a Nidhi company.
- If the deposit is more than 20 crores but less than 50 crores, then a Nidhi company can extend a loan amount of 12 Lakhs.
- If the deposit is more than 50 crores, then a loan amount 15 lakhs can be sanctioned by a Nidhi Company.
A Nidhi company is authorized to extend loans to its members only against the following securities:
- The members can be given loan against the securities of gold, silver and jewellery and immovable property. The repayment period of such loans must not exceed one year in case of gold, silver and jewellery.
- If the loan is to be extended against immovable property, then the loan shall not exceed 50% of the value of the property which has been offered as security and the period of repayment of such loan shall not exceed 7 years.
- Loan can also be given to the members against fixed deposits, National Savings Certificates and other Government securities and insurance policies.
Acceptance of Deposits by Nidhi Companies
A Nidhi company must not accept deposits that exceed 20 times of its Net Owned Assets. This must be calculated as per its last audited financial statements.
A Nidhi company shall accept the fixed deposits for a minimum period of 6 months and a maximum period of 60 months.
All recurring deposits accepted by a Nidhi company shall be for a minimum period of 12 months and a maximum period of 60 months.
If the recurring deposits are related to mortgage loans, then the maximum period of recurring deposits of a Nidhi company shall correspond to the repayment period of such loans granted by Nidhi.
The maximum balance in a savings deposit account of a Nidhi company at any given time must not exceed Rs.1,00,000. The interest paid by Nidhi on such accounts must not exceed 2% above the rate of interest payable to savings bank accounts by the nationalized banks.
A Nidhi company shall pay interest for fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the RBI which the NBFC can pay on their public deposits.