A Nidhi Company is a specialized Non-Banking Financial Company (NBFC) that fosters a culture of savings and mutual benefit among its members. Regulated under the Companies Act, 2013, and the Nidhi Rules, 2014, it primarily deals with accepting deposits and lending money exclusively to its registered members.
Nidhi Companies provide a structured financial platform for individuals seeking an alternative to conventional banking. They bridge the gap between cooperative societies and financial institutions, offering secure and regulated member-based financial services. This structure is particularly beneficial for small businesses, self-employed individuals, and communities aiming to pool resources for mutual financial growth.
The Ministry of Corporate Affairs (MCA) oversees the incorporation and compliance of Nidhi Companies, ensuring they operate within a well-defined legal framework. With simplified compliance requirements compared to full-fledged NBFCs, Nidhi Companies serve as an excellent option for entrepreneurs looking to start a regulated financial entity.
This FAQs on Nidhi Company guide provides clear, structured answers to key questions related to Nidhi Company incorporation, operational restrictions, membership eligibility, loan regulations, and compliance requirements. Whether you are considering registering a Nidhi Company or seeking detailed insights into its legal and financial responsibilities, this guide will help you make an informed decision.
Common FAQs on Nidhi Company
Common FAQs regarding a Nidhi Company in India include:
What is Nidhi Company?
A Nidhi Company is a type of Non-Banking Financial Company (NBFC) that is incorporated under Section 406 of the Companies Act, 2013. It primarily facilitates savings and lending among its members and operates on the principles of mutual benefit. Nidhi Companies are regulated by the Ministry of Corporate Affairs (MCA) and are restricted from engaging in external commercial activities.
What provisions are applicable to Nidhi Companies?
Nidhi Companies are governed by the Nidhi Rules, 2014 and are subject to regulations under the Companies Act, 2013. These provisions mandate compliance with membership requirements, deposit limits, loan restrictions, and financial reporting obligations to ensure transparency and stability.
What are the Restrictions on Nidhi Company?
- Cannot carry out business activities like Chit Funds, Hire Purchase, Insurance, or Investments.
- Cannot issue preference shares, debentures, or any debt instruments.
- Cannot accept deposits or lend money to non-members.
- Cannot advertise its deposit schemes publicly.
- Cannot engage in leasing, real estate, or speculative business transactions.
Can Nidhi Company operate in businesses other than those listed above, such as Chit Fund, Hire Purchase, Insurance, Investing, etc.?
No, a Nidhi Company is strictly prohibited from engaging in activities outside its core function of accepting deposits and lending money to its members. Businesses such as Chit Funds, Hire Purchase, Insurance, and Investments are not allowed.
Who is eligible to become a shareholder/member of a Nidhi Company?
Only individuals can become members of a Nidhi Company. Entities such as corporate bodies, trusts, and firms are not eligible. The individual must meet the minimum deposit and shareholding requirements specified in the Nidhi Rules.
Can a Minor be a Member of a Nidhi Company?
No, a minor is not eligible to become a member of a Nidhi Company. However, deposits can be accepted in the name of a minor if made by the guardian on their behalf.
What is the minimum number of members required in a Nidhi Company post-incorporation?
A Nidhi Company must have at least 200 members within one year of incorporation as per Nidhi Rules, 2014.
What is the minimum shareholding requirement for deposit holders?
Every deposit holder must hold at least ₹10 worth of equity shares in the Nidhi Company.
Are Nidhi Company deposits safe and secure?
Deposits in Nidhi Companies are regulated under Nidhi Rules, 2014, ensuring controlled lending practices. However, they are not covered under RBI insurance or Deposit Insurance and Credit Guarantee Corporation (DICGC), making them riskier than bank deposits.
What is the highest amount that Nidhi may accept as a deposit?
A Nidhi Company can accept deposits up to 20 times its net owned funds (NOF) as per the latest audited financial statements.
What conditions must be met by members of the Nidhi Company to obtain a loan?
- The member must have completed at least six months of membership.
- The loan amount is limited to a certain percentage of the member’s deposits.
- The member must provide adequate security or collateral for the loan.
Is it possible to provide loans to non-members?
No, a Nidhi Company can only provide loans to its registered members.
Can Nidhi Company issue Preference Shares?
No, a Nidhi Company cannot issue preference shares, debentures, or any other financial instruments except for equity shares to its members.
What is the minimum nominal value of Nidhi Company’s shares?
The minimum nominal value of a share in a Nidhi Company must be ₹10 per share.
What is the maximum amount that a Nidhi can declare as a dividend?
A Nidhi Company cannot declare a dividend exceeding 25% of its net profits after fulfilling all necessary reserves.
Can a person serve as a director of a Nidhi Company without owning any stock?
No, a director must be a member and shareholder of the Nidhi Company.
What is the maximum tenure of a director in a Nidhi Company?
A director in a Nidhi Company can hold office for a maximum of 10 consecutive years as per the Nidhi Rules, 2014.
How does the Nidhi Company use the funds it receives?
Nidhi Companies primarily use funds for:
- Providing secured loans to members against gold, property, or other securities.
- Meeting operational and financial obligations.
- Expanding member-based financial services.
Is it legal for a Nidhi Company to take over another company?
No, Nidhi Companies are not permitted to take over another company or enter into a merger/acquisition.
What are the documents required to create a Nidhi Company?
- PAN and Aadhaar of directors and shareholders.
- Registered office proof (Rent agreement/NOC/Electricity bill).
- Memorandum of Association (MoA) & Articles of Association (AoA).
- Digital Signature Certificate (DSC) and Director Identification Number (DIN).
- Declaration by Directors and Shareholders (DIR-2).
- Incorporation Form (SPICe+).
Conclusion
A Nidhi Company is an ideal business structure for those looking to promote savings and provide financial assistance within a community of members. It offers limited risk, regulated financial operations, and simplified compliance compared to other financial institutions.
However, Nidhi Companies must comply with strict financial and operational regulations, including limitations on external commercial activities, deposit acceptance, and lending rules. Ensuring proper adherence to Nidhi Rules, 2014, and MCA guidelines is crucial to maintain regulatory compliance and avoid penalties.
For entrepreneurs seeking a low-risk, member-driven financial institution, a Nidhi Company is a strong option. However, for those looking to expand financial services beyond member-based activities, alternatives such as NBFCs or Private Limited Companies may be more suitable.
To ensure smooth Nidhi Company registration, compliance, and financial management, consulting with legal and financial experts is highly recommended.
