Overview of Nidhi Company - its registration and mandatory requirements for its registration.
Introduction: Criteria and Eligibility
Before learning about Nidhi Company, first, we must understand the meaning of a company. You can Know about Criteria and Eligibility to Incorporate Nidhi Company in India online. There is no specific definition of a Company under the companies act, but as per section 2(2) of the companies act, 2013, a company is incorporated.
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A company is an artificial person created by law, with a separate legal entity and perpetual succession. By this explanation, we can understand that a company is a registered entity with all the natural person’s rights.
Meaning of Nidhi Company
Now, what is Nidhi Company? Just like the company, there are no accurate definitions of Nidhi Company. But as per Nidhi Company Rules, 2014, we can understand that Nidhi Company is formed to promote savings among its members.
Formation Process of e-Nidhi
Nidhi Company is an NBFC (Non-Banking Financial Corporation) that promotes deposits and savings. The formation of this type of company shall be as per the provisions of the companies act.
A company shall be formed for a lawful purpose, and it shall have its memorandum of Association and Articles of Association. In accordance with section 7 of the Companies Act, 2013, the procedure for incorporation is to be done. You Can Know more about the Criteria of Nidhi Registration and Online document processing of it.
As per rule 4 of Nidhi Company rules, 2014, Nidhi Company can only be incorporated as a public company having a minimum paid up share capital of Rs. 5 lakh. Nidhi Company in India is prohibited from issuing any preference share. If any preference shares have been issued before the incorporation, then such preference must be redeemed immediately on the terms as may be prescribed on such issue. The name must mention “Nidhi Limited” in the name of Nidhi Company.
Procedure to Register a Nidhi Business
To register a Nidhi Company in India list of documents are mandatory:
- Documents providing address proof where the business needs to be registered. It can be owned premises or leased/let out. NOC from the landlord/licensor is mandatory for registering the said premises.
- PAN details, Identity proof, Address proof, and photographs of the members.
- DIN of directors.
- DSC of the Company
- Copies of Memorandum and Article of Association of the company.
Form DIR2 is to be filed by all the directors and declared as per rules 5 and 6 of Nidhi rules, and all the subscribers must sign 2014 to the memorandum of association along with Form INC9.
- DIN and DSC of all the directors.
- ‘Nidhi Limited’ is mandatory at the end of the company name. It must be approved in the form of a Public Limited Company.
- Form INC7, INC22, and DIR12 must be filed accordingly along with Conflict of Interest.
- The details of all the members of the Nidhi Company must be submitted to the ROC.
- The name must be meaningful and short uniqueness is important without any resemblance to any existing company. It does not violate the Emblems and Names act, 1950. Such a name must not be against the law, which might be against the belief or customs of any caste, creed, or religion and public tranquillity.
Criteria After Incorporation of Nidhi
As per rule 5, Nidhi Company must satisfy the following conditions after its incorporation to remain active. From the date of incorporation, the company must have at least 200 members within one year. Net of funds owned by Nidhi Company must be more than Rs. 10 lakhs. As per rule 14, not less than 10 per cent unencumbered term deposit must form part of the total outstanding deposit. The net funds owned (Equity Share with free reserves minus accumulated losses and intangible assets) to deposit ratio must be 1:20, which means the deposit should be 20 times more than the owned funds.
Nidhi Company must file its statutory compliance in Form NDH-01 within a period (90) ninety days from the closure of the first financial year. The same is to be filed with the registrar with appropriate fees certified duly by a Practising Chartered Accountant, Practising Company Secretary, or Practising Cost Accountant.
Failure to Comply
In case Nidhi Company fails to comply with the condition of minimum members or/and net fund to deposit ratio, the company must file an application prescribed under form NDH-02 within 30 days from the closure of the first financial year to the regional director for extension of time to comply with the rules 5. Regional Director is a person appointed by the Ministry of Corporate Affairs on behalf of the Central Government.
There are certain inherent limitations of Nidhi Company. It shall not carry on any business activity related to insurance, chit fund, hire purchase, lease financing, and acquisition of securities by any corporate body. Nidhi Company is restricted from issuing preference shares, debentures, or any instrument. It cannot open a current account with its members.
Nidhi Company cannot acquire any company by acquiring its securities, nor can it hold control in the composition of the Board of Directors without passing a special resolution and seeking prior approval from the regional director. Nidhi Company shall not carry on any business other than borrowing and lending under its name only to its members. It cannot enter into any partnership for lending and borrowing, nor can it advertise for soliciting deposits.
Only members of Nidhi can deposit the same. A fixed deposit shall be accepted for a maximum period of Sixty months and a minimum period of six months. A recurring deposit shall be accepted for a maximum period of sixty months and a minimum period of 12 months. If deposited at any time eligible for interest, the maximum amount shall not exceed more than Rs. 1 lakh. The rate of interest on such fixed deposits and recurring deposits shall not exceed the maximum rate prescribed by the Reserve Bank of India for NBFC on the public deposit.
Nidhi Company can only issue loans to its members. Such loans given to members are subject to certain conditions. If the total amount of deposits of Nidhi is less than Rs. 2 crore, then it can lend only Rs. 2 lakh. If the total deposits from its members are more than Rs. 2 crore but less than Rs. 20 crore, in that case Nidhi Company can provide a loan of seven lakh fifty thousand rupees. Rs. 12 lakh in the case where the total deposits from members are more than Rs. 20 crore but less than Rs. 50 crore. Rs. 15 lakh if total deposits are more than Rs. 50 crore.
Nidhi Company can give loans only against gold, silver, and jewellery subject to a repayment period shall not exceed more than one year and loan against immovable property provided that such loan amount shall not exceed 50 per cent value of the mortgaged property. Follow us on Vakilsearch, and check out other blogs regarding Nidhi Company, its registration, procedure and regulations.
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