A Nidhi is a business created with the intention of instilling a culture of frugality and saving among its participants. A Nidhi Company is a small, structured financial services firm that is exempt from certain RBI restrictions and other laws.
According to Section 406 of the 2013 Companies Act, a specific type of corporation known as a “e-Nidhi Company” operates in the Indian non-banking finance industry.
Their primary activity is inter-member lending and borrowing of funds. Permanent Funds, Benefit Funds, Quasi Bank, Mutual Benefit Funds, and Mutual Benefit Companies are other names for them.
They are subject to regulation by the Ministry of Corporate Affairs, which has the authority to provide them with instructions about their deposit acceptance activities.One of the conditions that are to be satisfied by a Nidhi Company after incorporation is that it should have a minimum number of Members in e-Nidhi Company of 200 within approximately 1 year from the date of incorporation.
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How many Maximum Number of Members in e-Nidhi Company?
As per the provisions of the law, a minimum of seven members are required for the incorporation of a Nidhi Company. It is to be noted that out of those seven members, three of them are supposed to be company directors. Moreover, the company is supposed to have a minimum paid-up equity share of 5 lakhs.
However, one of the important points/conditions to be taken into consideration is that within 1 year from the date of incorporation of the company, the e-Nidhi Company Formation is supposed to have a minimum of 200 members. Another point to be considered is that the net owned funds of Nidhi Company should be ₹ 10 lakhs or more.
Two more criteria that are supposed to be fulfilled are :
- Unencumbered term deposits representing at least 10% of the total amount of outstanding deposits;
- A maximum net owned funds to deposit ratio of one to twenty.
Net Owned Funds equal the sum of equity share capital and free reserves and do not include intangible assets and accumulated losses.
If the e-Nidhi Bihar is unable to meet the requirement of having a minimum of 200 members, the conditions related to the ratio of net owned funds to deposits Nidhi Company may then submit a request for an extension of time in Form NDH-2 to the Regional Director within 30 days after the conclusion of the first financial year.
The Nidhi Company Registration cannot receive any additional deposits from the start of the second financial year until the conditions are satisfied, although if the failure to satisfy the above conditions continues past the second financial year.
Features of e-Nidhi Company
- Encourages modest savings among middle- and lower-class people
- Accepts term deposits in exchange for prompt returns
- Easy source of collateralized loans for members
- Effective ways to save and borrow with the least amount of paperwork Due to the strict membership requirements, this investment method is secure.
Also Know about 4 Essential Rules to Make e-Nidhi Company Successful
Benefits of Nidhi Company
The Nidhi Company is a smart investment since it has a reliable and efficient financial management system in place. Because each member has control, there is little chance of financial malfeasance, hence Nidhis are highly open in their operations and have the potential for high returns on investment. Starting a Nidhi business is advantageous for long-term gains because of the way investments and procedures work.
Nidhi investments significantly aid the middle and lower classes by offering simple financial services with little red tape. Small-wage workers cannot meet the minimum requirements for loans and investments, thus Nidhi enterprises offer a solution and should be permitted to expand under governmental control.
There is no room for outside engagement, and there are no committees or trusts to oversee it. The investors themselves own this investment feature. Members thus serve as the Nidhi funds’ governing body.
Dealing with banks or in an informal context is far more complicated than lending and borrowing to known individuals where the process is structured. When its members need money for themselves, a Nidhi business formation helps them to maximise the value of their funds and benefit from cheaper interest rates.
Checklist for a Nidhi Company
- The minimum number of members required at the time of the registration is seven out of which three are supposed to be directors of the company. However, within a year of starting, it should have at least 200 members
- For the Nidhi company registration process, the company must also have a minimum equity share capital of Rs 5 lakhs. This sum must be paid in full. However, within a year of Nidhi Registration, the Net Owned Funds (NOF) must be increased to Rs 10 lakhs
- Unencumbered term deposits should make up at least 10% of the company’s total outstanding deposits
- 1:20 should be the recommended NOF to deposits ratio. where 10% of the total deposits are held in a nationalised bank’s fixed deposit account.
Restrictions/Prohibitions on e-Nidhi Bihar
- Cannot conduct business in the areas of chit funds, leasing, hire-buy, insurance, or the purchase of securities issued by body corporates
- Cannot issue debentures, preferred shares, or any other type of debt instrument
- Not allow any current accounts to be opened with its members
- Cannot accept deposits from or lend money to anyone besides members
- Cannot solicit a deposit to promote itself.
Conclusion
The RBI review committee proposed adding the word “Nidhi” to the company name of any company participating in a Nidhi-based business as described above. The word “Nidhi” will also need to be added after the registered name of any existing businesses that perform operations that are comparable to those of a Nidhi company as specified by the RBI directions.
Vakilsearch handles all your paperwork and ensures realistic expectations making your Nidhi company registration in the comfort of your home. The legal team also ensures that the work is easier and your interaction with the government seamless.
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