What is a Nidhi Company?
It is a company classified as an NBFC (a Non-banking financing company) and registered under Section 406 of Companies Act, 2013. The main business of such a company is to facilitate lending money between the core members of the company. This way members (or shareholders) are encouraged to save money and invest them within the company. These deposits are then used by the company for its members (or shareholders), to provide loans or advances, and to acquire government-issued stocks/bonds/debentures/securities. It is regulated by the Ministry of Corporate Affairs, while the RBI monitors all its financial dealings.
Begin Nidhi Company registration
Benefits of a Nidhi Company
- Cheaper To Borrow: As a member, one can borrow money at a minimum rate, relative to the rate at which banks lend money. This can be a major advantage in times of need, as different individuals in the mutual benefit society are likely to need funds at different points in time.
- Encourages Savings: It encourages all its members to save money and encourages a thrifty lifestyle. A Nidhi Company, after all, is a mutual benefit society wherein members can lend or borrow money and accept financial aid amongst them.
- Fewer Complications: Borrowing and lending to known persons, where the procedure is fixed, is much less complicated than dealing with banks or in an informal setting. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.
Checklist For A Nidhi Company
- A minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company. However, it should acquire a minimum of 200 members within one year of commencement.
- A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company. This entire amount has to be paid up. However, within one year of registration, the net owned funds should be 10 lakh rupees or more. This includes equity share capital and free reserves and excludes accumulated losses as well as intangible assets.
- Unencumbered term deposits must be 10% or higher of the outstanding deposits.
- The ratio of net owned funds to deposits shouldn’t be more than 1:20, where 10% of the total deposits are in a fixed deposit account of a nationalized bank.
What are the 10 things Nidhi Companies cannot do as an NBFC (Non-Banking Financial Company)?
- Cannot conduct other businesses: A Nidhi Company cannot carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate whereas an NBFC engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities, leasing, hire-purchase, insurance business, chit business.
- Current Accounts: As the Nidhi Company is a mutual benefit institution, the government is against the commercialization of such companies and hence does not give it the authority to start current accounts. Therefore, users do not have the option of opening a current account under the Nidhi Scheme.
- No Advertisements: Nidhi Companies are not allowed to advertise or solicit anyone in the hope of gaining a deposit. However, they are allowed to advertise their capacity to grant loans.
- Preference Share Capital or Debentures: A Nidhi Company is not allowed to use preference share capital or debentures to raise funds for itself.
- Brokerage: Such companies are not allowed to provide any incentive or brokerage for mobilizing deposits or granting loans.
- Deposits from Non-members: A Nidhi Company does not have the right to accept deposits from individuals who are not members of the Company. Lending and depositing are features that are available only to members, and hence the circulation and handing over of money occur only within members of the community.
- Service Charge: The Company does not have the right to charge any member a service charge for acquiring membership to the Company.
- Membership Restrictions: A Nidhi Company cannot add a corporate body as its member and hence taking deposits from such institutions.
- Branches: A Nidhi Company is not allowed to open a second office as a subsidiary branch in India until it attains a profit three years in a row.
- Boundaries: A Nidhi Company is not allowed to open a branch outside its state of origin in India.
Vakilsearch’s Procedure for Nidhi Company Registration
Contrary to what you might think, registering a Nidhi Company is a simple 3-Step process and can be done completely online. We’ve laid it out below.
- Name Reservation – We help you reserve your name with MCA.
- DSC and DINs – We help you get 1 DSC and 3 DINs.
- Documents and approval – We help you at every stage of the documentation process and in getting in-principle approval from the RBI.
Documents Required for Nidhi Company Registration
To Be Submitted By All Directors
- Self-attested copy of PAN Card
- Self-attested copy of Driver’s License/ Voter ID/ Aadhaar Card/Passport
- Self-attested copy of Bank Statement/ Telephone Bill/Mobile Bill/ Electricity Bill
- Passport-size Photograph
- Specimen Signature Certificate
FAQs on Nidhi Company
A minimum of three branches can be opened in a particular district. In case you want to expand outside the district or want to open more than three branches, the Registrar of Companies need to intimated 30 days prior to their opening.
The conditions laid down by the Act says that a Nidhi Company should acquire a minimum of 200 members within its first year of incorporation. However, in case the company is not able to meet the required numbers, it can apply for an extension with the necessary government authorities.
No, members are only allowed to deposit, borrow, or lend funds.
Any person can deposit, lend or borrow money through the provisions provided by the Companies Act, 2013. Hence, they can all become members of a Nidhi Company. provided they are not a corporation or a company.
A Nidhi Company can accept deposits not exceeding 20 times of its net owned assets, as per the last audited statements.
Access To Experts
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