Nidhi Company Registration

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Nidhi Companies fall within the framework of Non-banking financial companies (NBFCs). Registering a Nidhi Company enables it to borrow from its members and lend to those same members.

Nidhi Companies, registered in India, are established with the primary aim of promoting thrift and savings among their members. The funds contributed to a Nidhi Company originate exclusively from its members.

One noteworthy aspect is that Reserve Bank of India (RBI) does not require a license for the incorporation of a Nidhi Company, making the formation process relatively straightforward. Nidhi Companies are registered as Public Companies and must include “Nidhi Limited” at the end of their name.

It’s important to highlight that Nidhi Companies, due to their resemblance to NBFCs, fall under the regulatory oversight of the Reserve Bank of India.

How to Establish a Nidhi Company in India?

To set up a Nidhi Company in India, a minimum of seven members is required, with at least three designated as directors. However, it’s essential for the Nidhi Company to attain a membership of at least 200 individuals within one year of its establishment.

For the registration of a Nidhi Company, a minimum equity share capital of Rs. 5 lakh is mandatory. It’s important to note that the Net Owned Funds (NOF) must be increased to Rs. 10 lakhs within one year after registration. During the initial registration phase, the Nidhi Company must first incorporate as a Limited Company under the Companies Act, 2013.

During the Nidhi Company registration process in India, it’s crucial to ensure that the Memorandum of Association clearly states the objective of promoting thrift and savings among the members, along with receiving and lending solely for their mutual benefit.

Following the incorporation as a Limited Company, the Nidhi Company must adhere to the following requirements:

  • Maintain a minimum of two hundred shareholders (members).
  • Possess Net Owned Funds of at least 10 lakh rupees.
  • Keep deposits pledged as collateral, not less than ten percent of the total outstanding deposits.
  • Maintain a Net Owned Funds to deposit ratio not exceeding 1:20.

What are Net Owned Funds?

Net Owned Funds are calculated by subtracting the accumulated losses and intangible assets from the total of paid-up equity capital and free reserves as reported in the most recent audited balance sheets.

In the event that the Nidhi Company is unable to meet the above-mentioned requirement within one year of commencement, it has the option to request an extension of time from the Regional Director by submitting Form NDH-2. This request must be made within thirty days of the close of the first financial year.

If, even after the second financial year, the Nidhi Company still cannot meet the requirements to operate as a Nidhi Company, it is prohibited from accepting any further deposits starting from the second financial year until it complies with the stipulated provisions for Nidhi Company operations.

What’s Included:

  1. Director Identification Number (DIN) for 2 Directors
  2. Digital Signature (DSC) for 2 Directors
  3. Drafting of Memorandum and Articles of Association
  4. Incorporation fees*
  5. Approval of Company Name
  6. Issuance of Incorporation Certificate
  7. Company PAN and TAN
  8. Registration for EPFO, ESIC, and Professional Tax*
  9. Assistance with Bank Account Opening Kit

Required Documents:

  • PAN CARD: PAN card for Shareholders and Directors. For Foreign Nationals, a Passport is mandatory.
  • ID PROOF: Aadhaar card, Passport, Voter ID, or Driving Licence (Any 1) of shareholders and Directors.
  • ADDRESS PROOF: Bank Statement, Mobile/Telephone bill, or Electricity Bill (Any 1) of shareholders and Directors.
  • PHOTO: Passport size photo of shareholders and Directors.
  • OFFICE ADDRESS PROOF: Office address proof – Electricity Bill or Mobile bill (Any 1).
  • NOC FROM OWNER: No Objection Certificate from the owner of the office.
  • RENT AGREEMENT: Rent agreement of the Office (if the property is rented).

What are the Benefits of Nidhi Company Registration?

  1. Limited Capital Requirement: To establish a Nidhi Company, limited capital is needed. However, it’s important to note that the initial incorporation must be as a limited company.
  2. Fundraising from the Public: Nidhi Companies are designed to raise funds from the public, functioning as a type of NBFC (Non-Banking Financial Company) that accepts deposits from its members. This facilitates easy fund collection.
  3. Mutual Benefit Principle: Registered under section 406 of the Companies Act 2013, Nidhi Companies operate on the mutual benefit principle. The primary beneficiaries are the shareholders themselves, enabling Nidhi Companies to provide loans to their members.
  4. Simplified Management: Nidhi Companies can be managed by a group of members selected by the applicant. Once registered, there is no need for external management involvement.
  5. Reduced Compliance: Compared to other business structures, Nidhi Companies have fewer compliance requirements. They are exempt from certain compliance obligations under the RBI Act.
  6. Limited Liability: Nidhi Companies enjoy limited liability status under the Companies Act. This means the entity’s liability is separate from that of its members and directors.
  7. NBFC Compliance: While similar to NBFCs, Nidhi Companies must adhere to NBFC requirements but are exempt from specific provisions of the RBI Act.
  8. Minimal Compliance: In contrast to credit societies regulated by the Societies Registration Act, Nidhi Companies face fewer compliance burdens. This makes Nidhi Companies a suitable choice for individuals seeking to minimize compliance obligations.

Restrictions on Nidhi Companies

Nidhi Companies are subject to several restrictions, outlined in Rule 6 of the Nidhi Rules, 2014. As per these rules, a Nidhi Company is prohibited from:

  1. Engaging in activities related to chit funds, hire purchase finance, lease finance, or the acquisition of securities issued by any corporate entity.
  2. Issuing preference shares, debentures, or any other debt instruments by any name or form.
  3. Opening current accounts with its members.
  4. Acquiring another company by purchasing securities or exerting control over the composition of another company’s Board of Directors, or entering into any arrangement for changing its management. However, such actions may be undertaken if a special resolution is passed in a general meeting and prior approval is obtained from the Regional Director with jurisdiction over the Nidhi Company.
  5. Conducting any business activities other than borrowing and lending in its name. Exceptions may apply for Nidhi companies that fully comply with these rules, allowing them to provide locker facilities for rent to their members, provided that rental income from such facilities does not exceed twenty percent of the Nidhi’s gross income during a financial year.
  6. Accepting deposits from or lending to anyone other than its members.
  7. Using assets provided by its members as security for loans.
  8. Accepting deposits from or lending money to corporate entities.
  9. Entering into partnership agreements related to borrowing or lending activities.
  10. Issuing or facilitating any form of advertisement to solicit deposits.
  11. Offering brokerage or incentives to mobilize deposits from members or for the deployment of funds or granting loans.

Post-Incorporation Compliance for a Nidhi Company

Once the Nidhi Company is registered, there are several compliance requirements that the applicant should be aware of:

  1. Form NDH 1: The list of members must be submitted within 90 days of incorporation.
  2. Form NDH 2: This form should be filed if an extension is needed to reach the target of 200 members.
  3. Half-Yearly Requirements: Half-yearly requirements must be filed along with Form NDH 1.
  4. Financial Statements: The company is required to submit profit and loss statements and balance sheets annually, following the company’s requirements. This is typically done using Form AOC 4.
  5. Income Tax Returns: The Nidhi Company must file income tax returns in accordance with the Income Tax Act requirements.
  6. Net Owned Funds: A Nidhi Company is mandated to maintain Net Owned Funds of more than Rs. 10 lakhs, with a ratio in the proportion of 1:20 as per regulatory standards.