Setting up of Nidhi Company

Setting up of Nidhi Company

Nidhi Company is a company registered under the Companies Act, 2013, which has a sole objective of cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to take deposit from its members and lend to its members only. Therefore, the funds contributed for a Nidhi company are only from its members (shareholders) and used only by the shareholders of the Nidhi Company.

Nidhi company is a class of NBFCs and RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhis deal with their shareholder-members only, RBI has exempted the notified Nidhis from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Companies is an ideal entity to take deposit from and lend to a specific group of people.

Restrictions on Nidhi Company

The following are some of the restrictions a Nidhi Company is subject to under Nidhi Rules, 2014. As per Rule 6 of Nidhi Rules, 2014, a Nidhi Company shall NOT:

  1. carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of
    securities issued by any body corporate;
  2. issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
  3. open any current account with its members;
  4. acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;
  5. carry on any business other than the business of borrowing or lending in its own name: Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial year.
  6. accept deposits from or lend to any person, other than its members;
  7. pledge any of the assets lodged by its members as security;
  8. take deposits from or lend money to any body corporate;
  9. enter into any partnership arrangement in its borrowing or lending activities;
  10. issue or cause to be issued any advertisement in any form for soliciting deposit: Provided that private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for
    soliciting deposits.
  11. pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.

Nidhi Company Registration

To start a Nidhi Compan in India the first step is to incorporate a Limited Company, under the Companies Act,2013. Hence, a minimum of three Directors and seven shareholders will be required to start the Limited Company incorporation process. During incorporation of the Nidhi company, care must be taken to ensure that the object of the Limited Company mentioned in the Memorandum of Association is that of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

Post incorporation of the Limited Company, within a period of one year from the commencement, the Nidhi Companies must meet all of the following criteria:

  • not have less than two hundred members (shareholders);
  • Have Net Owned Funds (NOF) of ten lakh rupees or more;
  • Have unencumbered term deposits of not less than ten per cent of the outstanding deposits; and
  • Have a ratio of Net Owned Funds to deposits of not more than 1:20.

“Net Owned Funds” means the aggregate of paid up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet.

If the Nidhi Company satisfies the above conditions required for operating as a Nidhi Company, the company shall within ninety days from the close of the first financial year after its incorporation and where applicable, the second financial year, file a return of statutory compliances in Form NDH-1 duly certified by a practicing CA/CS/CWA along with the requisite fees.

In case at the end one year from commencement the Nidhi Company is not able to meet the above requirement, the Company may within thirty days from the close of the first financial year, apply to the Regional Director in Form NDH-2 for extension of time.

If even after the second financial year the Nidhi Company is not able to meet the requirements for a Nidhi Companies, then the Nidhi Company shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions for operating as a Nidhi Companies and be liable for penal consequences.

Choose Nidhi Company because :

  • No External Involvement in Management
  • Helpful for Lower and Middle Classes
  • Low Rates of Interest
  • Secured Investments
  • Minimum Documentation and Formalities

Documents Required For Nidhi Company Registration

  • Copy of Director’s PAN Card
  • Passport size photograph of Directors
  • Copy of Aadhaar Card/ Voter identity card of directors
  • Copy of Rent agreement(If rented property)
  • Electricity/ Water bill (Business Place)
  • Copy of Property papers (If owned property)
  • Landlord NOC (Format will be provided)

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