Nidhi Company Registration
A Nidhi Company is created basically for the motive of encouraging savings as well as frugality amongst its members.
It is a company registered under the Companies Act, 2013. With the sole objective of cultivating the habit of saving and thrift amongst its members. Nidhi companies are allowed to take a deposit from their members and lend to their members only. Which essentially means that the funds contributed into a Nidhi company come only from its members (shareholders) and are to be used only by the shareholders of the Nidhi Company.
The word “Nidhi” in Nidhi Company has roots in the word “Nidhi”, a word commonly found in the Hindi vocabulary that means “treasure”.
Nidhi Company is a class of NBFC and RBI has powers to issue directives for them related to their deposit acceptance activities. However, since these Nidhis deal with their shareholder-members only, RBI has exempted them from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal entity to take a deposit from and lend to a specific group of people.
Restrictions on Nidhi Company
- It cannot carry any of the following transactions: leasing finance, insurance, chit fund, hire purchase finance, or acquisition of securities issued by any corporation.
- A Nidhi Company is not entitled to issue preference shares, debentures, or any other debt instruments in any form.
- It cannot accept deposits from or give loans to any external individual or corporation.
- You can start Nidhi Company in about Rs. 25,000 only
- It is not allowed to perform vehicle finance business & microfinance business in India.
- Within 12 months of registration, a minimum of 200 members has to be added.
- A maximum interest rate of 20% p.a. can be charged, by following the reducing balance method.A maximum interest rate of 20% p.a. can be charged, by following the reducing balance method.
- A Nidhi Company can only give loans against security. These securities may be Gold, Property, and FD & LIC.
- Unencumbered deposits (Deposits not offered as securities for any purpose) should be more than 10 % of outstanding deposits.
- Filing of Annual Accounts, Audit, and Tax returns are compulsory.
Benefits of Nidhi Company
Limited Liability
Liability of Directors and members of the Nidhi Company is limited. Thus, in case the company suffers from any loss and faces financial distress in the course of its primary business activity, the personal assets of Directors or members are not at risk of being seized by banks, creditors, and government.
Better Credibility
Nidhi companies enjoy better credibility as compared to any other members based organizations such as Trusts, Cooperative Societies or NGOs.
Better option for Savings
One of the main goals of Nidhi Company incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves its other goal of being mutually beneficial. The Nidhi Companies lend and borrow money to and from its members only.
Easy Access of Public fund
The members of the Nidhi Company can take a loan at a cheaper rate from its own Company than borrowing from banks and other NBFCs. Moreover, the process of taking the loan and customized services are much more convenient and faster.
Ease of Fund
Nidhi is the safest and the cheapest way of inviting deposits from the general public. You just need to get them registered as members.
Micro Banking
Nidhis provide Rural banking services to the remote population of the nation which still is far-away and hence devoid of national banks and NBFCs.
Better Option than Credit Co-operative
Nidhi company is most preferred by the small financer as this is a close substitute for credit co-operative society Once a Nidhi company has been registered, you can avail of all the benefits of credit co-operative society as well take the advantage of double deposit.
Low Capital Required
Ministry of Corporate Affairs (MCA) mandates the minimum capital requirement of Rs. 5 lakhs for Nidhi. And, within 1-year, the capital shall be increased to at least Rs. 10 lakhs.
Few Regulations
Nidhi companies follow the Nidhi Rules, 2014. The Central Government is the regulating authority controlling its activities and working. Guidelines imposed on Nidhi by the RBI are limited.
Easy processing
Borrowing and lending to known persons, i.e., its members, is much less complicated than dealing with banks, where the procedure is fixed.
Easy Registration Process
It is a simple process to register Nidhi Company. It is not mandatory for Nidhi Companies to obtain a license from RBI. Nidhi companies have to incorporate themselves as a public company with the MCA.
Low Registration Fees
After the Amendment in Companies act 2013, Nidhi Company is governed by Nidhi Company Rules as well as the Companies Act of 2013.
The Fees, DSC & Other Expenses are approx. Rs. 25-30,000. These include Government fees that vary from State to State
Fulfilling the needs of middle or lower-income groups
Nidhi Companies play an important role in fulfilling the needs of middle and low-income groups by providing them financial help with minimal documentation and formalities.
Loans that have minimum criteria of eligibility
The small wage earners are usually unable to get loans from traditional banks because they don’t meet the eligibility criteria. For them, Nidhi Company is a good way to obtain loans because of fewer conditions.
No external involvement
Nidhi Companies take funds from their members and further provides loans to their members only. This means no external factors are affecting the working of these companies. The investors/members themselves govern the operations of the company.
Separate Entity
Nidhi Company is a separate entity that can acquire assets and incur debts in its own name.
Perpetual Successions
Nidhi Company does not get dissolved by the death, retirement, insanity or insolvency of any of its members or shareholders.
Activities Prohibited for Nidhi Company
- Advertise themselves to invite deposits
- Chit funds
- Leasing Finance
- Lotteries
- Insurance
- Hire-Purchase finances
- Sell the assets of its members kept as security for a loan
- Entering into a partnership for carrying out lending and borrowing activities
- Accepting deposits or lending funds to someone other than its members
- Issue preference shares, debentures or some other debt instruments
- Open a current account with its members (though it can open a Savings Account)
- Acquire another company by investing in securities of that company
- Lend or take the deposit from a corporate
- Pledge assets of its members kept as security
- Pay commission or incentive for mobilizing deposits
- Carry on a business other than borrowing and lending to its members
Documents Required for Nidhi Company Registration
- PAN Card of Directors
- Identity Proof : Aadhar card and Voter ID/ Passport/ Driving License of Directors (document any one)
- Director’s Address Proof : Latest Telephone Bill /Electricity Bill/ Bank Account Statement of Directors
- Latest Passport size photograph of Directors
- Business Address Proof : Latest Electricity Bill/ Telephone Bill of the registered office address
- NOC from owner : No Objection Certificate to be obtained from the owner(s) of registered office
- Rent Agreement : Rent Agreement of the registered office should be provided if any
- Mobile Number and Email ID of Directors