Nidhi Company in India: Advantages, Features & registration

Nidhi company is one type business structure in form of non-banking financial company (NBFC) incorporated under Section 406 of the Companies Act, 2013.

The Company deals only with their shareholder/members, hence they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. However, RBI is empowered to issue directions to this type of Company in matters relating to their deposit acceptance activities.

This business model is ideal for Financial and Banking Services as are exempt from various Regulations. This is also popular in South India and are highly localized single office institutions.

Details About Nidhi Company Registration in India

• Simplified Incorporation procedure and Cost-Efficient Nidhi company registration
• Low level of risk for non-payment of loan as loan are provided to only members
• Less compliances as they have been exempted from many provision and Notification.
• Require very low Net-Owned Fund
• No External Involvement
• Better Credibility

Features Of Nidhi Company Incorporation

• A Nidhi needs to be  public company and have a lowest paid up equity share capital of ten lakh rupees
• Nidhi can’t issue preference shares, debentures or any other debt instrument
• Nidhi cannot do business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities and any business other than the business of borrowing or lending in its own name
• Nidhi company cannot enter into any partnership arrangement for borrowing or lending activities
• Nidhi do not issue any advertisement in any form for soliciting deposit
• No Nidhi takes loan from bank or any other source for the purpose of advancing loans to members of Nidhi

Is There Any Restriction On Nidhi Company's Activities?

Yes, You can carry on the business in chit fund management, hire purchase finance or leasing finance, insurance, or the acquisition of securities issued to you by any corporate entity

Issue preference shares, debentures, or any other form of a debt instrument in any name or form

Open any existing account with its members

Buy or acquire securities of another company, control the composition of the Board of Directors of other companies in any way or make any arrangements for the management change.

Noted: The Main object of Nidhi Company is to make savings amongst its members, receiving deposits from and lending money to its members for their mutual benefit.

You can't operate any other business than that of borrowing or lending under your name.

If Nidhi has complied with all these rules, they may rent lockers to their members. However, the rental income from such facilities must not exceed twenty percent. at any time in a financial year, the Nidhi gross income

Accept deposits from and lend to anyone other than its members

Any of its members' assets can be pledged as security

You can make deposits or lend money to any company

Involve in any partnership agreement for its borrowing and lending activities

Issue or cause to issue any advertisement in any form soliciting deposits

Except that the members are not allowed to circulate details of fixed deposit plans to them, the Nidhi members will be able to read the words "for private circulation to members" and it will not be considered an advertisement for soliciting deposits.

Any brokerage fees or incentives paid to members for mobilizing deposits or for the deployment of funds, or for granting loans.

For loan advances to Nidhi members, you can borrow money from banks and financial institutions.

Prerequisites for Incorporation of Nidhi company

• A unique name with last word as ‘Nidhi Limited’
• Minimum Seven members
• Minimum Three Director (Director of the company must be member of company)
• DIN of Directors (if don’t have, then apply though SPICE plus form)
• Minimum paid up equity share capital of ten lakh rupees

Documents Required For Nidhi Company

• Proof of Identity of all director and shareholders: Voter ID / Passport/ Driving License
• Residential Proof of all director and shareholders:  Saving Bank Statement/ Electricity Bill/ Telephone Bill/ Mobile Bill (Not Older Than 2 Month)
• Passport Sized pictures of all the executives or directors.
• PAN Card and Aadhar Card of all director and share holders
• Consent of Director to act as Director of proposed company (In form of DIR-2)
• Proof Of Address of Registered Office
• Sale Deed/ Rent Deed/ Lease Deed of property
• copies of Utility Bills Gas Bill/ Electricity Bill/ Mobile Bill (not older than two months)
• NOC from owner of property

Member of Nidhi Company in India

The following person cannot be member of company

• Body corporate
• Trust
• Minor (However deposits can be accepted in the name of a minor, if they are made by the natural or legal guardian who is a member of Nidhi.

Procedure for Incorporating a Nidhi Company

The following steps are involved in incorporating the company in India:

Step 1:  Application for Name Reservation

• An application for company name approval is submitted to the Ministry of Corporate Affairs (MCA) in part-A of SPICe Plus (SPICe+) form.
• The name of Nidhi shall include last word as ‘Nidhi Limited’ and company are allowed to purpose two names.
• The reserved name shall be available for 20 days from the date name of approval.

Step 2: Application for   Digital Signature of Directors (DSC)

• We need to apply for a DSC of each and every single member/shareholder and director of the Company.
• DSC will be obtained froman Authorized Certifying Authority and Directors and members will have to provide a copy of their identity proof and complete a video KYC process for making DSC.

Step 3: File the Application for Incorporation

• An application for incorporation of company is submitted to the Ministry of Corporate Affairs in part-B of SPICe Plus (SPICe+) form within 20 days from the date of name approval along with fees as prescribed in the Companies (The Registration Offices and Fees) Rules, 2014 along with draft of the MOA (memorandum of association) and AOA (Article of Association) of the proposed company and with above-mentioned document.
• SPICe+ is combination of 9 forms in one and proposed company applies all form at once
• Name reservation
• Incorporation
• Application for DIN of director
• TAN
• PAN
• EPFO
• ESIC
• GSTIN
• Opening of Bank Accounts
• Part-B of SPICe+ required all the detail of total number of directors and members, directors and member detail, share capital detail, number of share hold by members and company registered address detail.
• Company required to file form for EPFO and ESIC registration with detail, then Fill the AGILE form for procuring GSTIN
• If the MCA finds the incorporation application to be correct and complete, then the Incorporation Certificate is granted along with PAN and TAN of the company.

Post-Incorporation Conformances:

Form INC-20A:

Nidhi's company must complete an INC-20A form with ROC within 180 days of incorporation with proof of the subscription amount payment.

Formula NDH-4

Each Nidhi Company must complete NDH-4 within 60 calendar days of expiration, one year after the date of incorporation, along with the following attachments.

• Certified copy of Board resolution supporting the proposition of the Company
• Two Directors' certificates of verification that the total number of members as of the date of application is not less than 200.
• The auditor has issued a certificate to Nidhi Company. The Company to the effect that the company has complied with the Nidhi Rules, 2014.

Appointment Of An Auditor

The company shall designate a Chartered Accountant as Auditor within 30 days of the day of incorporation.

Formula NDH-1

Nidhi Company must fulfil all of the following conditions within a year from the date of incorporation.

• A minimum of 200 members
• Net Owned Funds of not less than 10 lakh rupees
• The ratio of net owned funds to Deposits of not more than 1:20.
• Term deposits that are unencumbered and not less than 10 per cent of the outstanding deposits

Nidhi Company shall file form NDH-1 along with ROC within ninety days of the conclusion of the first year's financial year following incorporation, along with the fees as specified in the companies (Registration Offices and Fees) Rules 2014.

Points To Be Remembered…

Today, Nidhi Company is a well-known lending company for secured loans. It is a type of lending company that lends money to its members.

NIDHI stands for National Initiative for Developing and Harnessing Innovations. It can be described as a financial institution or a type of NBFC that lends money to its members. The Companies Act, 2013, has registered this company. It is managed according to the RBI's guidelines. All transactions are made by the company's members. 

All transactions are directed at the shareholders of Nidhi Company. RBI has exempted notified Nidhi businesses from core acts. This distinguishes Nidhi companies and other NBFCs. The Ministry of Corporate Affairs (MCA), which started Nidhi companies, is affiliated with them.

The primary purpose of incorporating this business structure was to motivate and encourage its members to save, so they can easily meet their financial needs. This Company is founded on the principle of mutual benefits. Remember that Nidhi Companies are subject to the RBI's jurisdiction since their function is very similar to NBFCs.

Additionally, the Companies Act (2013), Section 406 deals with the registration and management of Nidhi Companies.

"Nidhi" and "Mutual Benefit Society", are companies that the Central Government may declare, through a notification in the Official Gazette to the Official Gazette, to be a Nidhi, or Mutual Benefit Society.