Nidhi Company under Companies Act, 2013

Introduction:

 A Nidhi is a type of non-banking financial company (NBFC) that was formed to receive and lend money to its members only, for their mutual benefit. It aims to encourage the habit of thrift and savings among its members. So only the enrolled members can deposit and lend loans from the company. Chapter XXVIA of companies act deals with the Nidhi companies which include all the provisions and rules related to it. The term Nidhi in the Indian language denotes “treasure” which means a valuable thing. The Nidhi company helps people to come forward and deposit their small savings at a place and utilize them whenever in need. It provides loans at a very minimal rate to its members as compared to banks. Nidhi companies are consist of some organizations such as mutual Benefit Funds, Benefit Funds, Nidhi Permanent Fund, and Mutual Benefit companies.

How to Incorporate Nidhi Company in India?

There are certain conditions that should be followed to incorporate a Nidhi company-

1. Nidhi Company shall always be a public company.
2. Minimum 7 or more members are required for the incorporation of the company.
3. At least 3 directors are required while the incorporation of the company.
4. The company must have a minimum paid-up equity share capital of five lakh rupees.
5. Company name shall end with “Nidhi Limited”.
6. The main aim of the company is to inculcate the habits of thrift and savings.

What are the documents required to register a Nidhi Company?

1. PAN card number of both directors and shareholders of the company.
2. Government identification cards such as Aadhaar card, voter Id card
3. Proof of residence for both shareholder and director (Electricity bill or bank statement)
4. Passport size photo
5. Property proof of registered office-
   • If the office is owned, then ownership information like Utility Bill, Ownership document, NOC
   • If the office is rented then the utility bill, rent agreement, and NOC are required.

*A copy of all these documents is to be submitted.

How to register a Nidhi Company?

• The initial step for registering a Nidhi company is to obtain a Director Identification Number (DIN) and the Digital signature of all its directors.  The DIN number is issued for a lifetime and remains the same even if the director is changed or not.
• The second step is to file an application to the ministry of corporate affairs for name approval by suggesting 3 names for the company. The names should be unique and not similar to existing companies.
• Following the name approval, the director has to fill the INC-32 form for incorporation of the company. Along with the form Articles of Association (AOA), Memorandum of Association (MOA) and all required documents (stated above) is to be annexed.
• After scrutinizing the documents, if correct, the registrar of the company will issue an approval letter. After that MOA will issue the certificate of incorporation that includes CIN (Company Identification Number) in 15-25 days which shows the company is incorporated.
• Finally, the directors have to apply for PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) and open the Bank accounts of every member by submitting the Certificate of Incorporation, and the copies of AoA, MoA, including allotted PAN details to the bank.

What are the post Incorporation compliances for a Nidhi Company?

• At the end of the first year of incorporation, the Nidhi Company must have at least 200 members.
• The net owned fund requirement should be more than ten lakh rupees and the company has to maintain the ratio of net owned fund and deposit by 1:20. Net own funds refer to 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. Further, the amount representing the proceeds of the issue of preference shares shall not be included for calculating Net Owned Funds.
• According to Rule 14 of Nidhi Rules 2014, Unencumbered deposits should be more than10 percent of the outstanding deposits.

The company need to fill few prescribed forms that are mandatory for the process of incorporation which is as follows-

Form NDH – 1

The company has to submit the list of all members within 90 days from the closure of every fiscal year in this form. The form includes the information related to members, deposits, loans, reserves for the respective financial year.

Form NDH – 2

If the Nidhi company is unable to meet the requirement of 200 members in the first year itself then the company has to make an application to the regional manager within 30 days for the extension.

Form NDH -3

The company has to fill in details of the half-year return in Form NDH-3 which includes the total number of members joined in the half-year, total members who ceased to be members as of date.

What are the advantages of getting a Nidhi Company Registration?

• The process of registration is smooth and efficient for Nidhi Company. It didn’t require much paperwork and documentation like other NBFC’s.
• Nidhi Company receives deposits and lent loans to their members-only hence there is no fear of granting or non-repayment of loans from members.
• Nidhi Companies didn’t come under the purview of RBI for its operations instead work as a public company under the Ministry of corporate affairs. Therefore, it didn’t face any stringent compliances of RBI.
• A very little amount of capital is required for the registration of the company that is five lakh rupees only. The minimum capital requirement is a very important feature as compared to other NBFC’s for registering as a Nidhi company.
• No external factor can participate in the company management so no one can interfere in decisions taken by the company.
• The company operation never hampers even after the retirement or death of any member as Nidhi company has a practice of perpetual succession which allows it to continue even after in the absence of its member until the company is legally dissolved.

Restrictions on Nidhi Company

According to rule 14 of the Nidhi rules 2014, Nidhi Company is restricted from pursuing some activities which are as follows-

• A Nidhi Company Can’t do chit-fund business.
• Can’t issue preference shares, debentures, or any other debt instrument.
• Prevented from opening any current bank account with its members.
• Nidhi company does not acquire any other company and neither holds the power for the composition of directors for other companies.
• Prevented from carrying on any business other than the business of borrowing or lending in its name.
• The company is restricted from receiving deposits or lending money to outside members.
• Restricted from engaging in any partnership agreement.
• Restrictions were imposed on pledging assets or raising a loan for another bank.
• Stay away from advertising as others do for depositing schemes.
• Don’t pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or for granting loans.
• A company is prevented from taking deposits or lending money to a body corporate as it is considered as private dealing.

Conclusion

Many people are taking interest in the Nidhi Company due to its salient features such as a smooth and efficient registration process, less stringent regulations, and many more. Nidhi company builds trust in the members as it is only concerned with its members and no outside force can interfere in the companies management. Nidhi company focuses on the empowerment of its members by lending and receiving money from its members only. The registration process is more efficient as compared to the registration of other companies. The paperwork needed during incorporation is easy to arrange and needs less effort. Companies have sufficient time to meet the post-incorporation compliances and even if the company is not able to meet the deadlines, they can take the extension by filling a few forms. There are numerous advantages while opting for a Nidhi company but as everything has its merits and demerits so it also has few restrictions too. The company can’t do any chit fund business or receive money from outsiders which prevent the company from gaining more asset or investment. People who are involved in illicit means while incorporating a company will face punishment and their company will be barred from the incorporation. There are proper laws for the regulation of Nidhi Companies so one can easily choose to start a Nidhi company.