Registration of Nidhi Company in India

A Nidhi Company is a kind of non-banking financial business (NBFC) in India that focuses mostly on lending and borrowing among its members. The Nidhi Regulations, 2014, govern Nidhi Corporations and are administered by the Ministry of Corporate Affairs (MCA). This blog post will cover how to form a Nidhi company in India.

Eligibility Criteria for Nidhi Company Registration

Before registering a Nidhi Company, certain eligibility criteria need to be fulfilled. They are:

1. The company should be registered as a Public Limited Company under the Companies Act, 2013^[1].
2. The company should have a minimum paid-up share capital of Rs. 5 lakhs.
3. The company should have at least 200 members within one year of incorporation.
4. The company should not have any object other than borrowing and lending activities.

Steps for Registering a Nidhi Company

The process of registering a Nidhi Company in India involves the following steps:

Step 1: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)

Obtaining a Director Identification Number (DIN) and Digital Signature Certificate (DSC) for the proposed directors of the firm is the first step in forming a Nidhi Corporation. The DIN is needed to identify the company’s directors, whereas the DSC must sign documents electronically sent to the Registrar of Companies (ROC).

Step 2: Name Approval

The next step is to apply for approval of the proposed name of the Nidhi Company. The name should be unique and should not be similar to the name of any existing company or trademark. The proposed name can be checked for availability on the MCA website.

Step 3: Articles of Association and Memorandum of Association drafting

The company’s Memorandum and Articles of Association (MOA and AOA) should be drafted after the name has been approved. The company’s primary goals are outlined in the MOA, while the internal management policies are outlined in the AOA.

Step 4: Filing of Incorporation Documents

Once the MOA and AOA are drafted, the next step is to file the incorporation documents with the ROC. The following documents should be filed:

1. Form INC-32 (SPICe) – Application for the registration of a company.
2. Form INC-33 – eMOA (Electronic Memorandum of Association).
3. Form INC-34 – eAOA (Electronic Articles of Association).
4. Form DIR-12 – Declaration of the directors of the company.
5. Form URC-1 – Application for the conversion of a Public Company into a Nidhi Company.

Step 5: Payment of Fees

The next step is to pay the required fees for registering the Nidhi Company. The fees can be paid online through the MCA portal.

Step 6: Certificate of Incorporation

After the payment of fees, the ROC will verify the documents, and if everything is found to be in order, a Certificate of Incorporation will be issued. This certificate marks the completion of the Nidhi Company registration process.

Post-Registration Compliances

After the registration of the Nidhi Company, certain compliances need to be followed. They are:

1. Filing of Annual Returns: The Nidhi Company should file its annual returns with the ROC within 60 days of the closure of the financial year.
2. Maintenance of Statutory Registers: The NidhCompany should maintain various statutory registers such as the register of members, register of loans and investments, register of deposits, register of directors, etc. These registers should be kept at the registered office of the company.
3. Minimum Number of Members: The Nidhi Company should maintain a minimum of 200 members at all times.
4. Loan and Deposit Limits: The Nidhi Company should comply with the loan and deposit limits prescribed by the Nidhi Rules, 2014. The company should only accept deposits at most 20 times its net owned funds and lend at most 25% of its net owned funds to a single borrower.
5. Nidhi Status: The Nidhi Company should maintain its status by complying with the Nidhi Rules, 2014. The company should not engage in any other business except borrowing and lending activities among its members.

Advantages of Nidhi Company

There are several advantages of registering a Nidhi Company, which are:

1. Easy to Register: The registration process for a Nidhi Company is straightforward.
2. Limited Liability: The liability of the members of a Nidhi Company is limited to the extent of their shareholding.
3. No External Shareholding: A Nidhi Company cannot issue equity shares to the public, ensuring that the ownership remains with the members.
4. Lower Compliance: A Nidhi Company’s compliance requirements are lower than other types of companies.
5. Cost-Effective: Setting up and maintaining a Nidhi Company is relatively low.
6. Access to Funds: A Nidhi Company can raise funds easily from its members, which makes it a good option for small and medium-sized businesses.

Disadvantages of Nidhi Company

While there are several advantages of registering a Nidhi Company, there are also some disadvantages that need to be considered, which are:

1. Limited Business Activities: A Nidhi Company is restricted from engaging in business activities other than borrowing and lending among its members. This limits the potential growth of the company.
2. Limited Borrowing Capacity: The borrowing capacity of a Nidhi Company is limited to 20 times its net owned funds, which may need to be increased for larger projects or expansion plans.
3. Limited Investor Interest: A Nidhi Company cannot issue equity shares to the public, and it may not be easy to attract outside investors.
4. Limited Access to Capital Markets: A Nidhi Company cannot raise capital through public offerings or debentures, which may restrict its access to capital markets.

Conclusion

An example of a non-banking financial organisation is a Nidhi company, which offers a special platform for its members to lend and borrow money from one another. A Nidhi Corporation can be registered in India easily, simply, and with fewer compliance requirements than other kinds of businesses. However, a Nidhi Corporation is subject to some restrictions, including maintaining a minimum number of members and restricting economic activity.

Despite its limitations, registering a Nidhi Company has several advantages, such as limited liability, easy access to funds, and cost-effectiveness, making it a popular option for small and medium-sized businesses. Moreover, the company’s ownership remains with its members, ensuring external shareholders do not influence it. To ensure that a Nidhi Company operates smoothly, it is crucial to comply with the post-registration compliances, such as filing annual returns, maintaining statutory registers, and complying with the loan and deposit limits prescribed by the Nidhi Rules, 2014.

Overall, a Nidhi Company is a great option for individuals looking to start a business with a low investment. Its unique structure and advantages provide an excellent opportunity for its members to meet their financial needs while maintaining control over the company’s ownership.

Also Read:
Detailed Assessment of New Nidhi Company Rules
Purpose and Applicability of New Nidhi Company Forms