"Nidhi" is a Hindi word, which implies fund or finance. Nidhi is an organization which has the sole purpose of building up the habit of thrift and reserving funds among...
Immersed in the traditional roots of India, the term Nidhi refers to treasure. A Nidhi Company is a form of company in the non-banking financial sector incorporated under Section 406 of the Companies Act 2013. The primary objective of Nidhi Company revolves around cultivating the habit of savings and thrift amidst its members. The companies doing Nidhi business of borrowing and lending money from members to members only get acknowledged by multiple names like Nidhi, Benefit Funds, Mutual Benefit Funds, Permanent Fund, and Mutual Benefit Company.
Nidhi companies are mutual benefit societies whose dealings are limited to the members, and the memberships are limited to individuals. The chief source of funds in a Nidhi company is the offerings of its members. In such localized offices, the members get loans at relatively moderate rates for different purposes like house construction or repairs. Nidhi Company works in a confined environment that restricts its immensity to take deposits.
A Synopsis of deposits by Nidhi Companies
Here are the lists of rules that every Nidhi company ought to follow while undertaking deposits:
- The Nidhi Companies shall not accept deposits exceeding 20 times its Net Owned Funds; thus, the ratio of NOF and Nidhi Companies should not be more than 1:20.
- A Nidhi Company shall not accept or lend deposits to any individual, other than its members.
- They can’t issue an advertisement in any form for soliciting deposits.
Note :- Details about Private Circulation of fixed deposit schemes amid the members of the Nidhi saying ‘for private circulation to members only’ shall not be considered as an advertisement for soliciting deposits.
- Companies involved in Nidhi business should not pay any brokerage or for the deployment of funds or incentives for mobilizing deposits from members.
- Such companies cannot pledge any of the assets lodged by its members as security.
- Every Nidhi company shall grant at least a minimum of ten equity shares or shares equivalent to one hundred rupees to each deposit holder.
- The deposits in the name of a minor are acceptable if they are made by the natural or legal guardian, a member of Nidhi. However, a minor shall not get admitted as a member of Nidhi.
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Specification to register a Nidhi Company
Since Nidhi got incorporated as a Public Company under the Companies Act, 2013, so to set up a Nidhi Company, one needs to fulfill the following requirements stated by the act:
- To have a minimum paid-up equity share capital of INR 5 lakhs.
- It requires a minimum of seven members to start a Nidhi Company, out of which three members must be the directors of the established company.
- Nidhi Companies cannot issue preference shares. In case a company has issued preference shares in the past, then those shares shall be redeemed as per terms of the issue.
- Every company thinking to start Nidhi business must suffix â€˜Nidhi Limitedâ€™ in its name.
- The company shall have the sole objective of cultivating savings among its members wherein the receiving and lending money shall be performed within the members.
Even after completing the incorporation stage, every Nidhi Company shall ensure to meet the following things within one year from its incorporation:
- A minimum number of 200 Members: Nidhi companies need to have at least 200 members to comply with the requirement of law. Besides, the company has to ensure that the total members do not fall less than 200 at any me.
- Net Owned Fund: Net Owned Funds of at least Rupees 10 Lakhs and shall have Un-encumbered term Deposit of minimum 10% of its Outstanding Deposits.
- Ratio: The ratio of NOF to deposits shall not exceed 1:20.
- Members’ restriction: Nidhi companies shall not admit a body corporate as a member. Further, a minor shall not be admired as a member.
Documents Required for Nidhi Company Registration
One needs to have the following documents:
- Identity proof of shareholders and directors: It requires a copy of PAN card for Indian Nationals and an attested copy of Passport for foreign nationals.
- Residential proof of shareholders and directors: A copy of Aadhar card, Bank statement, driving license, electricity bill, or Passport. Amongst which, at least two documents must be valid and recent for about two months old.
- Proof of registered office: You need toprovideacopy ofRental Agreement or Sales Deed, property tax receipt, electricity bill, or a No Objection Certificate (NOC) from the landlord to utilize the premises as a registered office.
- Signed Incorporation Documents: A hard copy of Signed Digital Signature Application documents and a soft copy of other incorporation signed documents.
- Passport Size Photographs: Also, submit 2 to 3 passport size photographs of directors and shareholders.
Top 5 reasons to establish a Nidhi Company in India:
Apart from nurturing the habit of thrift and savings, there are various other benefits that a Nidhi company cultivates. Let’s have a look at them:
- Accessible to Form: the process of building a Nidhi company is simple, with minimal legal complications. You need 7 individuals, few documents, simple registration to incorporate them as a public company with the MCA. Thereby infuse the required amount of capital as per Nidhi Rules, 2014, and you are ready to go.
- Less Regulatory Compliance of RBI: being a part of NBFC, Nidhi companies do not require much approval of RBI. Such companies only compel by Nidhi Rules, 2014, and RBI has exempted them from following stringent compliance. Therefore, you don’t need to hassle much as RBI will not interrupt in between if you are starting a Nidhi Company in India.
- Limited Capital Requirement: Originally, the MCA created a minimum capital requirement of INR 5 Lakhs for Nidhi companies, which got inflated to INR 10 lakhs as per Nidhi Rules, 2014.
- On-going concern: while possessing a Nidhi company, no person can claim your property until the time your company is ongoing operations. The Nidhi companies have the right to acquire and alienate property in their name.
- Uninterrupted existence: because of perpetual succession, there is an uninterrupted existence of a Nidhi company. It implies that the company remains unaffected by the departure or death of any member. The existence of the Nidhi Company shall continue irrespective of the change in any kind of membership.