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Advantages & Process of Nidhi Company Registration

Monisha Chaudhary

| Updated: Dec 24, 2018 | Category: Nidhi Company

Nidhi companies are regulated under section 406 of Companies Act, 2013. Nidhi companies are basically the part of an on-banking financial sector whose main motive is to promote the saving habits among the members of the company. In this company is allowed to accept deposits from its members and can lend money to its members for their mutual profit gains in the future. in this article, we will discuss the  Process of Nidhi Company Registration.

There is no need to visit the government office for the registration of Nidhi Company as these do not require the approval from RBI which makes the registration process much simpler. In comparison to the NBFCs, Nidhi Company involves less strict norms. The procedure of a Nidhi company registration is quite hassle-free; for the incorporation of the Nidhi Company, there have to be at least 7 shareholders and 3 directors. If you are thinking to start a Nidhi company then you must know that you will need a capital investment of Rs. 5 lakhs that has to be increased to Rs. 10 lakhs in the next year.

Nidhi companies are basically a class of NBFCs and RBI has the empowerment to issue directions regarding the deposit acceptance activities. If you are looking to start your own Nidhi Company, you just need to contact swarit advisors; we have a team of professionals who have already helped a number of clients in the past. Our team’s members will help, educate and guide you regarding every matter of the Nidhi company registration.

Further, we will discuss the advantages and process of Nidhi company registration, documents required for the Nidhi Company, characteristics of the Nidhi Company, benefits of the Nidhi company registration etc.

List of Advantages of the Nidhi Company Registration

Whenever you are thinking of setting up a Nidhi company, there is a list of benefits that you avail the benefits of, upon going through the registration-

  • Individual Legal identity

In accordance with the Companies Act, 2013nidhi company registration offers the benefit of separate legal identity apart from its promoters and shareholders. It makes the Nidhi Company own property on its name and incur debts. And the directors of the company cannot be held liable for these debts or can claim to the properties owned by the Nidhi Company.

  • Constant existence of the Nidhi Company

As we know that Nidhi companies are seen as an individual legal identity, the functioning of these companies is not altered by the unannounced withdrawal or unfortunate death of its shareholders. Nidhi companies keep on existing and functioning until they are legally dissolved as per the provisions of the law.

  • Swift management

In comparison to other forms of business entities in India, incorporating a change in the function of the Nidhi companies are much easier. If you want to introduce any change inside the management of the Nidhi Company’s management you just need to fill and submit a few forms with the MCA.

  • Trustworthiness in the market

In terms of the credibility in the market, Nidhi companies are considered to be trusted more, over other forms of business entities available in the market. Ministry of corporate affairs takes care of the registration of the Nidhi Company and they also monitor the kind of activities done inside the Nidhi Company.

What are the basic Characteristics of Nidhi Company Registration?

Whenever you set up a Nidhi company, you must know that Nidhi company registration comes with its own features. Let’s take a look at the following features of the Nidhi company registration-

  • As we already know that Nidhi Company registration is addressed under section 406 of the Companies Act, 2013 and is regulated by Nidhi Rules, 2014.
  • Nidhi company registrations are done in a similar fashion, like that of public limited company registration.
  • During the operation of the Nidhi companies, reserve bank of India can give directions to these Nidhi companies. Even so, there is no requirement of the approval from the RBI for the registration of Nidhi companies.
  • The basic objective of the Nidhi Company is to borrow or lend money between its shareholders and members.
  • It must be kept in mind, that if you have incorporated a Nidhi company, then the company must have at least 200 members within a year of incorporation.
  • After the registration of the Nidhi Company, “Nidhi limited” has to be suffixed to the company name
  • It has been noted that 80% of all the Nidhi company registration in India is in Tamil Nadu

Steps Involved in the Process of Nidhi Company Registration

There is a certain list of steps that one needs to follow to get their Nidhi Company registered-

  • Step1: Obtaining the Digital signatures

All the proposed directors of the company need to have digital signatures (DSC), there are certain agencies who issues DSCs.

  • Step2: Name approval of the Nidhi Company

There is a RUN service available, which can be used for applying the name of the Nidhi Company. You will be allowed to propose two name options to the ministry of corporate affairs (MCA). The proposed names must not resemble any of the already registered names of the company.

  • Step3: Filling the Spice Form

Once you receive the approval of the name, the next step is to fill the Spice form. In this, you will be filling the forms such as e-Memorandum of Association (MOA) and e-Articles of Association (AOA). In this step, you need to provide all the information regarding the shareholders of the company.

  • Step4: Incorporation of the company

It takes nearly a month for the complete process of Nidhi company registration after you will receive a certificate of registration and the Company identity number. The certificate of registration serves the purpose of proof of registration with the Ministry of Corporate Affairs (MCA).

If the directors of the company do not have the Director Identification Number, they can get the one at this stage as well.

What are the Documents required for the Nidhi Company Registration?

If you are on your way to set up a Nidhi company, then you must have this list of documents handy-

  1. Proof of identity of directors and shareholders

As an identity proof of the directors and shareholders, you have to submit the copy of PAN card for Indian nationals and a copy of passport in case of the foreign nationals

  1. Proof of address of directors and shareholders

For the address proof of directors and shareholders of the company, you need to submit the documents such as bank statements, electricity bills that must not be older than 2 months.

  1. Proof of office

As the proof of registered office in India, you need to provide a copy of the electricity bill or property tax receipt or water bill. In case of the rented office space, you have to submit a copy of the rental agreement or an ownership document with no objection certificate from the landlord.

  1. Passport size photographs of all the directors have to be submitted
  2. You need to submit the Aadhar card of directors and shareholders

Compliances to adhere after the Nidhi Company Registration

When the process of Nidhi company registration is completed, you need to make sure to follow the compliances from time to time. Let’s take a look at the list of compliances to follow-

  • You have to file the Form NDH 1 within 60 days from the end of every financial year
  • After this, there is a requirement of filing the half-yearly returns that have to be filed in the Form NDH 3
  • Once you have incorporated the Nidhi Company, your company must have at least 200 members and 10 lakh of net owned funds within a year of registration. In case the company fails to meet that requirement then you must appeal for the extension in the Form NDH 2.
  • If you are operating a Nidhi company, you are required to file the annual returns with Ministry of corporate affairs (MCA) through Form MGT-7
  • Then, at last, you have to submit Nidhi company financials and other documents in the Form AOC-4

Queries you may want to ask or resolve before you go for Nidhi Company Registration

  • Most of our clients ask that they want to set up a Nidhi company, but how is it different from NBFCs?

If we look at these two different business entities, they are very different on various levels. If we look at Nidhi Company, it is not regulated by the RBI and for the incorporation of Nidhi company, the requirement of capital investment is much lesser, in comparison to the NBFCs; where the paid-up capital requirement has to be Rs. 2 crores.

  • Many a time people ask that, if RBI doesn’t have the authority to regulate Nidhi companies, then on what basis, these companies are being operated?

As we already know that, Nidhi companies are not regulated by the RBI, however in order to make sure that these companies are functioning and operating smoothly; there is a list of Nidhi Rules laid out by the Central government of India known as Nidhi rules, 2014. These rules are basically the outlines, upon which the Nidhi Company operates.

  • Amount of loan sanctioned by the Nidhi companies to its members

In Nidhi companies, the loan provided to its members depends upon the amount deposited by the members involved in the company.

The amount deposited by the members Limit of the man provided to the members
If the amount deposited is less than Rs 2 crores  Limit of a loan provided to the member is Rs. 2,00,000
If the amount deposited is between Rs. 2 crores and Rs. 20 crores Limit of loans provided to the member is Rs. 7,50,000
If the amount deposited is between Rs. 20 crores and Rs. 50 crores Limit of the loan provided to the member is Rs. 12,00,000
If the amount deposited is more than Rs. 50 crores Limit of loans provided to the member is Rs. 15,00,000

 

  • If you are operating any kind of company, the main motive of any of the members involved in the company is to attract more people, make it bigger and make profits out of it. But the question for all these purposes, one has to advertise to make their presence visible in the market; so are Nidhi companies allowed to advertise or not?

As per the Nidhi rules, these companies are not allowed to advertise for the promotion of their activities. Nidhi companies are not authorized to advertise as the main objective of these companies is to inculcate the habit of saving among the members.

If they start advertising, it would be considered as the solicitation of the deposits for the non-members of the company.

Is Nidhi Company allowed to take over Another Company?

Nidhi companies are not allowed to acquire any other company through the purchase of its securities. It doesn’t even have the power to take control of another company’s management or bring a change in the composition of its management.

For more information, please contact swarit advisors.

Monisha Chaudhary

Experienced Legal and Advisory professional with 5+ years of workings in the field of compliance, statutory governance and licensing, RBI, IRDAI matters etc.

Top Rated CA

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