What is the Nidhi Company Registration Process
Monisha Chaudhary | Updated: Oct 10, 2018 | Category: Nidhi Company
A Nidhi Company is required to be registered under Section 406 of the Companies Act, 2013 and Companies (Nidhi Companies) Rules, 2014. These entities are quite popular in the southern part of the country. The word Nidhi means Treasure in Hindi. The purpose of Nidhi Company Registration Process is based on:-
- Encouraging the habit of saving amongst the members
- Receives deposits from its members only and can, in turn, lend only to its memberships.
- The main objective behind Nidhi Company registration process is to cultivate in its members the spirit of mutual benefit.
Nidhi Companies are Non-Banking Financial Corporations which does not require any Reserve Bank of India (RBI) license. Hence the Nidhi companies are relatively easy to form.
Checklist for Nidhi Company Registration :
- To start a Nidhi Company, at least 7 members on board with 3 of them designated as Directors of the Company are must.
- The start-up equity share capital needs to be minimum INR 5 lakh.
- The Nidhi Company cannot indulge in chit funds, issue of preference shares, lease finance, hire or purchase finance, provide insurance or securities related business.
- The word ‘Nidhi Ltd.’ needs to be added to the name of the company.
Nidhi company registration process:
- Obtain the Digital Signature Certificate for authorised signatories and Director Identification Number for designated directors of the company.
- Make an application for the name approval of the company with the Ministry of Corporate Affairs.
- Once the name is approved, the Forms along with the required documents need to be submitted to the Ministry for incorporation.
- Form DIR 2 is to be filed by the Directors as per rule 5 and 6 of Nidhi Rules and is required to be signed by each member.
The approved Nidhi Company needs to fulfill certain obligatory requirements within a year of formation to validate its existence as a Nidhi.
- Should have at least 200 members on board.
- Net owned funds need to be minimum 10 lakh rupees.
- Ratio of net owned funds to deposits cannot be more than 1:20.
Documents required for Nidhi company registration
The mandatory documents that need to be submitted along with the application are:-
- Identity proofs of the Directors and the Shareholders
- Ownership document or the lease agreement of the registered address of the company
- No objection certificate from the landlord in case of rented place
- Address proof of the Directors and the Shareholders
- Photos of the Directors and shareholders
- PAN card photocopies of the Directors and the shareholders
- The Digital Signature Certificate of the authorised persons and Directors
- Director Identification Number of the directors.
- Memorandum of Association and Articles of Association of the Company.
Restrictions on Nidhi Company Registration
Well, everything has pros and cons. So businesses with Nidhi Company Registration too have. It has some restrictions due to which such companies aren’t allowed to do the following business:
Restrictions on certain businesses
They can’t start the business of chit-funds, Hire Purchase Finance, Leasing Finance, Insurance, and acquisition of shares issued by companies.
Can’t issue preference shares, debentures or any other debt instrument
Such companies can’t issue securities such as preference shares, debentures, or any other debt instrument as they deal with their members only.
Restrictions on current account
Businesses with a Nidhi Company registration are prohibited from opening any current account with its members because RBI exempts it to follow procedures of banking regulations. However, it can opt to open a savings bank account.
Constraints on carrying other business
The only business of a Nidhi Company includes borrowing and lending money to its members and it’s the only business it can run in its name. Apart from these, it cannot indulge in any other kind of business.
Since money transactions take place, it’s necessary to provide locker facilities.
Constraints on advertisement
Unlike others, Nidhi Companies cannot advertise for depositing schemes. However, it can do so among its members only.
Cannot enter into an agreement
Nidhi companies have restrictions on entering into an agreement. They cannot enter into partnership agreements or any big finance projects because these are non-commercial companies that work on the principle of mutuality.
Constraints on pledging assets
Nidhi Companies can’t pledge assets or raise loans for any other entity or bank because the money belongs to members.
What is the importance of registering a Nidhi Company?
Typically there are three valid reasons for registering a Nidhi company.
- Registration of a Nidhi company gives the entity an individual legal existence. In other words it means that the company can acquire assets in the said name, purchase or sell assets as well as take loan on its name. Legally it can file a case against any other entity; similarly have a case registered against its name too.
- Funds are available for mutual benefit and are lent at much lower interest rates compared to other lending institutions in the market.
- The other reason for Nidhi Company registration is the benefit that members get in terms of limited liability which is directly proportional to the value of contribution or investment of the member.
Read, Also: Advantages & Process of Nidhi Company Registration.
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