Nidhi Company Rules and Regulations: Complete Guide
Nidhi Company is a unique form of Non-Banking Financial Company (NBFC) that has incorporated under Section 406 of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) governs Nidhi Company rules and regulations. Moreover, the Reserve Bank of India directs its deposit acceptance activities and issues new amendments for a Nidhi.
The principal objective of such companies is to generate funds among its members through borrowing and lending. A Nidhi Company usually gets associated with the Benefit Funds, Permanent Fund, Mutual Benefit Company and Mutual Benefit Funds.
Purpose of a Nidhi Company
The main object behind the Nidhi Company incorporation is to cultivate the habit of thrift and saving for the mutual benefit of its members. It follows the mantra of ‘One for all, All for one’ wherein, each member consider the needs of the other and contribute their portion of funds.
How to incorporate a Nidhi Company?
Nidhi Company rules and regulations for incorporation are very stringent. The Central Government has created ‘Nidhi Rules, 2014’ to ensure that every Nidhi Company achieves its ultimate objective. Therefore, any individual who seeks to incorporate as a Nidhi must adhere with the pre-requirements and post-requirements under Nidhi Rules-2014.
Pre-Requirements for Nidhi Company Incorporation
- An organization that wishes to incorporate under Section 406 of the Companies Act, 2013, must be an open organization.
- To start a Nidhi business, a company must have a minimum paid-up share capital of Rs 5,00,000.
- Further, the name of such a company must suffix â€˜Nidhi Limitedâ€™.
- A company ought to have a minimum of 3 Directors and 7 Shareholders to register itself as a Nidhi Company.
- The ratio of Net Owned Funds to deposit cannot be more than 1:20.
- The activities of lending and borrowing of Nidhi must immerse the interest of its members only. Also, the end goal of thrift and savings confines to the Nidhi members and no third-party.
- As per Nidhi Company rules and regulations, no such company can issue preference shares before or after incorporation. Besides, if a company has issued preference shares before the commencement of the Act, then those shares will get redeemed under the terms of the issue.
Post-Requirements for Nidhi Company Incorporation
- Within one year of incorporation of Nidhi, the company must endure a minimum number of 200 members or shareholders.
- According to Nidhi Rules, 2014, the unencumbered deposits must be equal to or more than 10% of the exceptional deposits.
- The Net Owned Fund (NOF) of the Nidhi Company should be Rs. 10 lakhs or more.
Documents Required for Nidhi Company Registration
Once you meet all the pre-requirements, you can now apply for Nidhi registration for which you need to have these documents:
- An identity proof all the directors and shareholders: before undertaking a Nidhi Company, you need to submit the identity proof of the directors and shareholders. It includes a copy of PAN Card for the members who hold India citizenship and a copy of passport if the member is a foreign national.
- Residential proof of directors and shareholders: another essential document which you have to submit is residential proof of the company’s members in form bank statements or electricity bills that must not be older than two months.
- A proof of registered office in India: along with the application of Nidhi registration, you must affix a residential proof of your registered office. Submit property tax receipt, water bill, or electricity bill the office. In case of a rented office, you must submit a copy of the rental agreement or an ownership document with NOC from the landlord.
- Submit passport size photographs of all the directors and shareholders.
- Also, submit the Aadhar Card of all the proposed members.
Nidhi Company Rules and Regulations (Annual Compliances)
Every company registered under Section 406 of the Companies Act, 2013 must adhere to three extremely important compliance, which are:
- Form NDH-1: It entails the Return of Statutory Compliances. If your incorporated company fulfils all the conditions of Nidhi Rules 2014, then you must file NDH-1 with the prescribed fees. Also, ensure to file it within 90 days from the closure of the first financial year. The form has to duly certified by a Chartered Accountant or a Company’s Secretary in practice. You can also take the assistance of a cost and management accountant for the same.
- Form NDH-2: It is the Application for Extension of Time. One has to file NDH-2 for extension of time within 30 days from the closure of the first financial year. For that apply to the Regional Director with the specified fee under Nidhi Rules, 2014. Thereby the Regional Director will examine the application and pass orders within thirty days of the arrival of application. You have to fill this form only when your company fails to meet the compliances of:
- Maintaining a minimum of 200 members within one year of incorporation, and
- Not maintaining the NOF to deposit ratio of 1:20.
- Form NDH-3: This form refers to as the Half Yearly Return. File NDH-3 with the Registrar of Companies (ROC) within 30 days from the completion of each half-year along with the prescribed fees. Additionally, the form has to be duly certified by a practicing Chartered Accountant or Company Secretary or Cost Accountant.
What are the Penalties for not Non-Compliance of Nidhi Company?
If one does not compile with the Nidhi Rules 2014 and Companies Act, 2013, then the company and every officer in default shall be guilty and has to bear an extended fine of Rs. 5000/-. Moreover, if the contravention continues from the company’s end, then it will get declared as punishable. Thus, the defaulter has to pay about Rs. 500/- per day until the contravention continues.
It is not easy being a Nidhi Company; one needs to follow a prolonged list of Nidhi rules and regulations on time. It is utmost essential for a company to oblige to all the Nidhi compliances; otherwise, the company has to suffer extreme repercussions.
Since RBI monitors the activities of a Nidhi, there is no scope of negligence from the company’s end. If you don’t want to pay hefty penalties, then delegate the compliance to us. We will guide you about the compliance requirements and help you file annual returns.