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If you think to start your own business in the finance sector that also within a reasonable amount, then you need to know about Nidhi Company in India and the latest updates made on Nidhi Company.
In India, Nidhi company is recognized under the provision of section 406 of the Companies Act, 2013. Nidhi Company is a form of Public limited company. This type of company has the objective of increasing thrift and savings among its member.
In this blog, we will briefly discuss various aspects of Nidhi Company and Latest updates made by the Government on Nidhi Company.
What is Nidhi Company?
Nidhi companies are Non-banking financial companies which do not require any license from Reserve Bank of India. Nidhi company borrows and lends money to its members only. Such type of companies are also commonly known as mutual benefit companies. A Nidhi company promotes the concept of saving and utilization of funds within its member.
Structure of Nidhi Company in India
As we discussed above, Nidhi Company is a Non-banking financial company. However, under the Companies Act, 2013, there are certain legal structures of a Nidhi Company. Following are some of them:
- It is a form of Public limited company
- Ministry of Corporate Affairs regulates the Nidhi Company
- Every Nidhi Company is governed under the Nidhi Rules,2014
- Only members of Nidhi Company are allowed to lend and borrow money.
- RBI License is not necessary to start a Nidhi company.
- Nidhi company belongs to the NBFC sector (Non-banking financial sector)
- Approval of RBI is not mandatory for registration of Nidhi company
What are the Basic Requirements of a Nidhi Company?
Companies Act, 2013 and rules and regulations of the Ministry of Corporate affairs lay down certain requirements for Nidhi Companies. If you are interested in starting a Nidhi Company, then you must fulfill those requirements. Following are the requirements of Nidhi Company:
- Name of the company must contain the word “Nidhi Ltd”;
- The company shall be a Public Company;
- Minimum paid-up capital of Rs 5 lakh is necessary;
- Non-issuance of any preference shares;
- In case, any preference shares had been issued before the commencement of Companies Act, 2016, then such shares will be redeemed.
Advantages of Nidhi Company in India
If you want to start a Nidhi company then you become eligible to avail a number of advantages. However, below is the list of the advantages of a Nidhi Company:
Limited RBI regulations
Regulations imposed on Nidhis by Reserve Bank of India is limited.
As per the provision of the Ministry of Corporate Affairs, the minimum capital requirement of Nidhi Company is Rs 5 Lakhs. However, under the Nidhi Rules, 2014 the capital requirement is increased up to Rs 10 lakhs.
Ease of Formation
A Nidhi company, unlike other Non-banking financial company, is not required to obtain RBI license. However, it is compulsory for such Nidhi company to register itself as a public company with the Ministry of Corporate Affairs.
The low rate of interest on the loan
Members of Nidhi company get a loan at a very lower rate of interest.
Restriction on outsider intervention
A Nidhi Company is formed for its members only. Any outsider is prohibited and not allowed to intervene in the working of the Nidhi Company. An outsider can neither deposit money nor avail loan from a Nidhi Company.
What are the latest Updates on NIDHI Company?
Notification No. G.S.R 465(E)
The Ministry of Corporate Affairs (MCA) on 5th January 2015 issued Notification No. G.S.R 465(E) in respect of Nidhi Companies. The Notification proposed to provide certain exceptions, adaptation and to modify certain sections of The Companies Act, 2013. This notification was issued to provide some exemptions to the Nidhi Companies. Following are the list of those sections and exemptions provided under the Notification:
Section 20(2) of Companies Act, 2013- Service of Documents
This section deals with the provision of Service of Documents. Now as per the notification No. G.S.R 465(E), this section will apply to Nidhi Companies. However, the document will serve only on members of the Nidhi Companies who have shares of more than Rs. 1000 in the face value or more than 1 percent of the total paid-up share capital of the Nidhi company.
Clause (b) of Section 47(1) of Companies Act, 2013- Voting rights
According to the above Notification, Clause (b) of Section 47(1) shall apply to Nidhi Companies subject to the modification that members cannot exercise voting rights in excess of 5 percent of total voting rights of equity shareholders.
Section 67(1) of Companies Act, 2013 – Restrictions on Purchase of Shares
This section shall not apply to the Nidhi Companies where the Company purchases shares from a member after his ceasing/stopping as a depositor and borrower. It will never consider as a reduction of capital.
Section 123 (5) of Companies Act, 2013 – Declaration of Dividend
In the notification No. G.S.R 465(E), it was mentioned that in the case of Nidhi Companies, dividend payable in cash must be paid by crediting same to the account of the member. However, it is necessary that the dividend was not claimed within 30 days from the date of the declaration of the dividend.
Section 127 of Companies Act, 2013 – Levy of Punishment for failure to distribute the dividends
This Section will apply to Nidhi Companies subject to the modification that the dividend payable to a member of the Nidhi Companies is 100 Rupees or less than that.
However, there shall be compliance of the provisions of this Section, where the declaration of the dividend is published in the local newspaper and in the local language.
Section 136 (1) of Companies Act, 2013 – Right of Member to copies of audited financial statement
If any members of a Nidhi Company do not individually or jointly hold a share of more than 1000 rupees in the face value or more than 1 percent of the total paid-up share capital of the Nidhi company. However, There shall be sufficient compliance with the provision of this section if:
- The intimation is sent by public notice in a newspaper in the district in which the registered office of the Nidhi Company situates.
- The financial statement with its enclosures shall be inspected at the registered office of the Nidhi Company.
- The financial statement with enclosures is affixed in the Notice Board of the Nidhi Company.
Section 160 of Companies Act, 2013 – Retiring directors to stand for directorship
The above Notification made some changes in the section in terms of amount. Earlier it was 1 lakh rupees which have now been substituted to Rs.10,000. The Central Government reduced the quantum of the amount. A person who is not a retiring director and who proposes to declare himself as a director shall signify himself as a director after depositing Rs.10,000.
Section 185 of The Companies Act, 2013 – Loan to Director
- It is not compulsory for a Nidhi Company to comply with the provisions of Section 185 of the Companies Act, 2013 if a Nidhi Company fulfills the following conditions:
- Where the loan is given to a director or his relative in their capacity as members
- There is proper disclosure of such loan transaction in annual accounts
Section 197 of Companies Act, 2013 – Overall Maximum managerial remuneration in case of absence or inadequacy of profits
The remuneration of a director who is either not a managing director or not a whole time director may be paid by way of monthly payment subject to the approval of the Nidhi Company in general meeting. However, Section 197 provides that there is no necessity of approval of the company in a matter of general meeting if :
- A Nidhi company does not have a managing director or whole time director or manager
- Remuneration payable in a financial year to the directors of the Nidhi company does not exceed 10 percent of the net profits of such Nidhi or 15 lakh rupees whichever is less.
Section 403 of Companies Act, 2013 – Filing Fee
As per the Notification issued by MCA, in case of a Nidhi Company, the filing fees in respect of the return of allotment will calculate at the rate of 1 rupee for every 100 rupees. However, the rate shall not exceed the normal amount of filing fee.
Notification No. G.S.R 43(E)
Recently, Ministry of Corporate Affairs on 22 January 2019, issued Notification No. G.S.R 43(E). As per this notification, all unlisted public companies have to demat all their shares before 1st April 2019. The term Demat means holding of shares in electronic form. However, under this notification, Nidhi Companies are exempted from complying with compulsory dematerialization rules.
Nidhi Company is one of the best Non-banking finance companies which is easy to start at a low capital requirement. It is very helpful for lower and middle-class people. It is beneficial for long term gains due to its nature of investment and procedures. Due to the lower rate of interest, nowadays many people show their interest in Nidhi Company. There is no specific restriction to become a member of any Nidhi Company. On account of restriction on an outsider, a good relationship exists between the Nidhi company and its members.
Swarit Advisors provides world’s best service in a matter of Nidhi Company. If you want to no more about Nidhi Company, kindly contact us.