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Concept of Nidhi Company Registration

Nowadays, Nidhi Company, as a business structure, has come up as a very popular lending mechanism for obtaining secured loans. These companies are most predominant in the Southern Parts of India. Moreover, the operations and the affairs of a Nidhi company is very much similar to that of a Co-operative Society. Further, section 406 of the Companies Act, 2013, deals with the process of Nidhi Company Registration.

Furthermore, the prime reason behind incorporating a Nidhi company is to encourage and motivate its members to save, so that they can smoothly and with ease satisfy their financial needs arising from time to time. Hence, this company is based on the principle of Mutual Benefits.

What is a Nidhi Company?

The term Nidhi Company refers to a type of NBFC (Non-Banking Financial Corporation) which is regulated and governed by the provisions of the Companies Act, 2013. The only significant feature that differentiates a Nidhi Company from other companies is that this business structure deals with the deposits from and loans to its members, i.e., shareholders only, and works just for the mutual benefits of its members.

Further, it shall be noteworthy to take into consideration that the activities of a Nidhi Company do fall under the ambit of RBI (Reserve Bank of India), as it is similar to that of an NBFC. However, RBI has excused Nidhi Company from the core provisions of the RBI Act, 1934 and other regulations prevalent on an NBFC, as these Companies deals only with the money of its shareholders or members.

Basic Requirements for Nidhi Company Registration

The following listed are the basic requirements that are to be complied with for Incorporating a Nidhi Company:

  • A Minimum of 7 shareholders or members are required.
  • A Minimum of 3 Directors are required.
  • Minimum capital Requirement to start a Nidhi Company is Rs 5 Lakhs.
  • DIN (Director Identification Number) for Director
  • No Preference Shares will be issued.
  • The ultimate objective of a Nidhi Company shall be inculcating the habit of saving in its members or shareholder by receiving deposits from and lending to them only for their mutual benefits.
  • The nominal value of each equity shares issued by a Nidhi company must not be less than Rs. 10 per share.
  • A Nidhi company should allow a minimum of 10 equity shares or shares corresponding to Rs. 100 to each deposit holder.

Advantages of a Nidhi Company Registration

The benefits of a Nidhi Company Registration are as follows:

  • No External Involvement in the Company’s Management.
  • Easy to lend money to or raise capital or borrowings from group members.
  • Easy to manage.
  • Low capital requirement.
  • Relaxation in the number of compliances.
  • Cost-efficient registration
  • Many privileges and exemptions are provided under the provisions of the Companies Act, 2013.
  • The Minimal involvement of RBI.
  • Secured investment with lower Rate of Interest.
  • Low level of risk.
  • Better savings option.
  • Nidhi Company Rules is the Single Regulatory Body.
  • Better substitute of a Credit Co-operative Society.
  • Enjoys the status of a separate legal entity.
  • Fulfilling the financial requirements of the lower and middle-income groups.
  • Simple processing.
  • Easy access of public funds
  • Limited liability.

Documents Checklist for Nidhi Company Incorporation

The documents that are needed for obtaining Nidhi Company Registration is mentioned below:

  • From Directors and Shareholders:
  1. PAN Card details of the Members
  2. Photographs of the Directors and Members
  3. Digital Signature Certificate
  4. Aadhar Card or Voter ID of the Members
  5. Address Proof of the Directors
  6. DIN (Director Identification Number) of the Directors
  • For Registered Office:
  1. Rent Agreement or the Lease Deed or the Sale Deed of the place being used as Registered Office, or,
  2. Address Proof of the Registered Office
  3. No-Objection Certificate (NOC) signed by the actual owner of the Property.
  • Documents which are needed to be prepared and drafted by CA or CS:
  1. MOA (Memorandum of Association) of the Company
  2. AOA (Article of Association) of the Company
  3. MCA (Ministry of Corporate Affairs) form attestation

Nidhi Company Registration Procedure in India

Nidhi Company Registration Procedure in India

The following process needs to be followed to register a Nidhi Company:

  • Obtain DSC and DIN: The First and the foremost step for all the Directors of a Nidhi Company is to obtain DIN (Director Identification Number) and DSC (Digital Signature Certificate).
  • Apply for a Name Approval: Now, in the second step, the shareholders or the Directors are required to apply for a name approval by suggesting three names to the MCA (Ministry of Corporate Affairs). Further, out of all the names suggested, the MCA will choose one name for the said company. Furthermore, it shall be taken into consideration that all the names suggested must be of unique character and not similar to an already existing company’s name. Moreover, according to rule 8 of the Companies Act, 2013, the approved name will remain valid only for a period of 20 days.
  • Drafting of MOA and AOA: After completing the process of name approval, the next step in the process of Nidhi Company Registration is to submit the Application for registration in the form INC- 32, together with the Articles of Association (AOA) and Memorandum of Association (MOA), respectively, of Nidhi's company. Further, it is significant to take into consideration that the documents must state the objective behind incorporating a Nidhi Company.
  • Certificate of Incorporation: For a Nidhi Company, it usually takes about 15-25 days’ time to get the Certification of Incorporation. Further, this certificate acts as a piece of evidence or proof that the said Nidhi Company has been incorporated. Furthermore, this certificate also mentions the company’s CIN (Company Identification Number).
  • Opening of a Bank Account and Applying for TAN and PAN: The last step of the process of Nidhi Company Registration is the requirement to apply for PAN (Permanent Account Number) and TAN (Tax Deduction Account Number). Further, shareholder or the members of the company is also required to get a bank account opened just by submitting the Certificate of Incorporation, and the copies MoA, AoA, along with the allotted PAN details to the bank.

Requirements that are to be Fulfilled Post-Nidhi Company Registration

The requirement that needs to be satisfied post-incorporation of a Nidhi Company are as follows:

  • At least 200 members: According to the first requirement by the end of the 1st year, a Nidhi Company must have at least 200 members or shareholders. Further, a Nidhi Company is required to submit the list of all the members within a period of 90 days starting from the end of every fiscal year, in this particular Form. In case the Company is not able to have at least 200 members, then, in that case, the shareholders or the members of the company are required to submit NDH - 2 to the Regional Director. By submitting this form, the company may avail an extension of another financial year, if the same is filed within a period of 30 days starting from the end of the 1st fiscal year after commencement. Further, if even after the completion of 2nd financial year, the company fails to meet the prescribed requirements, then the same will not be qualified to accept deposits until the compliance of these provisions, and moreover, it can also attract penal consequences.
  • NOF should be more than Rs. 10 Lacs: The second post-requirement talks about NOF (Net Owned Funds). The NOF of the company must be more than Rs 10 lakhs. Here, with regard to Nidhi Company, the Net Owned Funds denotes the Aggregate of Paid-Up Equity Share Capital and Free Reserves as reduced by the intangible assets and accumulated losses appearing in the Last Audited Balance Sheet.
  • Ratio of the NOF to Deposits: The Ratio for the Net Owned Funds to Deposit must be more than 1:20.
  • Unencumbered Deposits: Unencumbered deposits must exceed 10 percent of the outstanding deposits.
  • Further, Nidhi companies are also required to file a Half-yearly Return with the ROC (Registrar of Companies) in Form NDH - 3 (again duly certified by a Practising CA/ CS/ CWA) together with the prescribed fees. Moreover, such form must be filed within a period of 30 days, starting from the end of each half-year.

Forms Required for the Compliances of Nidhi Company

The forms that must be filed for fulfilling the compliances of Nidhi Company is enumerated below:

  • Form NDH – 1: A Nidhi Company is required to submit the list of all the members within a period of 90 days starting from the end of every fiscal year, in this particular Form.
  • Form NDH – 2: If in case the company is not able to meet the target of 200 members in the first financial year, then it can request the MCA (Ministry of Corporate Affairs) for granting an extension in this Form.
  • Form NDH - 3: Other than the form mentioned above, i.e., NDH-1 Form, a half-yearly return is also needed to be filed in Form NDH-3.
  • Annual Return with the ROC: The Nidhi Company is also required to file its Annual Returns with the MCA by way of Form MGT-7.
  • Profit and Loss Statement and the Company’s Balance Sheet: The financial statements and other concerned documents are required to be submitted, on an annual basis, in Form AOC-4.
  • Income Tax Returns (ITR): Nidhi Company, like all other business structures, must file Annual Income Tax Returns (ITR) by 30th September of the following financial year.

Ceiling Limits on the Loans provided by a Nidhi Company

The following listed are limits up to which a Nidhi company shall provide loans that, too, only to its members:

Amount of Deposits

Permissible Loan limits

If the total amount of deposit is less than Rs 2 Crore.

Rs 2 Lacs

If the total amount of deposit is between Rs 2 crore to less than Rs 20 crore

Rs 7.50 Lacs

If the total amount of deposit is between Rs 20 crore to less than Rs 50 crore

Rs 12 Lacs

If the total amount of deposit is Rs 50 crore or more

Rs 15 Lacs

 

Is Nidhi Company Allowed to have Branches?

Yes, a Nidhi Company is allowed or permitted to have branches. However, for being eligible to open branches, the said Nidhi Company must follow the following listed prescribed provisions:

  • A Nidhi Company will be allowed or permitted to open its branches only if the said company has earned Net Profits after Deducting Tax (PAT), continuously for the preceding three financial years.
  • A Nidhi Company is permitted to open only up to three branches only. Moreover, it shall be pertinent to take into consideration that all these branches must have opened within the same district.
  • A Nidhi Company is required to seek and acquire prior permission from the RD (Regional Director) if in case it wants to set up more than three branches. Further, these branches can be opened either within territorial limits in the same district or in a separate district.
  • The Registrar of Companies (ROC) has to be informed about the same within a period of 30 days of opening of its branches.

Factors to be Considered while Choosing or Selecting Name for a Nidhi Company

The following listed are the factors that are to be pondered while choosing a name for a Nidhi Company:

  • Meaningful
  • Short and Simple
  • Uniqueness
  • Not Similar to any already existing Company’s Name
  • Legal character
  • Should not be offensive or illegal in nature
  • Should not include the phrase “British India.”
  • Suffix portion is essential

List of Restrictions Applicable to a Nidhi Company

The following listed are the restrictions or prohibitions that a Nidhi Company has to abide by in terms of its activities:

  • Chit funds,
  • Insurance,
  • Leasing finance,
  • Advertise themselves in order to invite deposits,
  • Hire-Purchase finances,
  • Lotteries,
  • Sell, Mortgage or Pledge the assets kept with it as a collateral security for a loan,
  • Getting into a Partnerships in order to carry out lending and borrowing activities,
  • Accepting deposits or lending funds to any other person than its own shareholders,
  • Issuance of preference shares, debentures or any other type of debt instruments,
  • Issue of Equity Shares of the nominal value at over Rs. 10/- each,
  • Offer its deposit holders equity shares that, too, more ten shares or shares of the worth of more than Rs. 100/-,
  • Open a current account together with its members (although it is permitted to open a Savings Account),
  • Lend to or accept a deposit from a corporate,
  • Pay commission, incentive or fee for the mobilization of deposits,
  • Carry out any other business than lending or borrowing from its members,
  • Hire a Purchase Financer,
  • Pay any brokerage amount for granting a loan to its members.

Rules Regarding the Acceptance of Deposits

The following listed are the rules regarding the acceptance of Deposits:

  • Nidhi Companies are not allowed to accept deposits exceeding the threshold of twenty times of its NOF (Net Owned Funds).
  • Nidhi Companies can accept Fixed Deposits (FD) for a minimum period of six months and a maximum period of sixty months.
  • Similarly, Nidhi Companies are qualified to accept Recurring Deposits (RD) for a minimum period of twelve months and a maximum period of sixty months.

How Swarit Advisors Help You to Form Your Nidhi Company in India

  • 500 + NBFC Clients in India
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  • Legal Documentation Ready
  • Dedicated Chartered Accountants
  • Dedicated Lawyers
  • Experts are available 24*7
  • Get Ready to Commence Business in 15 days.

Package Inclusion

  • DIN for Directors
  • Digital Signature for Directors
  • Name Search &Approval
  • MOA/AOA
  • Registration Fees
  • Company PAN Card
  • Post Registration Compliances

Frequently Asked Questions on Nidhi Company Registration

Yes, alternatively, the word “Mutual Benefit” can also be used.

Three Directors and Seven shareholders are required, as per the provisions of a Public Limited Company.

No. The individual shall be at least 18-year-old to become a director in a Nidhi Limited.

Primarily, following documents shall be handy:

  • ID Proofs;
  • Address Proofs;
  • Bank Statements not older than 2 months;
  • Registered Office Address Proof.

INR 500,000/-. It shall be increased to INR 10,00,000/- within a time-span of one year.

No, the Nidhi company can have as number of members as possible. However, within first financial year, the minimum number of 200 members shall be attained.

A DIN is Director Identification Number and shall be unique for every director. A DIN is issued only once in the lifetime of the director. No Director shall be allocated two DIN.

Lifetime until and unless the company strike-off by the ROC. 

The government fees differs from state to state and hence there is no uniform costing. However, the whole process cost ranges from INR 16000-INR 30,000/-.

No, it can operate in only one state and that too after completion of three profitable financial statements. Till than, the Nidhi Company can operate only in one District.

The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed one lakh rupees and the rate of interest provided on such deposits shall not exceed two percent above the rate of interest payable on the savings bank account by nationalized banks.

 

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