Overview

Nidhi Company is one of the categories of Non-Banking Financial Company (NBFC) that does not require any Reserve Bank of India (RBI) license. Nidhi Companies are limited companies formed for cultivating the habit of thrift and savings amongst its members. It borrows from members and lends to members only. The main reason as to why the Nidhi Company is so famous between the business communities is the Nidhi Company is very easy and inexpensive to register.
Nidhi Companies mostly operate in the southern part of India. Moreover, it should have “Nidhi Limited” as the last words of its name.
Nidhi company is considered a good substitute for credit co-operative society and is more convenient to operate with fewer compliances.

ADVANTAGES

Following are some of the advantages of forming a Nidhi Company in India:

Limited Liability:

Liability of Directors and shareholders of the Nidhi Company are limited as per the Companies Act, 2013. In case the company grieves from any loss or faces financial distress in the course of its business activity, the personal assets of any of the Directors or members are not at risk of being held by banks, creditors, and government. The liability of the members is only for the unpaid amount on shares held by them and not more than that. Shareholders are not liable for the Company’s debts and liabilities.

Separate Legal Entity

One of the best advantages of a Nidhi Company is that it is distinct from that of its members. A company is a separate entity having its own rights & Obligations.

Simple Registration Process

Nidhi Company initially can be registered by at least seven persons, by complying with the prescribed limited formalities of the Companies Act, 2013 and Nidhi companies Rules, 2014.

Cost-Efficient

Registering Nidhi Company is quite cost-efficient. The minimum capital requirement for registration of Nidhi Company is Rs 5,00, 000 lakh.

Limited Regulations

Nidhi companies follow the Nidhi Rules, 2014 issued by the Central Government in respect of its activities. Regulations imposed on Nidhi Company by Reserve Bank of India (RBI) is very limited.

Lower rate of credit

The loans given to the members are at a much lower rate of interest than the market rate. This ultimately brings much more savings to the members.

Helps in saving the funds

The goal of Nidhi companies is to promote the habit of savings and thrifts amongst the lower and the middle section of the society. These small sections of the population contribute to the funds and avail the credit from the Nidhi Companies as and when required.

No Outside Involvement

The Nidhi Companies are formed, managed and provide benefits only to their members. The outsider will not be allowed to get involved in Nidhi company operations in anyways. Be it working off the Nidhi companies or depositing money with them or even avail credit from Nidhi. There would be no external intervention in the management as well.

Cheaper to Borrow

As a member, one can borrow money at a minimum rate, relative to the rate at which banks lend money. This can be a major advantage in times of need, as different individuals in the mutual benefit society are likely to need funds at different points in time.

Fewer Complications

Borrowing and lending to known persons, where the procedure is fixed, is much less complicated than dealing with banks or in an informal setting. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.

Prohibition of certain activities in a Nidhi Company:

The Nidhi Companies have to abide by certain prohibitions that are imposed on them in terms of their activities. Following are certain under which Nidhi Company cannot deal, accept deposits and lend funds:

  • Chit Funds
  • Hire-purchase finance
  • Leasing of finance
  • Insurance Business
  • Securities Business
  • Non-acceptance of deposits from any other person except members.
  • Cannot lend funds to any other person except members.

Documents/Details required for Nidhi Company Registration

  • Two Names for proposed company

  • From All Directors and Shareholders

    1. Copy of PAN Card
    2. Copy of Latest Bank Statement/Telephone or Mobile Bill
    3. Copy of Voter’s ID/Passport/Driver’s License/Aadhaar Card
    4. Passport-sized photograph of all directors and shareholder
    5. Mail id and Mobile No.
    6. Educational qualification
    7. Shareholding details

  • For Proposed Registered Office

    1. Copy of any Utility bill
    2. Copy of NOC from the owner.

FREQUENTLY ASKED QUESTIONS

WHAT PROVISIONS ARE APPLICABLE TO NIDHI COMPANIES?

Following provisions are applicable to Nidhi Companies.

  • As they are incorporated into the nature of Public Company so rules and regulations of Companies Act, 2013 are applicable.
  • RBI provisions related to Interest rate payable on deposit are applicable to Nidhi Companies. But the core provisions of RBI are not applicable to Nidhi Companies as RBI has exempted the Nidhi Companies from the same.
  • Nidhi Rules, 2014.

WHAT ARE THE REQUIREMENTS FOR REGISTRATION OF NIDHI COMPANY IN INDIA?

As to incorporate a Nidhi Company it is to be registered as a Public Limited Company. So, to incorporate a Nidhi Company it is necessary to fulfill following criteria:

  • It should have at least 3 Directors.
  • It should have at least 7 Members.
  • The main objective to be written in the MOA should be to cultivate the habit of thrift and savings among its members. And it can accept deposits and lend money only to its members and shall work for the mutual benefit of its members.

WHAT ARE POST INCORPORATION REQUIREMENT OF A NIDHI COMPANY?

Once the Nidhi Company is incorporated it must fulfill the following requirements:

  • It must have at least 200 members/shareholders.
  • Minimum Net Owned Fund should be Rs. 10 Lakhs.
  • Unencumbered term deposit must be at least 10% of the term deposit.
  • The ratio of Net Owned Fund to term deposit should not be less than 1:20.

ARE THE DEPOSITS WITH NIDHI COMPANY SAFE AND SECURED?

Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.

HOW THE NIDHI COMPANY UTILIZES THE FUNDS PROCURED BY IT?

The Nidhi Company uses the funds in lending to shareholders as per Nidhi Rules. It lends such money in the form of small loan for business and finance.

WHO CAN BECOME THE SHAREHOLDER/MEMBER OF NIDHI COMPANY?

Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.

ON WHAT CONDITION NIDHI COMPANY CAN PROVIDE A LOAN TO ITS MEMBERS?

Nidhi can provide loans to its members only after the members have given/provided some securities like gold, silver jewelry or any type of financial securities against the loan.

CAN ANOTHER COMPANY BE A SHAREHOLDER IN A NIDHI LIMITED COMPANY?

Yes, another can be a shareholder in a Nidhi company.

CAN A DIRECTOR IN A NIDHI COMPANY BE A SALARIED PERSON?

Yes, a salaried person can become a director in a Nidhi company. There are no legal hassles in this but one may have to go through their employment agreement if it contains any restrictions.

HOW LONG IS THE COMPANY VALID FOR?

Once a company gets incorporated, it is active and in-existence for as long as the annual compliances are met with regularly. In a scenario where the annual compliances are not complied with, the company becomes a dormant company and then it may be struck off from the registrar after a period of time. A struck-off company can be revived for a period of up to 20 years.

IS AN OFFICE SPACE REQUIRED TO OPEN A COMPANY?

No, one can open a company even at their residential address. There is no legal requirement to have a commercial place to open up a company.

CAN ONE OPEN AN ASSET FINANCE COMPANY BY OPENING A NIDHI LIMITED?

No, as per the constraints mentioned in the Nidhi rules and regulations, no Nidhi company can do the business of asset.