What is a Nidhi Company?
It is a company classified as an NBFC (a Non-banking financing company) and registered under Section 406 of Companies Act, 2013. The main business of such a company is to facilitate lending money between the core members of the company. This way members (or shareholders) are encouraged to save money and invest them within the company. These deposits are then used by the company for its members (or shareholders), to provide loans or advances, and to acquire government-issued stocks/bonds/debentures/securities. It is regulated by the Ministry of Corporate Affairs, while the RBI monitors all its financial dealings.
Benefits of a Nidhi Company
- 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.
- Encourages Savings: It encourages all its members to save money and encourages a thrifty lifestyle. A Nidhi Company, after all, is a mutual benefit society wherein members can lend or borrow money and accept financial aid amongst them.
- 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.
Checklist For A Nidhi Company
- At least seven members are mandatory to form a Nidhi company. Out of these, three should be designated as the directors. However, it should acquire a minimum of 200 members within one year of commencement.
- Moreover, the company should have a minimum equity share capital of Rs 5 lakhs, for registering as a Nidhi Company. This entire amount has to be paid up. However, the Net Owned Funds (NOF) must be increased to Rs 10 lakhs within a year of registration.
- a.At least 10% of its outstanding deposits should comprise of un-encumbered term deposits.
- b.The prescribed NOF to deposits ratio should be 1:20.
This includes equity share capital and free reserves and excludes accumulated losses as well as intangible assets.
- At least 10% of its outstanding deposits should comprise of un-encumbered term deposits
- The prescribed NOF to deposits ratio should be 1:20. where 10% of the total deposits are in a fixed deposit account of a nationalized bank.
What are the few things Nidhi Companies cannot do as an NBFC (Non-Banking Financial Company)?
A Nidhi company cannot deal in the following –
- Chit fund business
- Hire purchase finance
- Acquisition/insurance of securities issued by any corporate
- Engaging as an NBFC in the business of advances or loans
- Leasing finance
- Acquisition of stocks/shares /bonds/securities/debentures issued by any local authority /Govt./marketable securities
Procedure for Nidhi Company Registration
Contrary to what you might think, registering a Nidhi Company is a simple 3-Step process and can be done completely online. We’ve laid it out below.
- Name Reservation – We help you reserve your name with MCA.
- DSC and DINs – We help you get 1 DSC and 3 DINs.
- Documents and approval – We help you at every stage of the documentation process and in getting in-principle approval from the RBI.
Documents Required for Nidhi Company Registration
To Be Submitted By All Directors
- Self-attested copy of PAN Card
- Self-attested copy of Driver’s License/ Voter ID/ Aadhaar Card/Passport
- Self-attested copy of Bank Statement/ Telephone Bill/Mobile Bill/ Electricity Bill
- Passport-size Photograph
- Specimen Signature Certificate
Stringent compliance norms for Nidhi Companies- To protect the interest of investors, the Ministry has advised them to verify a Nidhi Company status before pumping in money. They can verify it from the notification in the official gazette.
Time-frame for filing Form NDH-4- To enhance transparency and investor-friendliness, Nidhi companies are now instructed to follow the time frame for applying in Form NDH-4. In case of non-compliance, a Nidhi Company will not be allowed to file Form No SH-7 and Form PAS-3.
Read about more types of business registration in India at Legal updates at one click | LegalUpdates.in.