Nidhi Company Registration
Nidhi Company Registration
The feature that differentiates Nidhi Company from other companies/NBFCs etc. is that Nidhi deals with deposits from and loans to its members (shareholders) only, and works for the mutual benefits of its members. Accordingly, certain exemptions have been provided to these companies in respect of annual compliances and taxation.
Nidhi Companies in India are formed, governed, and regulated by Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.
The objective of incorporating a Nidhi Company is to encourage savings as well as frugality amongst its members. To fulfill this objective of cultivating the habit of saving and thrift amongst its members. Nidhi companies are allowed to take a deposit from and lend to the members only. In other words, the funds contributed to a Nidhi company come only from its members (shareholders) and are to be used only by the shareholders of the Nidhi Company.
The name “Nidhi” in Nidhi Company means “treasure” and it originates from the Hindi vocabulary.
Nidhi Company is a certain category of NBFC. Though not directly regulated by the RBI, still RBI has powers to issue directives for them related to their deposit acceptance activities. Moreover, because these Nidhis deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.
Nidhi Company Registration
Section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 provide all the provisions concerning the incorporation and governance of the Nidhi Companies in India.
The guidelines and directives for the Nidhi Companies are also issued by the RBI. These are mainly related to financial activities and investments by companies including the NBFCs.
Because of the reason that the Nidhi Companies are engaged in the business of deposits and loans by its members only, certain exemptions have been provided to these companies, by the RBI.
The interest charged at the loans under a Nidhi Company is quite reasonable. The purposes these are sought are, generally, manufacturing/renovation of houses or child’s education, etc. The loans are provided against security only.
The deposits under Nidhis do not earn much interest as compared to deposits in the organized banking sector.
All lending and borrowing of the Nidhi Companies are done by its members, exclusively. Hence, such companies are also referred to as Mutual Benefit Societies. Because they work for the mutual benefit and welfare of all members.
If you are looking to start a business in financing or loans in India, then Nidhi Company is the best option for it.
Some points about the working of Nidhi Companies in India, as mentioned in Rule-6 of the Nidhi Rules of 2014, are significant to note:
It cannot carry any of the following kinds of transactions. Such as leasing finance, hire purchase finance, chit fund, insurance, or acquisition of securities issued by any corporation.
It cannot accept deposits from or give loans to some external individual or corporation.
A Nidhi Company is not empowered to issue preference shares, debentures, or some other debt instruments in any form.
Companies Act 2013 and Nidhi Rules 2014 are the governing bodies regulating the functions and operations of Nidhi Company in India.
Nidhi Company does not come under the purview of RBI. Therefore, Nidhi does not need any license from RBI to operate a loan business.
It is not entitled to perform vehicle finance business or microfinance business in India.
Within 12 months of registration, the number of members must be at least 200.
A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
The maximum rate of interest that can be offered on saving deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently.
Rate of Interest that can be offered on Fixed and Recurring Deposit shall not exceed the maximum rate of interest prescribed by RBI for the NBFCs to offer on their deposits. The maximum limit of the rate of interest for NBFCs is also applicable to the Nidhi companies.
Operations limited to district level for the first 3 Years. After completion of 3 years, 3 offices can be set up within the same district. For expansion out of the district, prior approval from the Regulator Director is required.
It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities or Life Insurance Certificates.
Unencumbered deposits (Deposits not offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.
Benefits of Starting a Nidhi Company
The central goal behind establishing a Nidhi Company is to encourage its members to save so that they can meet their financial requirements arising from time to time smoothly. By being thrifty they become self-sufficient and would meet the future expenses that may come up. And the benefit of getting a company registered as Nidhi doesn’t end there.
There are many more advantages to forming a Nidhi Company. Some are listed below:
Liability is Limited: Liability of Directors and shareholders of the Nidhi Company is limited. In case the company suffers from any loss and 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 seized by banks, creditors, and government.
Less Regulations: Nidhi companies are governed under the Nidhi Rules, 2014. The Central Government is the regulating authority controlling its activities and operating. Guidelines imposed by the RBI on Nidhis are very few.
Better Credibility: Nidhi companies enjoy better credibility as opposed to any other members based organizations like Trusts, Cooperative Societies or NGOs.
Better Option for Savings : The main purpose of Nidhi Company’s incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves the other goal of its registration of being mutually beneficial. The Nidhi Companies are to lend and borrow money to and from its shareholders/members only.
Easy Access of Public Funds: The loans from the Nidhi Company come at a cheaper rate than loans from banks and other NBFCs. For its shareholders. And the process of obtaining the loan and customized services are much more convenient and quicker.
Ease of Fund: Nidhi Company is the safest and the cheapest way of inviting deposits from the general public. You just need to take them as registered members.
Micro Banking: Nidhis provide banking services to the remote and rural public of India which still is based in far-off locations and is, hence, devoid of accessing finance from national banks and NBFCs.
Better Credit Co-operative Society: Nidhi Company is a close substitute for credit co-operative society. And, therefore, more preferred by the small financer. Once a Nidhi company has been registered, the members can avail of all the benefits of credit co-operative society.
Simple Processing: Borrowing and lending to known persons, belonging to the same group, is much less complicated than dealing with banks, where the procedure is impersonal and fixed.
Easy Registration Process: The process to register Nidhi Company with us is quite simple and transparent. You don’t need to take any license from RBI. You just have to incorporate your company as a public limited one with the MCA.
Single Regulatory Body: After the Amendment in Companies act 2013, Nidhi Companies are overseen by Nidhi Company Rules.
Low Capital Requirement: Ministry of Corporate Affairs (MCA) commands that the minimum capital requirement of Rs. 5 lakhs for Nidhi. And, within 1-year, the capital has to be raised to at least Rs. 10 lakhs. The Fees, DIN, DSC & Other Expenses are approx. Rs. 25-30,000. These include Government fees that differ from State to State.
Fulfilling the needs of Lower & Middle-income groups: Nidhi Companies play an important role in meeting the needs of lower and middle-income groups by providing them financial help without complex formalities and documentation.
Easier Eligible: People getting minimum wages and belonging to lower strata are usually unable to take loans from traditional banks because of their high eligibility criteria. For them, Nidhi Company is a good option to obtain finance because of fewer conditions.
No External Involvement: Nidhi Companies take funds from their members and further provides loans to their members only. All transactions are done within this group only. So, no external factors are affecting the working of these companies. The investors/members themselves oversee the operations of the company.
Separate Entity: Nidhi Company is a separate legal entity that can acquire assets and incur debts in its own name.
Requirements for Nidhi Company Incorporation
Given below are the essential conditions that must be met with for registering or operating a Nidhi Company.
Procedure for Nidhi Company Registration
Though the process of registering a Nidhi Company is simple, still, assistance from a professional is advised to complete the various complex forms, filing them and within time. Moreover, the government portals and language are a bit on the difficult side, too.
And We are expert in Nidhi Company Incorporations, with over 7 years of experience in the field and successfully registering more than 500 Nidhi Companies. Our operations are spread all over India.
Documents Required for Nidhi Company Registration
Passport Sized photographs of all the directors.
ID proof of all the designated directors and shareholders. (PAN card and Passport are valid).
Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).
Address Proof of the Company. Make sure that the address proof is not older than 2 months.
Copy of the Property papers (if the property is owned).
NOC (No-Objection-Certificate) from the owner (if the property is rented).