Nidhi Company

Nidhi Company is also known as Mutual Benefit Society. Nidhi Company is a type of Company which tries to cultivate the habit of saving by accepting deposits and providing loans amongst its members in India. Nidhi Company is almost similar to NBFC (Non-Banking Financial Company). The Literal Meaning of 'Nidhi' is ‘Treasure’ and the main business of such a company is to facilitate lending money between the core members of the company.

In India, Nidhi Companies created the habit of savings amongst its members. Nidhi companies are allowed to borrow from their members and lend to their members only.

Nidhi Company incorporates in India as a Public Limited Company, under Section 406 of the Companies Act, 2013. So, Minimum of 3 directors and 7 members are required to incorporate a Nidhi Company. The name of all the Nidhi Companies must contain Nidhi Ltd. A Nidhi company to be incorporated under the Companies Act, 2013 shall be a Public Company. As compared to the registration processes of other NBFCs, the registration process of Nidhi Company is an easy one. In respect of taxation and annual compliances, Nidhi companies enjoy the benefit of specific exemptions.

The minimum capital required for incorporation of Nidhi Company is 10 lakhs. (As Per Nidhi (Amendment) Rule, 2022.

The incorporation of Nidhi Company is governed by the MCA (Ministry of Corporate Affairs) and regulated by the Companies Act, 2013 and the Nidhi (Amendment) Rules, 2022.

The activity of Nidhi Company does fall under the purview of RBI (Reserve Bank of India), as it is similar to an NBFC. However, as Nidhi Companies only deal with its shareholder-members money, RBI has exempted Nidhi Companies from the core provisions of the RBI and other regulations applicable to an NBFC.

Advantages of NIDHI companies:

• Company as a Separate Legal Entity
• Easy formation of NBFC without any complexity involved.
• Very Few Documents are required and Easy Incorporation Process in comparison to NBFC
• Lower rate of interest
• Varies relaxations are given by RBI
• No RBI Regulations
• Numerous Taxation Benefits
• Easy to get investment/ funding.
• Higher Certainty and fewer Complications
• Limited Liability
• Legal Security
• Capacity to Sue and Be Sued
• Encourage the saving habit to lower & Middle class
• Better Compliance and management

Basic Requirements for Incorporation of Nidhi Company:

• Minimum 7 Members
• Minimum 3 Directors
• Minimum Capital Requirement is INR 20,00,000/- (As Per Nidhi (Amendment) Rule, 2022.
• Registered Office Place

Some Key Points for Nidhi Company:

• Nidhi Company acts like a ‘Public Company’
• The name of the Company must contain ‘Nidhi Limited’
• Nidhi Company can accept deposits and provide loans and services only to its members.
• Nidhi Company cannot issue Preference shares to its members

Documents required for Nidhi Company Incorporation:

• Self-attested copy of PAN of each Director/ Subscriber (Mandatory in case of Indian resident Applicant only)
• Self-attested copy of Aadhaar of each Director/ Subscriber
• Self-attested Copy of Passport (Mandatory in case of foreigner/NRI Applicant);
• Passport size photograph of each Director/ Subscriber (in jpeg format)
• Specimen Signature of Authorized Signatory
• Self-attested Proof of Identity of each Director/ Subscriber (Voters Identity Card/ Passport/ Driving License)
• Self-attested Residential Proof (Bank Statement/ Electricity Bill/ Mobile Bill/ Telephone Bill) (not older than two months)
• No Objection Certificate from Landlord for Registered Office address
• Electricity Bill/ Water Bill of Business Place (not older than two months)

Note: In the case of Foreign/ NRI applicants Copy of Passport, Address Proof & translated copies of proofs (if any) should be notarized and/or apostilled by the home country of the applicant.

Other Details Required for Incorporation:

• Educational Qualification & Occupation of Directors
• Phone No., Email Id of each director, Subscriber, Company
• Proposed name of the Company (at least 2)
• Main Object of the proposed Company
• Proposed Authorized and Paid-up Capital of the Company
• Shareholding Percentage
• Face Value of Shares
• Authorized signatory of the Company (anyone Director)
• The interest of Directors in other Entities.
• Other Documents prepared by Professionals (CS/CA) for submission to ROC

The procedure of Nidhi Company Incorporation/ Registration:

• Application for Name approval after login on MCA Portal e-Form Spice+ Part A with a maximum Upto 2 names
• Obtain DSC of Proposed Directors
• Register DSC of Proposed Directors as Authorized Signatory on the MCA Portal.
• Obtain DIN of Proposed Directors if no. of Proposed Directors are more than 3 (Maximum up to 3 DINs can be allotted along with incorporation in Spice+ Part b
• After getting name approval prepare Documents like MOA, AOA, NOC from Landlord, DIR-2, Interest in other entities etc.
• Filing of e Forms of Incorporation after login on MCA Portal only such as Spice+ Part b, Agile Pro – S, MOA, AOA, INC 9
• Download the forms
• Affix the DSC of each director, Subscriber, and Practicing Professional (Practicing CS, CA, CMA)
• Upload the forms after login to MCA Portal
• Make Payment for PAN/ TAN application
• Stamp duty Payment.
• Wait for Certificate of Incorporation and Allotment of PAN/ TAN

After Satisfaction of Documents, MCA will Grant COI (Certificate of Incorporation), PAN, and TAN.

MCA provides a Certificate of Incorporation within 15 to 30 days.

Requirement after Incorporation:

As per Nidhi (Amendment) Rules, 2022 every Nidhi Company is required to apply to the Central Government in Form NDH-4, within a period of one hundred twenty days of its incorporation for declaration as Nidhi, if they Fulfil the following Conditions:

• A Nidhi Company needs to have 200 members by the end of Ist Year.
• Net owned funds shall be Rs.20,00,000/- or more
• The ratio of net owned funds to deposit shall be not more than 1:20.
• Unencumbered term deposits shall not be less than 10% of the outstanding deposits.
• A Nidhi Company is not entitled to admit a minor, trust, or a body corporate as a member.

(*‘Net owned funds’ means the aggregate of paid-up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet).

In case a company does not comply with the requirements of sub-rule (1) of this rule, it shall not be allowed to file Form No. SH-7 (Notice to Registrar of any alteration of share capital) and Form PAS-3 (Return of allotment).

Restrictions Over Nidhi Companies

 Some restrictions were imposed by the Central Government on Nidhi Companies via Nidhi Rules, 2014. According to Rule 6 of Nidhi Rules, 2014 Nidhi Companies Shall not:

• Carry on the business of- Chit Fund, Hire Purchase finance, Leasing Finance, Insurance or Acquisition of Securities issued by anybody corporate.
• Issue Preference Shares, Debentures, or Any other debt instrument by any name or in any form.
• Open any Current Account with its members.
• acquire or purchase securities of any other company or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management; (Inserted Vide Nidhi (Amendment) Rule, 2022)
• Carry on any business other than borrowing/lending in its own name. (Nidhi which has adhered to all the provisions of Nidhi Rules may provide locker facilities on rent to its members on a rental basis, but the rental income from such facilities does not exceed 20% of the gross income of the Nidhi at any point of the time.)
• Accept deposits from or lend to any person, other than its members.
• Pledge any of the assets that have been lodged by its members as security,
• Take Deposits from or lend money to any body corporate,
• Enter into any Partnership Arrangement in its borrowing or lending activities,
• Issue or cause to be issued any advertisement in any form for soliciting deposit.
• Provided that private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.
• Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
• raise loans from banks or financial institutions or any other source for the purpose of advancing loans to members of Nidhi. (Inserted Vide Nidhi (Amendment) Rule, 2022

Why CS CLUB INDIA?

CS Club India helps you to register your Company across India at a very reasonable price. You can register your Nidhi Company with us in a few easy steps. We will provide you with facilities at the time of Incorporation  and even after Incorporation and help you to understand and comply with the applicable provisions on Nidhi Companies Such as:

• Name Reservation (RUN Application)
• PAN & TAN
• Filling of eForm NDH-4 
• Filling of eForm NDH-3, NDH-5 and other applicable Forms
• Maintain Books of Accounts
• Maintain Statutory Registers
• Holding Meetings
• and other applicable provisions.