Nidhi Company

A Nidhi Company is a type of non-banking financial company (NBFC) in India, formed to borrow and lend money among its members. It promotes savings and mutual benefit among members, operating under Section 406 of the Companies Act, 2013.

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What is Nidhi Company?

A Nidhi Company is a company that primarily deals with managing deposits from and providing loans to its members, who are also shareholders. The main purpose of a Nidhi Company is to promote thrift and savings among its members while offering financial assistance through lending.

Nidhi Companies in India have specific exemptions and relaxed regulations when it comes to their annual compliance requirements and tax assessments, making them a unique financial institution designed to benefit their members mutually.

The legal framework governing Nidhi Companies in India consists of Section 406 of the Companies Act, 2013, the Companies (Nidhi Companies) Rules of 2014, and Chapter XXVI of the Companies Rules, 2014.

Benefits of Nidhi Company Registration

Easy Formation:

Nidhi Companies boast a straightforward and hassle-free formation process with minimal requirements, making it accessible for those looking to establish such entities.

Non-Compliance with RBI:

Nidhi Companies are not bound by the Reserve Bank of India (RBI) guidelines, allowing them to set their own operational rules and regulations.

Lower Risk:

Transactions involving lending, borrowing, or depositing are carried out by members of the Nidhi Company, reducing financial risks and ensuring a sense of security within the community.

Net-Owned Funding System:

Nidhi Companies typically adopt a cost-effective net-owned funding system, which can enhance their business growth prospects by efficiently utilizing their own resources and funds.

Documents Required for Nidhi Company Registration in India

  • Directors Identification Number (DIN)
  • PAN Number (Permanent Account Number)
  • Residential proof and address proof
  • Photographs of the proposed directors and members
  • Identification documents like Aadhar card
  • Proof of the registered business place, such as a rent agreement or lease
  • Ownership proof of the business place
  • NOC (No Objection Certificate) if required
  • Memorandum of Association (MOA)
  • Articles of Association (AOA)

Nidhi Company Incorporation Requirements

To establish and operate as a Nidhi Company in India, certain prerequisites must be met and categorized into requirements before and after Nidhi registration process.

Requirements before Registration:

  • Minimum Shareholders or Members: A minimum of 7 members is required to initiate the registration process.
  • Minimum Directors: You must have a minimum of 3 directors to form the company.
  • Minimum Capital: A minimum capital of Rs. 5 lakhs is essential to kickstart your Nidhi Company.
  • Director Identification Number (DIN): Directors must obtain a Director Identification Number (DIN).
  • Number of Directors: At least three directors are necessary to establish the company.
  • No Preference Shares: Issuing preference shares is not permitted.
  • Focus on Savings: The Company’s primary objective should be to promote the habit of saving by receiving deposits from and lending to its members exclusively for their mutual benefit.

Requirements After Registration:

  • Membership Quota: By the end of the first year, your Nidhi Company must have at least 200 members or shareholders.
  • Net Owned Funds (NOF): Your company’s NOF should exceed Rs. 10 lakhs.
  • NOF to Deposit Ratio: The NOF to deposit ratio should be greater than 1:20.
  • Unencumbered Deposits: Unencumbered deposits must be over 10% of outstanding deposits.

Nidhi Company Registration Process in India

Incorporating a Nidhi Company in India involves several key steps, including legal measures in case of member defaults. Here’s a step-by-step guide to the Nidhi registration process:

Step 1: Applying for DIN and DSC

Directors of the Nidhi Company must apply for Directorâ??s Identification Number (DIN) and acquire a Digital Signature Certificate (DSC). DIN is issued by the Ministry of Corporate Affairs (MCA), while DSC is essential for all e-filing processes. Directors with pre-existing DIN and DSC can bypass this step.

Step 2: MoA & AoA

Draft the Memorandum of Association (MoA) and Articles of Association (AoA), specifying the primary purpose of establishing the Nidhi company. These documents, along with a subscription statement, need to be filed with the Registrar of Companies (ROC).

Step 3: Name Approval Process

Propose three preferred names for the Nidhi Company to the MCA. The MCA will choose one name for approval. The selected name must be unique and not currently in use. Once approved, it remains valid for 20 days.

Step 4: Application for Registration

After securing name approval, directors must submit an application for registration. This application includes the submission of the Articles of Association (AOA) and Memorandum of Association (MOA).

Step 5: Certificate of Incorporation (CIN)

Typically, it takes 15-20 days for the relevant authority to issue the Certificate of Incorporation for the Nidhi Company. This certificate also provides the unique Company Identification Number (CIN) for the company.

Step 6: PAN, TAN, and Nidhi Bank Account

Apply for the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). Subsequently, open Nidhi bank account by submitting the Certificate of Incorporation, MoA, AoA, and PAN

Step 3: Name Approval Process

Propose three preferred names for the Nidhi Company to the MCA. The MCA will choose one name for approval. The selected name must be unique and not currently in use. Once approved, it remains valid for 20 days.

Step 4: Application for Registration

After securing name approval, directors must submit an application for registration. This application includes the submission of the Articles of Association (AOA) and Memorandum of Association (MOA).

Compliance for Nidhi Company

Nidhi Companies must adhere to various compliance measures for smooth operations and regulatory compliance. These include:

  • NDH-1 Form: Submitting a list of members within 90 days at the end of each financial year using this form.
  • NDH-2 Form: If your Nidhi Company has yet to reach a membership of 200 in its first financial year, you can request an extension from the Ministry of Corporate Affairs (MCA) using this form.
  • NDH-3 Form: Filing a half-yearly return apart from the NDH-1 Form.
  • Annual Returns with ROC: Filing annual returns with the MCA using Form “MGT-7.”
  • Financial Statements: Submitting the company’s financial statements and related documents annually in Form “AOC-4.”
  • Income Tax Returns: like other businesses, Nidhi Companies must file annual income tax returns by September 30th of the following fiscal year.

FAQs on Nidhi Company Registration?

A Nidhi Company falls in the category of “Non-Banking Financial Companies (NBFCs)”, which does not require any license from the Reserve Bank of India (RBI). It is formed for the sole purpose of accepting deposits and lending loans to it’s members only. It works through it’s members only.

Approximately, a time period of 15 business working days is needed for incorporating a Nidhi Company.

Yes, it is mandatory to use the word ‘Nidhi Limited” in the company name. Nevertheless, the term ‘Mutual Benefit” can also be used.

At least three directors and seven shareholders are required for a Nidhi Company registration.

No, a minor person is not allowed to become the director of a Nidhi Company. Only an individual who is 18 years old or more can become the Director of a Nidhi Company.

No, there is no need for the promoters to be there or to visit our office personally, as the registration process of Nidhi Company is completely online.

No, there is no restriction on the maximum number of members. However, it is compulsory for a Nidhi Company to have a minimum of two hundred members within one year of commencement.