What is Nidhi Company

Important Points to Note

Below few points (given in Rule-6 of the Nidhi Rules of 2014) are noteworthy in connection with the working of Nidhi Companies in India:

• It cannot carry any of the following transactions: leasing finance, insurance, chit fund, hire purchase finance, or acquisition of securities issued by any corporation.
• A Nidhi Company is not entitled to issue preference shares, debentures, or any other debt instruments in any form.
• It cannot accept deposits from or give loans to any external individual or corporation.
• You can start Nidhi Company in about Rs. 25,000 only
• It is not allowed to perform vehicle finance business & microfinance business in India.
• Within 12 months of registration, a minimum of 200 members has to be added.
• A maximum interest rate of 20% p.a. can be charged, by following the reducing balance method.
• A Nidhi Company can only give loans against security. These securities may be Gold, Property, and FD & LIC.
• Unencumbered deposits (Deposits not offered as securities for any purpose) should be more than 10 % of outstanding deposits.
• Filing of Annual Accounts, Audit, and Tax returns are compulsory.

Eligibility Criteria to Register as Nidhi Company

The Nidhi Company must have a registered office located in India.

Documents such as bank statement or electricity bill should not be older than 2 months.

Step By Step Procedure for Nidhi Company Registration

Step 1: Applying for DIN and DSC

Firstly, the partners of a Nidhi company needs to apply for DIN (Director’s Identification Number) and DSC (Digital Signature Certificate). DIN is issued by the MCA and DSC is an online signature used for all e-filing processes. This step is not required if a director already owns DIN and DSC.

Step 2: Name Approval

Now, you need to suggest 3 different names to MCA for Nidhi Company Incorporation. Out of these 3 names, only one will be accepted by MCA. The suggested names must be unique and must not match the names of other already registered businesses.

Step 3: Submission of Memorandum of Association (MoA) & Article of Association (AoA)

Once the name has been approved, you need to prepare MoA and AoA. These must state the main objective of incorporating a Nidhi company and it must be charity. The MoA and AoA are filed to the MCA including the subscription statement.

Step 4: Certificate of Incorporation

The time period to form a Nidhi company and get the incorporation certificate is usually 15-25 days. It certifies that a company has been created and it includes the company identification number (CIN) too.

Step 5: Apply for PAN number, TAN number and Bank Account

Finally, you need to apply for PAN and TAN. The PAN and TAN are generally received within 7 working days. Afterward, you can get a bank account opened by submitting the Certificate of Incorporation, MoA, AoA, and PAN in the bank.

Documents Required for Nidhi Company Registration

• PAN card & Aadhaar Card of all the directors.
• Pass-port Sized photographs of all the directors.
• ID proof of all the designated directors and shareholders.
• Address proof of all the directors and shareholders (Ration Card, Aadhaar Card, Voter ID, Passport, and Utility Bill - electricity/water/mobile).
• Address Proof of the Company. Make sure that the address proof is not older than 2 months.
• NOC (No-Objection-Certificate) from the owner, if the property is rented.

Compliances for Nidhi Company

• Form NDH-1
• A Nidhi Company must submit the list of members within 90 days from the end of every financial year, in this Form.
• Form NDH-2
• The Company can request MCA for an extension if it has not been able to add 200 members in its first financial year.
• Form NDH-3
• Other than the above Form NDH-1, a half-yearly return is also required to be filed in Form NDH-3.
• Annual Returns with ROC
• A Nidhi Company must file its Annual Returns with MCA through Form MGT-7.
• Profit, Loss and Balance sheet
• The financial statements and other related documents are to be submitted in Form AOC-4, annually.
• Income tax Returns
• Nidhi Company, like all other businesses, must file its Annual Returns by 30th September of the following financial year.

Benefits of Starting a Nidhi Company

The main objective to start a Nidhi Company is to encourage thriftiness and a habit of saving among all its members. So that they become self-sufficient and are able to meet their respective financial requirements in life arising from time to time smoothly. The funds of a Nidhi Company include only that amount which is contributed by its members or shareholders.

Limited Liability

Liability of Directors and members of the Nidhi Company is limited. Thus, in case the company su

ffers from any loss and faces financial distress in the course of its primary business activity, the personal assets of Directors or members are not at risk of being seized by banks, creditors, and government.

Better Credibility

Nidhi companies enjoy better credibility as compared to any other members based organizations such as Trusts, Cooperative Societies or NGOs.

Better option for Savings

One of the main goals of Nidhi Company incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves its other goal of being mutually beneficial. The Nidhi Companies lend and borrow money to and from its members only.

Easy Access of Public fund

The members of the Nidhi Company can take a loan at a cheaper rate from its own Company than borrowing from banks and other NBFCs. Moreover, the process of taking the loan and customized services are much more convenient and faster.

Ease of Fund

Nidhi is the safest and the cheapest way of inviting deposits from the general public. You just need to get them registered as members.

Micro Banking

Nidhis provide Rural banking services to the remote population of the nation which still is far-away and hence devoid of national banks and NBFCs.

Better Option than Credit Co-operative

Nidhi company is most preferred by the small financer as this is a close substitute for credit co-operative society Once a Nidhi company has been registered, you can avail of all the benefits of credit co-operative society as well take the advantage of double deposit.

Easy processing

Borrowing and lending to known persons, i.e., its members, is much less complicated than dealing with banks, where the procedure is fixed.

Few Regulations

Nidhi companies follow the Nidhi Rules, 2014. The Central Government is the regulating authority controlling its activities and working. Guidelines imposed on Nidhi by the RBI are limited.

Low Capital Required

Ministry of Corporate Affairs (MCA) mandates the minimum capital requirement of Rs. 5 lakhs for Nidhi. And, within 1-year, the capital shall be increased to at least Rs. 10 lakhs.

Easy Registration Process

It is a simple process to register Nidhi Company. It is not mandatory for Nidhi Companies to obtain a license from RBI. Nidhi companies have to incorporate themselves as a public company with the MCA.

Low Registration Fees

After the Amendment in Companies act 2013, Nidhi Company is governed by Nidhi Company Rules as well as the Companies Act of 2013.

The Fees, DSC & Other Expenses are approx. Rs. 25-30,000. These include Government fees that vary from State to State

Fulfilling the needs of middle or lower-income groups

Nidhi Companies play an important role in fulfilling the needs of middle and low-income groups by providing them financial help with minimal documentation and formalities.

Loans that have minimum criteria of eligibility

The small wage earners are usually unable to get loans from traditional banks because they don’t meet the eligibility criteria. For them, Nidhi Company is a good way to obtain loans because of fewer conditions.

No external involvement

Nidhi Companies take funds from their members and further provides loans to their members only. This means no external factors are affecting the working of these companies. The investors/members themselves govern the operations of the company.

Perpetual Successions

Nidhi Company does not get dissolved by the death, retirement, insanity or insolvency of any of its members or shareholders.   

Separate Entity

Nidhi Company is a separate entity that can acquire assets and incur debts in its own name.

Activities Prohibited for the Nidhi Company

Though the sole purpose of Nidhi companies is non-banking financial activities, they are prohibited to perform below activities:

• Advertise themselves to invite deposits,
• Chit funds, Leasing Finance,
• Lotteries,
• Insurance,
• Hire-Purchase finances,
• Sell the assets of its members kept as security for a loan,
• Entering into a partnership for carrying out lending and borrowing activities,
• Accepting deposits or lending funds to someone other than its members,
• Issue preference shares, debentures or some other debt instruments,
• Open a current account with its members (though it can open a Savings Account),
• Acquire another company by investing in securities of that company,
• Lend or take the deposit from a corporate,
• Pledge assets of its members kept as security,
• Pay commission or incentive for mobilizing deposits,
• Carry on a business other than borrowing and lending to its members.