Nidhi companies are a type of Non-Banking Financial Companies (NBFCs) that function under the Nidhi Rules, 2014 and are further governed by Section 406 of the Companies Act, 2013. The aim of Nidhi companies is to inculcate the habit of savings and thrift among its members. Nidhi company registration is quite popular and if you are planning to incorporate a Nidhi company in India, then you need to obtain an understanding of all the applicable rules and regulations. Let’s begin by understanding what is Nidhi company.
What is Nidhi Company?
A Nidhi company is basically a company that primarily accepts deposits from its members and uses it to provide loans to its members, who are also the shareholders of the company. This inculcates the habit of savings and thrift while also extending financial assistance through lending to its members.
Nature and Regulatory Framework
While you are clear with Nidhi company meaning, it is important to understand its nature and regulatory framework. Nidhi companies are like a financial institution and they only serve a very specific niche i.e., their own members. Their primary purpose is to motivate their members to save and the company uses that deposit to lend exclusively to its own members.
Nidhi, in Hindi, denotes ‘treasure’. While the Nidhi companies do not directly fall under the regulations of RBI, the RBI can issue directives and guidelines in relation to the acceptance of deposits or lending. As they are exclusively serving their members, they are exempted from many of the core provisions of the RBI and any other regulatory guidelines that apply to the NBFCs.
Benefits of a Nidhi Company
The following are some of the core benefits of Nidhi company registration in India:
- Simple Incorporation: The incorporation of Nidhi finance companies is simple and pretty straightforward. The incorporation process of the Nidhi companies is an entirely online process and can be done from the website of the Ministry of Corporate Affairs.
- Not Bounded by RBI: While RBI acts as the financial regulator for all the banks and financial institutions, Nidhi companies are not bound by the RBI regulations.
- Lower Risk: The Nidhi companies usually carry lower risk as lending and borrowing activities are carried out by the deposits provided by the members of the company.
- Faster Process: The process of lending is quicker than other financial institutions like banks and NBFCs. Thus, it acts as a more efficient financing option for the members of the company.
- Promotes Savings: This is the main aim of the Nidhi companies i.e.; they promote savings amongst the members by providing them attractive interest on their deposits.
Nidhi Company Registration Process
You need to take care of several aspects if you wish to obtain Nidhi company registration in India. Here’s the detailed process of Nidhi company incorporation in India:
- Applying for DIN and DSC: Directors of the Nidhi companies shall acquire the Digital Signature Certificate (DSC) and obtain the Director Identification Number. In case the directors have already obtained the DSC and DIN, then they can bypass this step.
- MOA and AOA: A draft Memorandum of Association (MOA) and Articles of Association (AOA) shall be prepared. It shall specify all the incorporation-related details including the name, objects of the company, registered office details etc.
- Name Approval: The company needs to file the application for incorporation of the company. This begins with obtaining name approval from the Ministry of Corporate (MCA). You can provide 2 names for approval from which one name shall be approved by the MCA. The name shall be reserved for you for a period of 20 days within which you shall file your application for Nidhi company registration.
- Application for Registration: You shall file an application for incorporation of the Nidhi finance company and submit all the relevant documents including MOA and AOA along with payment of relevant fees.
- Certificate of Incorporation: After submission of the application, your application shall be scrutinized by the ROC for approval. In case there is any query, then the concerned officer will issue a show cause notice asking for additional information or documents. After submission of the relevant information and documents, your application shall be approved or rejected.
- PAN, TAN, GSTIN and Bank Account: You can also apply for the PAN, TAN and GSTIN along with the application for incorporation of Nidhi company.
Compliances of the Nidhi Companies
Following are some of the key compliances associated with the Nidhi finance companies in India:
- Form NDH-1: A list of all the members of the Nidhi company should be submitted in Form NDH-1 within 90 days after the end of the financial year.
- Form NDH-2: In case the Nidhi company is yet to reach 200 members in its first financial year, then the company can request for extension from the MCA by filing Form NDH-2.
- NDH-3: Nidhi companies shall file half-yearly returns in Form NDH-3.
- Annual Returns: Nidhi companies, like normal companies, are required to file annual returns in Form MGT-7.
- Financial Statements: Nidhi companies shall submit their financial statements and other related documents to the MCA annually by filing Form AOC-4.
- Income Tax Compliances: Apart from the MCA compliances, Nidhi companies shall also comply with all the requirements of the income tax law. This includes filing of income tax returns, audit reports, TDS compliances, advance tax compliances etc.
Nidhi Company Requirements
Following are some of the requirements you need to fulfil if you desire to obtain Nidhi company registration:
- Members: The Nidhi company should have at least 200 members by the end of the first year.
- Net Owned Funds (NOF): The Net Owned Funds of the Nidhi company should be equal to or more than Rs. 20 lakhs while the minimum paid-up share capital should be at least Rs. 10 lakhs.
- NOF to Deposit Ratio: The NOF to Deposit ratio should be more than 1:20.
- Unencumbered Deposits: The Unencumbered Deposits should be more than 10% of the outstanding deposits.
- Minimum Members and Directors: The Nidhi company should have at least 7 members out of which 3 members should be the directors of the company.
Net Owned Funds = Equity share capital + free reserves (-) accumulated losses (-) intangible assets
Documents Required for Nidhi Company Registration
You need to submit the following documents to incorporate Nidhi company:
- Director Identification Number (DIN)
- Permanent Account Number (PAN)
- Residential proof and address proof of directors and members
- Passport-sized photos of all the directors and members
- Identity proofs
- Proof of registered office of the company
- Memorandum of Association (MOA)
- Articles of Association (AOA)
Restrictions and Prohibitions on Nidhi Companies
There are certain restrictions and prohibitions imposed on the activities of the Nidhi companies. Therefore, Nidhi companies cannot:
- Advertise for accepting deposits from the public.
- Carry on the business of chit funds.
- Accept deposits or lend to any person other than its members.
- Engaged in activities relating to leasing or hire purchase financing.
- Run lotteries.
- Enter into partnership with others for borrowing or lending.
- Issue debentures, preference shares or any other debt instruments.
- Offer insurance services.
- Sell, use or mortgage its assets as securities.
Following are the complete details relating to the Nidhi company registration and compliances in India. In case you need any assistance in the formation of Nidhi companies, feel free to reach out to ASC Group.