Introduction

Nidhi Company is a company registered under the Companies Act, 2013, which is incorporated with a sole objective of encouraging and cultivating the habit of savings amongst its members.

Nidhi’s come under one class of NBFCs, RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhi’s deal with their shareholder-members only, RBI has exempted the notified Nidhi’s from the core provisions of the RBI Act and other directions applicable to NBFCs. As on date (February 2013) RBI does not have any specified regulatory framework for Nidhi’s.

It is allowed to accept deposit from its members and lend to its members only. Hence, the funds that are contributed in Nidhi company are only from its members and used only by its members.

Main Objectives of Nidhi Company –

Savings– Similar to banks, a Nidhi Company has a right to open Saving Accounts of its members in order to promote and encourage the habit of saving among members.

Ease of Fund– Just like banks a Nidhi Company can also raise funds. Nidhi Company is the safest way to raise funds from the general public (just by registering them as members) though deposits, RDs (recurring deposits), FDs (fixed deposits).

Loan– Nidhi Company is allowed to lend money to its members only. However they can provide only secured loans, unsecured loans are not.

Micro Banking– There are many remote areas which still devoid of nationalised banks and NBFs. Nidhi Company is the solution to this, as it can provides rural banking services to these locations.

Benefits Of Nidhi Company-

No liability towards the creditors- The directors of a Nidhi company have no liability to the creditors of a Nidhi company. A Nidhi company can own property and can also incur debts.

Change in management– It can be done easily just by filing forms to the Registrar of Companies of the respective state.

Perpetual Succession– Just like any other company, a Nidhi company being a separate legal entity also have a benefit ‘perpetual succession’, i.e. it continuous existence and is unaffected by the death or departure of any member until it is legally dissolved. A Nidhi company being a juristic person, can buy, own property in its name.

High Credibility- A Nidhi company have better credibility when comparing with Mutual Benefit companies. Nidhi companies are registered and governed by the Central Government, on the other hand Mutual Benefits Organization are governed and supervised by State Governments.

Requirements for Nidhi Company:

1. The name must contain – Nidhi Limited as suffix
2. A minimum paid up capital of Rs. 5,00,000/- is required
3. It can’t issue preference shares.
4. The objective of Nidhi Company solely would be to develop habit of thrift and saving and the services of nidhi company is only restricted to its members.
5. If preference shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares

The Documents Required for Nidhi Company Incorporation –

1. Identity proof of all Directors (Aadhar card, Driving License, PAN card, Passport)
2. Address Proof all directors (Voter ID card, Passport)
3. Address proof of company registered office (Rent agreement, Possession letter etc.)
4. Electricity Bill of the registered office building
5. Bank statement/ passbook of the directors
6. Trademark registration Certificate (if any)

Benefits of Nidhi Company Registration

1. Financial assistance (can be deposits or loans) with minimum documentation and formalities.
2. One can get the loans easily with minimum eligibility criteria
3. Limited Liability for the directors and share holders, which suggests their personal assets remain protected and can’t be used to clear the debts of the company.
4. Perpetual Successions
5. Better credibility

Conditions to be Fulfilled –

The following conditions are to be taken care by the Nidhi Company within one year of its registration –

1. In Nidhi Company minimum of 3 directors and 7 members or shareholders are required.
2. Nidhi Company is required to have minimum of 200 members within one year from its incorporation.
3. The net owned funds must be 10 lakh rupees or more.
4. Unencumbered deposits (free of dept of financial liability) must be 10% or higher of the outstanding deposits.
5. The ratio of the deposits cannot be over 1:20 times of its net owned funds.

Compliance Have to be Done After Nidhi Company Incorporation –

Nidhi Company is regulated by Ministry of Corporate. MCA has provided a set of guidelines for Nidhi company’s operations which are all mentioned in Nidhi Company rule, 2014. A nidhi company is a deposit-taking entity hence requires a higher level of diligence regulatory norms.

Consistent with the Nidhi Rules, following are the compliances that are needed to be followed –

Form NDH-1– Within 90 days after the Closure of Financial year

Form NDH-2- If a Nidhi company fails to complete 200 members in its 1st financial year, then this form is to be filled.

Form NDH-3- This is for the filling of half yearly returns, and this is submitted along with CA/CS Certificate

Board Meetings– Quarterly

Member Meetings– Annually

AOC 4– Need to File once a Year

MGT 7- Once in a Year

Accounting & Book Keeping– Every Month

Income Tax Return– by 30th September

Activities Prohibited For Nidhi Company

1. Chit funds
2. Lotteries
3. Insurance
4. Unsecured lending
5. Leasing Finance and Hire-Purchase finances
6. Advertise themselves for deposits
7. Sell the assets of its members
8. Entering into a partnership firm so as to hold out lending and borrowing activities
9. Accepting deposits or lending funds aside from its members

Note:- In this article I have shared only basic information about nidhi companies, in my next article I will write about the general restrictions, share capital and allotment ,loans and advances to be given by Nidhi Company and the dividend to be paid by nidhi companies.