Nidhi Company Registration

A Nidhi Company in India is a non-banking financial company (NBFC) that operates under the regulatory framework of the Nidhi Rules, 2014. It is governed by Section 406 of the Companies Act, 2013. Operating as a public limited company, its primary purpose is to encourage thrift and savings among its members while facilitating financial assistance through lending.

If you’re interested in registering a Nidhi Company in India and need assistance, feel free to reach out to FintechFilings for guidance and support. We can help you navigate the registration process and ensure that your Nidhi Company complies with all the necessary regulations. Get started on your journey towards establishing a Nidhi Company today!

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.

The Purpose and Nature of Nidhi Companies

Nidhi Companies serve a distinct purpose in the Indian financial landscape, primarily focused on promoting savings among their members. These companies are unique in that they can accept deposits from and offer loans exclusively to their members. The term “Nidhi” in Nidhi Company, derived from Hindi, signifies “treasure.”

Nidhi Companies fall within the category of Non-Banking Financial Companies (NBFCs). While they do not fall under direct regulation by the Reserve Bank of India (RBI), the RBI holds the authority to issue directives regarding their deposit acceptance activities.

What sets Nidhi Companies apart is their exclusive engagement with their members, who are also shareholders. This exclusive relationship grants them exemptions from certain core provisions of the RBI Act and other regulatory guidelines that apply to traditional NBFCs. As a result, a Nidhi Company is a legally sound entity for accepting deposits and providing loans exclusively to a specific group of members, making it a unique financial institution in India.

Benefits of Nidhi Company

Registering a company as a Nidhi in India offers a range of advantages that extend beyond the primary objective of fostering savings among members. Here are some key benefits:

• 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.
• Economic Registration: The registration process for a Nidhi Company is cost-effective when compared to other Non-Banking Financial Company (NBFC) registration procedures, which facilitates easier access to business loans and financing options.
• Savings Promotion: Nidhi Companies play a pivotal role in promoting a culture of saving among the Indian population, thereby contributing to financial prudence.
• 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.

Restrictions on Nidhi Companies

Nidhi companies have certain rules they must follow to keep their focus on serving their members. They are not allowed to:

• Advertise for deposits from the public.
• Get involved in chit funds.
• Provide leasing or hire-purchase financing.
• Run lotteries.
• Offer insurance services.
• Sell, mortgage, or use assets as security.
• Partner with others for lending and borrowing.
• Take deposits or lend money to people who aren’t their members.
• Issue certain types of shares or debt instruments.
• Exceed a limit on the value of shares.
• Open current accounts for members (though savings accounts are fine).
• Lend to or take deposits from corporations.
• Pay commissions or fees for attracting deposits.
• Do any business beyond borrowing and lending to members.
• Get involved in hire-purchase financing.
• Pay fees for loans to brokers.

Documents Required for Nidhi Company Registration in India

To register a Nidhi Company in India, you need to provide the following essential documents:

• 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 registration.

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 Procedure

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 registration process:

Step 1: Applying for DIN and DSC

Directors of the Nidhi Company must apply for Director’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 Bank Account

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

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.