Incorporation of a Nidhi Company in India
Nidhi Firm refers to a company formed to instil the habit of saving among its members or owners. The word Nidhi means 'treasure' in the dictionary. In the Indian financial industry, however, it is a mutual benefit society that is notified by the government. Nidhi firms are only allowed to collect deposits from its members and lend to them.
The Reserve Bank of India (RBI) oversees a Nidhi Company's deposit acceptance activities. A Nidhi firm is excluded from the main provisions of the RBI Act, 2013 despite being an NBFC, because it works for the welfare of its members. Nidhi Company establishment is a time-consuming process that requires you to fulfil certain requirements. So, let's take a look at the Nidhi Company Registration Process as a whole.
Conditions that must be met prior to the Nidhi Company Registration Process
To establish a Nidhi corporation, you must meet the following requirements:
- Before forming as a Nidhi Corporation, a corporation must first be a "public company."
- A minimum paid-up equity share capital of INR 5 lakhs is required to run a Nidhi Company.
- A firm must not issue preference shares at the moment of incorporation. In the event that a firm has issued preference shares prior to its establishment. The shares must then be redeemed according to the terms of the issuing.
- A Nidhi's purpose should be absolutely obvious. The primary goal must be to encourage members to practise thrift and save money. Second, for mutual benefit, the company must receive and lend deposits to its members.
- Every firm that engages in Nidhi activities must have the words ‘Nidhi Limited [1]' at the end of its name.
- At the time of Nidhi Company's incorporation, there must be 7 or more members and 3 or more directors, respectively.
Nidhi Company Post-Registration Requirements
Following are the requirements that must be met after registering a Nidhi Company:
- A Nidhi Company must have at least 200 members within a year of its formation. Additionally, the company must have Net Owned Funds of at least Rupees ten lakhs.
- Unencumbered Term Deposits of not more than 10% of its Outstanding Deposits.
- Net Owned Funds to Deposits Ratio of more than 2:1.
- If the company does not achieve the aforementioned conditions within one year of its incorporation, it must apply to RD for an extension in Form NDH-2 within 30 days after the end of the first financial year.
- • Within 30 days of receiving the application for the extension, RD may issue whatever orders it deems suitable.
Documents Needed to Register a Nidhi Company
The Nidhi Company Registration is an online process that requires the applicant to have the following documents self-certified:
Documents Required to Register a Nidhi Company: The following documents are required:
- Shareholders' and directors' identity proof: For Indian nationals, a copy of their PAN card is required, and for international nationals, an attested copy of their passport is required.
- Shareholders' and directors' residential proof: A copy of your Aadhar card, bank statement, driver's licence, utility bill, or passport is required. At least two of the documents must be genuine and current (within the last two months).
- Proof of registered office: To use the premises as a registered office, you must present a copy of the Rental Agreement or Sales Deed, a property tax receipt, an electricity bill, or a No Objection Certificate (NOC) from the landlord.
- Signed Incorporation Paperwork: A hard copy of the Signed Digital Signature Application paperwork as well as a soft copy of other incorporation documents that have been signed.
- Passport-Size Photographs: Include 2 to 3 passport-size photographs of directors and shareholders in your submission.
A NIDHI IS INCORPORATED IN THE SAME MANNER AS A PUBLIC LIMITED COMPANY, SO THE FOLLOWING CRITERIA MUST BE COMPLETED PRIOR TO IN-CORPORATION: -
- There must be at least 7 proposed members at the time of incorporation.
- At the time of incorporation, there must be at least three proposed directors.
- It must have a minimum paid-up equity share capital of Rs. 5,00,000/-
- Its name must finish in "Nidhi Limited." Using the "RUN" service, reserve a company name that ends in "Nidhi Limited."
- Once the name has been approved, fill out the SPICe form to start the Nidhi Company.
Nidhi Company Registration Procedure
Before forming a Nidhi Company in India, you must first form a limited company under the Companies Act, 2013. To begin the registration procedure, the applicant must have a minimum of 7 members and 3 directors present. This procedure takes about 45 days to complete on average. To register, simply follow these simple steps:
- The first and most important step for an applicant is to apply for a Director Identification Number (DIN) and a Digital Signature Certificate (DSC). The procurement of DSC usually takes two days.
- It also mandates that the directors and shareholders draught the MOA and AOA.
- The Ministry of Corporate Affairs will issue a DIN to your company's directors.
- Because the Nidhi Company's complete registration process is done online, you must submit all of your paperwork online. Also, don't forget to double-check your documents' legitimacy.
- As soon as you have your DIN and DSC, submit an INC-1 application to the Ministry of Corporate Affairs for the reservation of your Nidhi Company's name.
- Make sure your company's name is distinctive and doesn't sound like anyone else's. It should also not be unfavourable in the eyes of the central government.
- A Nidhi Company must include the words "Nidhi Limited" in its name.
- Once MOCA has approved the company's name, it's time to start working on the Memorandum of Association (MOA) and Articles of Association (AOA).
- When drafting your MOA and AOA, keep your company's goal in mind.
- Now is the time to apply for Nidhi Company's incorporation.
- It is appropriate for you to apply for the company's PAN and TAN once you have received the Incorporation Certificate.
- Finally, open a current bank account.
Note: Nidhi applicant must register for GST. GST laws apply to all businesses in India that have a turnover or profit above a certain threshold. If one fails to do so for the purpose of tax avoidance, it is regarded a criminal offence that can result in prosecution, jail time, and penalties.
Nidhi Company Registration Benefits and Procedure
Section 406 of the Businesses Act of 2013 governs Nidhi companies. Nidhi firms are essentially part of an on-banking financial sector whose primary goal is to encourage members of the company to save money. This company is permitted to receive deposits from its members and to lend money to them in the future for mutual profit. In this essay, we'll go over the Nidhi Company Registration Process.
There is no need to go to the government office to register a Nidhi Company because it does not require clearance from the RBI, making the process more easier. In comparison to NBFCs, Nidhi Company has fewer stringent regulations. The procedure for forming a Nidhi company is simple; there must be at least seven shareholders and three directors for the Nidhi Company to be formed. If you want to establish a Nidhi business, you'll require a capital investment of Rs. 5 lakhs, which will need to be increased to Rs. 10 lakhs in the next year.
Nidhi businesses are a type of NBFC, and the RBI has the authority to give directives on deposit acceptance activities. You only need to call swarit advisors if you want to build your own Nidhi Company; we have a team of professionals that have already assisted a number of clients. Members of our staff will assist, educate, and guide you through the Nidhi company registration process.
We'll also go over the benefits and procedure of forming a Nidhi company, as well as the documentation needed, the features of a Nidhi company, and the advantages of forming a Nidhi company.
The Benefits of Nidhi Company Registration are listed below
Whenever you consider forming a Nidhi corporation, there is a list of advantages that you may take advantage of after completing the registration process:
- Legal identity of the individual
According to the Companies Act of 2013, a Nidhi company registration provides a legal identity apart from the promoters and shareholders. It allows the Nidhi Company to possess property and incur obligations in its name. Furthermore, the company's directors cannot be held accountable for these obligations or claim to the Nidhi Company's assets.
- The Nidhi Company has always been there
Because Nidhi corporations are regarded as distinct legal entities, the abrupt withdrawal or untimely death of their stockholders has no impact on their operations. Nidhi businesses continue to exist and operate until they are formally dissolved in accordance with the law's regulations.
- Rapid decision-making
Nidhi corporations, in compared to other types of Indian commercial entities, make it considerably easier to change their role. You only need to fill out and file a few documents with the MCA if you wish to make any changes to the Nidhi Company's management.
- Market reputation for trustworthiness
In terms of market credibility, Nidhi corporations are deemed to be more trustworthy than other types of business entities accessible. The Nidhi Company's registration is overseen by the Ministry of Corporate Affairs, which also keeps track on the company's activities.
What are the fundamental features of a Nidhi company registration?
When forming a Nidhi company, you should be aware that Nidhi company registration has its own set of features. Consider the following characteristics of the Nidhi firm registration:
- As previously said, Nidhi Company registration is governed by Nidhi Rules, 2014 and is handled under section 406 of the Companies Act, 2013.
- Nidhi company registrations are done in the same way as public limited company registrations are done.
- The Reserve Bank of India has the authority to offer orders to Nidhi firms while they are in operation. Nonetheless, the RBI's permission is not required for the registration of Nidhi firms.
- The Nidhi Company's primary goal is to borrow and lend money amongst its shareholders and members.
- It's important to remember that if you form a Nidhi firm, it must have at least 200 members during the first year of operation.
- After the Nidhi Company is registered, the suffix “Nidhi limited” must be added to the company name.
- It has been said that Tamil Nadu accounts for 80% of all Nidhi company registrations in India.
The Steps Involved in the Nidhi Company Registration Process
There is a set of actions that must be followed in order to register a Nidhi Company.
- Step1: Obtaining Digital signatures
Digital signatures (DSCs) are required for all prospective company directors. DSCs are issued by specified agencies.
- Step2: Nidhi Company name approval
There is an RUN service available that may be utilised to apply the Nidhi Company's name. You will be able to present the ministry of corporate affairs with two name possibilities (MCA). The suggested names must not be similar to any of the company's previously registered names.
- Step3: Filling the Spice Form
The next step is to complete out the Spice form once the name has been approved. You will be filling out paperwork like e-Memorandum of Association (MOA) and e-Articles of Association in this section (AOA). This phase requires you to supply all information about the company's stockholders.
- Step4: The Company's Incorporation
The entire procedure of Nidhi company registration takes approximately a month, after which you will receive a certificate of registration and a company identity number. The registration certificate serves as documentation of registration with the Ministry of Corporate Affairs (MCA).
Is it legal for Nidhi Company to acquire another company?
Nidhi corporations are prohibited from acquiring another firm by purchasing its securities. It doesn't even have the authority to take over another company's management or change the composition of its board of directors.
Nidhi Companies are subject to restrictions.
The Nidhi Rules, 2014 impose several limits on Nidhi companies. A Nidhi Company shall not:
1. Carry on the business of-
- Chit Fund,
- Hire Purchase finance,
- Leasing Finance,
- Insurance or Acquisition of Securities issued by anybody corporate.
2. Issue Preference Shares, Debentures, or any other type of debt instrument under any name or form.
3. Open a current account with any of the group's members.
4. Acquire another company through the purchase of securities, or control the composition of a company's Board of Directors in any way, or enter into any arrangement for management change unless it has been approved by a Special Resolution in its general meeting, as well as the prior approval of the Regional Director.
5. Conduct any business in its own name other than borrowing and lending.
(A Nidhi that has followed all of the provisions of the Nidhi Rules may provide lockers to its members on a rental basis, but the rental income from such facilities cannot exceed 20% of the Nidhi's gross income at any time.)
6. Accept deposits from or lend money to people who aren't members.
7. Pledge any assets that have been registered as security by its members.
8. Accept deposits from or lend money to any legal entity.
9. Enter into any Partnership Arrangements in connection with its borrowing or lending activities.
10. Issue or cause to be issued any deposit solicitation advertisement in any form.
(A private distribution of Fixed Deposit Scheme details among Nidhi members with the phrase "For Private Circulation to Members Only" will not be considered an advertisement.)
11. Provide any brokerage or incentive in exchange for member contributions, fund deployment, or loan granting.
ACTIVITIES PROHIBITED IN NIDHI COMPANY
MEMBERSHIP
(1) A Nidhi shall not admit as a member a corporation or a trust.
(2) Except as otherwise provided in these regulations, every Nidhi must guarantee that its membership does not fall below 200 members at any time.
(3) A minor must not be allowed as a Nidhi member; provided, however, that deposits made in the name of a minor by the natural or legal guardian who is a Nidhi member may be accepted.
NUMBER OF MEMBERS
A minimum of seven members are necessary to form a Nidhi Company, with three of those individuals serving as directors.
SHARE CAPITAL
To form a Nidhi Company, you'll need a minimum of 5 lakh rupees in equity share capital. The Nidhi Company is not permitted to issue preference shares.
AFTER INCORPORATION, A NIDHI MUST MEET THE FOLLOWING REQUIREMENTS:
- Nidhi Company must have at least 200 members, Net Owned Funds of not less than Rupees ten lakhs, and Unencumbered Term Deposits of not less than 10% of its Outstanding Deposits within one year of its incorporation.
- Within 90 days of the end of the first financial year, Nidhi Company must file Form NDH-1 (Return of Statutory Compliances), which must be certified by a CA/CS/CMA.
- If Nidhi Company fails to achieve the aforementioned conditions within one year of its incorporation, it must apply for an extension from the RD in Form NDH-2 within 30 days of the end of the first financial year. Within 30 days after receiving the application for extension, the RD will issue whatever orders it deems appropriate.
- If non-compliance with Point No. 1 continues beyond the second Financial Year, Nidhi will not take any new deposits from the start of the second Financial Year until it has met the requirements.
- Within 30 days after the end of each half year, Nidhi Company must file Form NDH-3 (Half Yearly Return), which must be approved by a CA/CS/CMA.
- Every Nidhi Director must also be a member of the Nidhi.
Frequently asked Questions [FAQs] on Nidhi Company
Q.: Are Nidhi Company's deposits safe and secure?
Yes, deposits with such organisations are safe and secure since the Reserve Bank of India and the Ministry of Corporate Affairs have enacted rules and regulations to assure deposit safety and security. The Nidhi Company is also required to follow the rules of the Central Government.
Q.: How does the Nidhi Company make use of the funds it has obtained?
The funds are used by the Nidhi Company to lend to shareholders in accordance with Nidhi Rules. It gives money to businesses and individuals in the form of small loans.
Q.: Who can join Nidhi Company as a shareholder or member?
Any person who is over the age of 18 according to the standard age proof can join the Nidhi Companies. Anyone interested in joining should have a valid photo ID and proof of address.
Q.: Can a Minor be a Member of Nidhi Comany?
A minor must not be allowed as a member of a Nidhi firm. However, deposits made in the name of a minor may be accepted if they are made by a natural or legal guardian who is a member of the respective Nidhi.
Q.: What documents are required to establish a Nidhi Company?
The following are the documents needed to register a Nidhi company:
1. All of the Directors' Digital Signature Certificates
2. Directors All of the directors must be identified.
3. a photocopy of your PAN card
4. a copy of your proof of identity (i.e. Voters ID Card, Driving License, Aadhar Card).
5. 2 picture (passport size)
6. Proof of Registered Office Address (Electricity Bill, Telephone Bill).
7. Rent agreement with rent receipt if the listed address is a rented premise.
Q.: Under what conditions might Nidhi Company lend to its members?
Nidhi can only grant loans to its members once they have given/provided some sort of security against the loan, such as gold, silver jewellery, or any other sort of financial security.
Q.: What are the Nidhi Company's restrictions?
Nidhi companies are not permitted to engage in the following activities:
1. They are not permitted to launch businesses such as chit funds, insurance, hire purchase finance, leasing finance, or the acquisition of company shares.
2. Nidhi Company is unable to issue securities such as preference shares, debentures, and other debt instruments.
3. They are not allowed to open any current accounts with the organization's members.
4. It is not permitted to form a partnership in the lending and borrowing company.
5. It is not permitted to purchase another company.
Q.: Whether Loan can be providing to non-members.
The mutual benefit idea has been to pool the savings of members and lend only to members, never having dealings with non-members.
Q.: Can Nidhi operate in businesses other than those stated above, such as (Chit Fund, Hire Purchase, Insurance, Investing, and so on)?
Nidhi are not permitted to engage in the business of chit funds, hire purchase, insurance, or any other type of business, including stock or debenture investments.
Q.: Is it possible for Nidhi Company to issue Preference Shares?
Nidhi will not be issuing preference stock.
Q.: What is the minimum number of members required by Nidhi Company?
Within one year of the commencement of these rules, every Nidhi shall ensure that it has at least two hundred members;
Q.: Is it possible to be a director of NIDHI Company without owning any stock?
The Director must be a Nidhi member. As a result, holding shares is a requirement for Nidhi Company directors.
Q.: In Nidhi Company, what is the maximum term for a director?
The Director of a Nidhi shall serve on the Board of Nidhi for a term of up to 10 years. Only two years after ceasing to be a Director will the Director be eligible for re-appointment.
Q.: What is the minimum nominal value of Nidhi Company's shares?
Every Nidhi is required to issue equity shares with a nominal value of at least ten rupees each.
Q.: What is the minimum shareholding requirement for depositors?
Every Nidhi must award at least ten equity shares or shares worth one hundred rupees to each depositor.
Q.: What is the greatest amount of money that Nidhi will accept as a deposit?
A Nidhi may not accept deposits that are more than twenty times its Net Owned Funds (NOF) as per its most recent audited financial records.
Q.: What is the highest amount of dividend a Nidhi can declare?
A Nidhi may not declare a dividend in excess of twenty-five percent, or such higher amount as the Regional Director may specifically approve in writing for reasons to be recorded in writing.
