Nidhi Company
What is Nidhi Company Registration?
A Nidhi Company falls under the category of an NBFC (Non-Banking Financial Company) and is registered according to Section 406 of the Companies Act 2013. The primary focus of such an entity is to facilitate financial transactions involving lending among its core members. This operational model encourages members, also known as shareholders, to both save and invest their funds within the company itself.
Subsequently, the company employs these accumulated deposits to extend loans, offer advances, and invest in government-issued stocks, bonds, debentures, and securities on behalf of its members. Oversight for Nidhi Companies is provided by the Ministry of Corporate Affairs, while the Reserve Bank of India (RBI) assumes responsibility for monitoring all financial transactions conducted by the company.
Share Capital Required to Register a Nidhi Company
The minimum capital requirement to start a Nidhi Company is Rs.10 lakh (Increased via Nidhi (Amendment) Rules, 2022. Since Nidhi Company is registered as a Public Limited Company and must have “Nidhi Limited” as the last words of its name.
Advantages of Nidhi Company Registration
Registering a Nidhi Company offers several Benefits, making it an attractive option for those seeking to promote financial stability, savings, and mutual benefit among their members. Here are some of the Advantages of Nidhi company registration:
1. Encourages Savings and Thrift: Nidhi Companies are designed to promote a culture of savings and thrift among their members. By providing a platform for members to contribute and save, the company fosters responsible financial habits.
2. Easy Access to Funds: Members can access loans and advances from the company when needed. This can be particularly helpful for individuals who might face challenges in obtaining loans from traditional financial institutions.
3. Limited Liability: Members’ liability is limited to their shareholdings, which offers a degree of financial protection. This makes investing in a Nidhi Company a relatively safe option.
4. Community-Based Financial Assistance: Nidhi Companies are often formed within a specific community or group, creating a sense of trust and familiarity among members. This can lead to better financial cooperation and assistance within the community.
5. Mutual Benefit: The primary objective of Nidhi Companies is to provide mutual benefit to their members. Profits generated by the company are typically distributed among shareholders as dividends or reinvested for the members’ welfare.
6. Enhanced Financial Inclusion: Nidhi Companies cater to individuals who might have limited access to formal banking services. This helps in promoting financial inclusion and providing financial services to a wider demographic.
7. Simplified Operations: Nidhi Companies are subject to fewer regulatory requirements compared to traditional banks and NBFCs. This makes their operations relatively simpler and more accessible, especially for smaller groups.
8. Transparent Governance: Nidhi Companies operate with a defined set of rules and regulations, as outlined in their Memorandum and Articles of Association. This promotes transparency and fairness in their dealings.
9. Local Economic Growth: Nidhi Companies can contribute to local economic growth by encouraging financial activities within the community and supporting small businesses and personal ventures.
10. Flexible Membership: Nidhi Companies can have a relatively large number of members, allowing for a diverse group of individuals to come together for financial cooperation.
11. Controlled by Members: Nidhi Companies are owned and controlled by their members, ensuring that decisions are made for the collective benefit of the members.
12. Investment Opportunities: Members have the opportunity to invest in the company and earn dividends, providing an additional avenue for financial growth.
Activities Allowed in a Nidhi Company
Nidhi Companies are governed by specific regulations that dictate the activities they are allowed to engage in. As of my last update in September 2021, here are the activities generally allowed for Nidhi Companies:
1. Accepting Deposits from Members: Nidhi Companies can accept deposits from their members. These deposits are the foundation of the company’s operations and are used to provide loans and advances to members.
2. Lending and Advances: Nidhi Companies can extend loans and advances to their members for various purposes, such as personal, educational, or small business needs. These loans are typically given at reasonable interest rates.
3. Fixed Deposit Schemes: Nidhi Companies can offer fixed deposit schemes where members can invest lump sums of money for a specified period at predetermined interest rates.
4. Recurring Deposit Schemes: Nidhi Companies can provide recurring deposit schemes where members contribute a fixed amount at regular intervals, accumulating savings over time.
5. Savings Deposit Accounts: Nidhi Companies can offer savings deposit accounts to encourage members to save on a regular basis while earning interest on their deposits.
6. Issuance of Shares: Nidhi Companies can issue shares to their members, allowing them to become shareholders and participate in the ownership of the company.
7. Dividend Distribution: Nidhi Companies can distribute dividends to their shareholders from the profits generated by their activities.
8. Educational and Awareness Activities: Nidhi Companies often engage in activities aimed at promoting financial literacy and awareness among their members, helping them make informed financial decisions.
It’s important to note that Nidhi Companies are prohibited from engaging in certain activities to maintain their focus on mutual benefit and financial cooperation. Activities such as chit fund operations, trading in securities, and providing insurance services are generally not allowed for Nidhi Companies.
Procedure of Registering a Nidhi Company in India
The process of registering a Nidhi Company involves the following comprehensive steps:
Step 1: Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN)
The initial requirement is for all directors to acquire a Digital Signature Certificate (DSC) and a Director Identification Number (DIN) from accredited agencies recognized by the Ministry of Corporate Affairs (MCA). These agencies charge standard fees and necessitate basic documentation. The DSC serves as a secure method of electronically authenticating documents, ensuring their legality and credibility.
Step 2: Name Approval
In this phase, you need to propose three distinct names for your Nidhi Company to the MCA. From these suggestions, the MCA will select one that adheres to uniqueness and appropriateness criteria. The approved name remains valid for a period of 20 days.
Documents Required For Nidhi Company Registration
Following is the List of Documents required for registering a Nidhi Company in India:
1) Directors Identification Number, i.e., DIN
2) PAN number of the proposed directors and members
3) Residential proof and address proof of the proposed directors and members
4) Photographs of the proposed directors and members
5) Identification Documents like Aadhar card
6) Registered business place proof such as lease or rent agreement
7) Ownership proof of the business place in case the premises are owned
8) NOC if required
9) MOA i.e., Memorandum of Association
10) AOA, i.e., Article of Association
