Nidhi Company REGISTRATION
Nidhi Companies in India are created for cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to borrow from their members and lend to their members. Therefore, the funds contributed to a Nidhi company are only from its members (shareholders). Nidhi companies are minute when compared to the banking sector and are mainly used to cultivate a saving amongst a group of people. To learn more about starting a Nidhi Company in India, you can also refer to the article “Starting a Nidhi Company” found in the The Startup Trends platform. In this article, we mainly look at the nuances for registration of a Nidhi Company in India. Nidhi Companies are registered Limited Companies involved in taking deposits and lending to their members. The activities of a Nidhi Company does fall under the purview of Reserve Bank of India, as it is similar to an NBFC. However, as Nidhi Companies ONLY deal with shareholder-members money, RBI has exempted Nidhi Companies from the core provisions of the RBI and other regulations applicable to an NBFC. A “Nidhi company” is a company that manages “deposits from and loans to” it’s members (shareholders) only, and works for their mutual benefits. Accordingly, certain exemptions have been provided to a “Nidhi Company”, in respect of annual compliances and tax assessment.
Nidhi Companies in India are formed, administered, and controlled by Section 406 of the new, “Companies Act, 2013”, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.
Nidhi Company Registration
Section 406 of the “Companies Act, 2013” and the Companies (Nidhi Companies) Rules of 2014, provide all the arrangements concerning the joining and administration of a Nidhi Company in India. The rules and directives for the Nidhi Companies are likewise given by the RBI. These are chiefly identified with financial activities and investments by companies including the NBFCs. The interest charged on loans under a Nidhi Company is very sensible. The advances are given against security as it were. The deposits under Nidhi do not earn much interest as compared to deposits in the sorted out banking sector. All lending and borrowing of the Nidhi Companies are done by its members, exclusively. Consequently, such organizations additionally allude to Mutual Benefit Societies.
Benefits of Registering as Nidhi Company
There are various Benefits which can be availed by registering as a Nidhi Company. These advantages can be summed up as follows:
1. Legal existence: The registration of a company as a Nidhi Company makes it a separate entity. It enjoys separate legal existence as a registered Mutual Benefit Society. Being a separate entity from the members of the company, the company can acquire or dispose of assets in its own name.
2. Limited liability: Depending on the amount invested or contributed by the members of the company, their liabilities will be limited. The members will be liable only for their share in the company. Personal liabilities of the members cannot be used to meet the company's liabilities.
3. Availability of funds: The members can borrow from the funds contributed by themselves at lower interest rates.
Eligibility Criteria for NIDHI Company Registration
Given below is the eligibility criterion to fulfill before registering as a Nidhi Company:
1. Apart from the core members, Nidhi companies must have a minimum of 200 shareholders of the company.
2. Only when a company has this minimum number of shareholders, they can apply for Nidhi company registration.
3. Any company wanting to register as a Nidhi company must have a minimum of Rs. 10 lakh of net-owned funds. This is necessary for registration and must be followed. Any company having a lesser amount of net-owned funds is not eligible for Nidhi company registration.
4. The ratio between the net-owned funds and the deposits cannot be more than 1:20 for any companies which want to register for Nidhi Company. A ratio more than this is not accepted for a Nidhi company registration.
5. A company that wants to register as Nidhi Company must have a minimum of 10% of unencumbered term deposits of the outstanding deposits. Term deposits of more than 10% are acceptable but any less than 10% is not considered sufficient for Nidhi company registration.
6. The name of the company must always contain ‘Nidhi Limited’.
7. Companies registered under Nidhi company will be a public company.
8. The registering company must have paid equity share capital of Rs. 5 lakh Company.
Checklist to Register Nidhi Company
A Nidhi company is registered as a Public Limited Company and hence the minimum requirements to set it up is almost similar to that of a Public Limited Company, especially regarding the number of shareholders, directors, and name of the company. The only difference here relates to the primary business activity of the Nidhi company, which is fixed to accepting deposits and lending money to its members only. Given below is an elaborate list that must be checked before Nidhi Company registration in India.
1. At least 7 shareholders
2. At least 3 directors
3. A unique name that ends with the words “Nidhi Limited”
4. A registered business address
5. Minimum paid up equity share capital of Rs.5 lakhs
6. A Memorandum of Association containing the object of the Nidhi company as accepting deposits and lending money to its members for their mutual benefits.
Documents Required for Nidhi Company Registration
The following documents must be submitted in order to get a company registered as a Nidhi Company:
1. Ownership documents or a rent/lease agreement has to be provided as a proof of address of the registered place of business
2. A No Objection Certificate (NOC) duly signed by the landlord or the owner of the place where the business is registered
3. Identity proofs
4. Address proofs of the members of the company
5. Photographs of the members of the company
6. Digital Signature Certificate (DSC) of the company
7. Copies of PAN cards of the members
8. Director Identification Numbers (DIN) of all the directors
9. Certified copy of the updated Memorandum of Association (MoA) of the company
10. Certified copy of the updated Articles of Association (AoA) of the company
What is the process of Nidhi Company Registration?
Steps to get Nidhi Company Registration:
1. Obtaining DSC and DIN: Getting the DSC (Digital Signature Certificate) and DIN (Directors Identification Number) from the MCA-certified agencies is the first step for all directors. The agencies ask for basic documentation and charge standard fees for these services. DSC is used to sign the e-form and other documents electronically in a secure and legit way. It authenticates the document.
2. Name Approval: You have to propose 3 distinct names for your Nidhi company. The names should be original and not resemble any existing company. MCA will select one name from the three options. The selected name will be valid for 20 days only as per the Company Act rule 8.
3. Drafting Articles of Association and Memorandum of Association: You have to submit the articles of association and the memorandum of association to the Register of Companies (ROC) along with the statement of subscription. The main objective of the Nidhi company should be clearly stated in MoA and AoA.
4. Getting CIN (Certificate of Incorporation): It usually takes around 15-25 days to form a Nidhi company and get the registration certificate. This certificate will authenticate your company, and you will also receive the identification number (CIN).
You are almost ready to start your Nidhi company. At this stage, you have to apply for PAN, Bank account, and TAN for your company. It normally takes around a week to get the PAN and TAN, and then you have to open a bank account by providing documents like the certificate of incorporation MoA and AoA to the bank.
Important Compliance under Nidhi Company Registration in India
Pre - Incorporation Compliance: Some of the pre – incorporation compliances are compliances relation to maintaining minimum paid up capital, compliance related to company rules and regulations like a Nidhi Company will be acting as a public company, the main objectives of the Nidhi Company, the minimum number of members that are to be required, Nidhi Limited suffix must be added to the company’s name etc.
Post Incorporation Compliance: Rule 5(1) of the Nidhi Rules, 2014
Each Nidhi must make sure that, within a year after incorporation, it has:
Two hundred (200) members minimum
Net worth of at least Ten Lakh Rupees
A proportional (ratio) of net owned funds to deposits of no more than 1:20
Rule 14 of the Nidhi Rules, 2014
At least 10% of the outstanding deposits must be unencumbered deposits.
Every Nidhi is required by law to keep accurate books of accounts, statutory registers, and to periodically call statutory meetings in accordance with established procedures.
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