How to Register a Nidhi Company in India?

Nidhi companies are established for initiating and promoting the practice of savings amongst its members. Therefore, they do not deal with the funds of any person other than their members. Traditionally, ‘Nidhi’ means ‘to treasure’. In the recent context, ‘Nidhi’ means to promote the mutual benefit of members. It is for this reason, Nidhi companies are also known by the name of Mutual Funds, Mutual Benefit Company, etc. Moreover, only individuals can become members of a Nidhi Company, who contribute their savings, which is the principal source of funds of a Nidhi Company. Such a company also provides loans to its members at a reasonable rate of interest for the construction of a house, repairs of a house, etc. Here we will tell How to Register a Nidhi Company?

Regulatory Framework Governing Nidhi Companies

As its operations are quite similar to that of NBFCs, Nidhi companies also come under the purview of the Reserve Bank of India (RBI). However, since its dealings in deposits and loans are only limited to its members, they are exempted from the core regulatory compliances of an RBI.

Legal Meaning of Nidhi Companies

As per the Companies Act^[1], only a public limited company having a minimum of 7 members and 3 directors can be incorporated as a Nidhi Company. The objectives of a Nidhi Company shall be well reflected in its Memorandum of Association as its object clause.

How to Register a Nidhi Company?

Now, when we are clear about the concept of a Nidhi Company, let’s take a look at the procedure to be followed for the Registration of Nidhi Companies:

1. Incorporate a public company as per the Companies Act with three directors and seven members;
2. The objectives for which the company is incorporated shall be inculcating the habit of savings among its members;
3. There shall be included in its name the words “Nidhi Limited”;

Once it is registered as a public company, then, within one year of the incorporation of a Nidhi Company, the following conditions must be satisfied:

• The minimum number of members shall not be less than 200;
• It shall maintain net-owned funds of not less than INR 10 lacs;
• The encumbered term deposits shall not be less than 10 percent of outstanding deposits;
• The ratio of net owned funds to deposits shall not be greater than 1:20.

Advantages of a Nidhi Company

 Due to its easy formation and limited rules for Nidhi Company offers the following advantages:

• Due to the closed formation of only its members, Nidhi companies are not covered under the strict vigilance of RBI;
• Such companies are established for the mutual benefit of their members, therefore they are quite beneficial for the lower and middle class of society;
• Financial services and support are made available at a lower rate than that of a market rate.
• The documentation and formalities are also at a minimum thereby inviting more members to put in their funds.

Restricted Activities of a Nidhi Company

 No Nidhi Company shall carry out any of the following activities:

• Carry on the business of Chit Fund, Hire-Purchase Finance, leasing activities or activities relating to insurance or purchase of any shares issued by body corporate;
• The issue of Preference Shares, Debentures or any other debt instruments;
• An opening of a current account with members and acceptance of deposits from any person other than its members.
• Acquisition of any company through the purchase of its shares;
• Carry on any activity other than the business of lending and borrowing;
• Any other activity not in the nature of the Nidhi companies.

Conclusion

On the whole, it can be said that the Nidhi Companies are an alternative to the banking system in the country, which caters to the financial needs and provides financial services to only its members. Its coverage is narrower than that of banks and has the functionality of a public limited company.