Nidhi means “Treasure”, Nidhi Companies are the companies which are involved in the activities of acceptance of deposits and lending to its members. They are mainly incorporated with the aim of cultivating the habit in its member of saving and using the resources in its best way without wasting. The core business activity of Nidhi Company is to borrow from its members and lend it to its members. It is a type of NBFC which is exempted from the provisions of RBI. In this article we described about Nidhi Company Incorporation Procedure. Overview of Nidhi Company? Nidhi Company is a type of Company which belongs to the Non-banking Finance sector.Nidhi Company has been recognized by the Companies Act, 2013 also.This type of Company is also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company.Likewise, other companies are also regulated by the Ministry of Corporate Affairs.Reserve Bank of India is empowered to issue directions to these companies in matters relating to the acceptance of a deposit.They are somewhat similar to NBFC but the basic difference is the funds contributed by Nidhi Company are from its members.They are governed by Nidhi Rules, 2014.They are incorporated into the nature of Public Limited Company so they have to comply with the rules mentioned in the Companies Act, 2013 as well as Nidhi Rules, 2014.As RBI has exempted Nidhi Companies to comply with its core provisions. So no RBI approval is necessary to register the company.The only provision of RBI which is applicable to Nidhi Companies is the ceiling on the interest rate payable on deposits.Nidhi Companies are barred from making advertisement in any manner. Restrictions on Nidhi Company As per the Nidhi Rules, 2014 there are some activities which are not allowed by Nidhi Companies and they are: Nidhi Companies are not allowed to carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities which are issued by any other body corporate.They are not allowed to issue debentures or any debt instruments in any form or issue preference shares.They are not allowed to acquire any other company unless they have obtained the approval of the Regional Director.They are not allowed to carry on any business activity other than borrowing or lending.They cannot provide vehicle loans.They shall not accept deposits from any other person except their members. Procedure for Nidhi Company Incorporation: As the first step to start a Nidhi Company is to incorporate a Private Limited Company. This Public Company is to be incorporated as per the rules of Companies Act, 2013.Hence, a minimum number of 3 Directors and seven members are required to incorporate a Nidhi Company.The object to be mentioned in the Memorandum of Association of Nidhi Company should be to cultivate the habit of thrift and saving among its members, receiving deposits from its members and lending to its members for their mutual benefit. Requirements for Nidhi Company Incorporation: Minimum paid-up Equity Capital Rs. 5, 00,000.It should have at least 200 Hundred members/shareholders.Should have net owned funds of Rs. Ten Lakhs.The unencumbered Deposit of the Company should not be less than 10% of the outstanding deposit.Net owned Funds to deposits ratio should not be more than 1:20. The Nidhi Company satisfying the above conditions required for Nidhi Company registration shall within 90 days from the close of 1st Financial Year or 2nd Financial Year (as may be applicable) file a Return of Statutory Compliances in Form NDH-1. In case the company is not able to meet the requirement the company shall within 30 days from the date of close of 1st Financial Year will to Regional Director in Form NDH-2. Rules Regarding Nidhi Company: The maximum loan which they can give to one person should not exceed Rs. 2, 00,000 if a deposit is less than 2 Crore.A maximum loan on gold they can provide is 80% of the value of gold.The maximum period of the gold loan is 1 year.The name must have the word “Nidhi Limited”. The repayment period of loan against property cannot exceed 7 years. Recommended Post: A Complete Guide on How to Register a Nidhi Company.