The essential difference between Nidhi Company and Chit Funds is discussed in this article. Let...
A Nidhi Company is one of the types of Non-Banking Financial Company (NBFC) recognized under Section 406 of the Companies Act, 2013. The core business of a Nidhi Company is concerned with borrowing and lending money among its members.
In a literal sense, the word ‘Nidhi’ means ‘Treasure,’ and the main objective of a Nidhi Company is to try and develop the habit of saving by accepting deposits and providing loans amongst its members for their mutual benefit. It promotes small savings among the middle and lower-middle class.
In this blog, we will be learning about the Nidhi Company Registration process. Further, we shall discuss in detail the benefits of Nidhi Company in India.
About Nidhi Companies, it can be said that these companies acquire from their members gives out to their members. The activities carried out by Nidhi Companies fall under the ambit of RBI. Unlike other NBFCs, a Nidhi Company doesn’t require the approval of RBI for its incorporation.
Moreover, the Directors of a Nidhi Company are free from the shackles of eligibility norms of least qualification. A Nidhi company requires a minimum of 7 members and 3 directors to start with. It is mandatory for all Nidhi Companies to apply “Nidhi Limited” after their name.
Listed below are some of the benefits of Nidhi Company in India:
Easy Registration Process
If you wish to enter the NBFC sector with less investment, then Nidhi Company is the best option for you. A Nidhi Company requires a paid-up equity share capital of 5 lakhs to begin with, whereas an NBFC requires a net worth of Rs 2 crores. Other than low investment, the overall process of Nidhi Company Registration is free from all complexities, and one doesn’t need to attain a license from RBI to incorporate a Nidhi company. Moreover, the documentation process is also quite less, and the registration process gets completed within one or two weeks.
Minimum Paperwork and Compliance
Nidhi Company, by its nature of functioning, falls under the category of NBFC but does not require approval from RBI. Nidhi Companies are governed under the Nidhi Rules, 2014, and have to follow fewer guidelines imposed by RBI. RBI has exempted Nidhi companies from its stringent compliances, which make it easier to run a Nidhi Company in India.
Low Risk in Lon-Repayment
According to Nidhi rules, 2014, a Nidhi Company can accept deposits and provide loans to its members only. This way, the risk of non-repayment of loans is minimized. Since Nidhi Companies are both owned as well as managed by their members only, it reduces the intervention from outsiders and hence reduces the risk of non-repayment of loans.
Fulfilling the needs of Lower-Middle Class
Nidhi Companies play a very important role in meeting the demands of lower and middle-income society by extending financial support to them without any further involvement of documentation. Additionally, these Companies help their members to channelize their small savings and earn attractive interest on them.
Net owned fund
Net owned fund implies the amount of capital that has been spent by the owner in his business to raise funds.
Net Owned Funds = aggregate of paid-up equity share capital+ free reserves- accumulated losses and intangible assets appearing in the last audited balance sheet.
In the case of Nidhi Companies, the ratio of Net Owned Fund is 1:20, which means on investment of 1 rupee, one shall raise a deposit of twenty rupees.
Since Nidhi Companies extends the benefits of deposit and loans to its members only, this makes the entire process of availing loans comparatively less complicated than dealing with the Banks.
Among other benefits of Nidhi Company comes Micro- Banking that it offers. Nidhi Companies offers banking services to the rural and remote public of India, those who are let out of the traditional banking system. Areas situated in far-off locations receive micro banking services through Nidhi companies.
Following are the pre-requisites of Nidhi Company Registration in India:
Following is the list of documents required for Nidhi Company registration in India:
To start a Nidhi Company in India, it is required to incorporate a limited company under the Companies Act, 2013. Although, Nidhi company registration process is quite simple it is advised to seek the help of professionals to avoid any discrepancies.
Following steps should be followed to complete the process of Nidhi Company Registration:
Some of the restrictions of Nidhi Companies are as follows:
The statutory compliance for Nidhi Companies is mentioned in the Nidhi Rules 2014 and The Companies Act 2013. Compliances are necessary to generate accurate insights about the working and performance of the Company.