Nidhi Company Registration Procedure & Benefits in India

Shubham Chauhan

06 Sep, 2022

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.

Benefits of Nidhi Company in India

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^[1], 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.

Simple Processing

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.

Micro Banking

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.

Pre-Requisites of Nidhi Company Registration

Following are the pre-requisites of Nidhi Company Registration in India:

• Minimum number of Directors required: 3
• Minimum number of members required: 7
• Minimum Capital requirement for incorporation of a Nidhi company: Rs 5 lakh
• The words Nidhi Limited shall be suffixed in the name of a Nidhi Company.
• The main objective of Nidhi Company should be to foster the habit of saving among its members by receiving deposits and lending money to them when in need.

Documents Required for Nidhi Company registration

Following is the list of documents required for Nidhi Company registration in India:

• Identity proof of directors and shareholders of the Company which includes PAN card for Indian Nationals and notarized copy of Passport for foreign nationals.
• Address Proof of Directors and Shareholders
• Passport size photographs of all the Directors.
• Rent agreement copy (in case if rented)
• Electricity Bill, Aadhar card or other documents for address proof.

Requisites after Nidhi Company Registration

• Once you have completed the process of Nidhi Company Registration, following requirements needs to be fulfilled post-incorporation:
• The minimum number of members of the Company should be 200 by the end of 1st year after incorporation.
• The minimum Net Owned Fund should be Rs 10 lakhs or more.
• The ratio of net owned funds to the deposits shall not exceed than 1:20
• Moreover, as per the rule the unencumbered term deposits shall not exceed 10% of the outstanding deposits.

Nidhi Company Registration Process

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:

• The primary requirement to complete the process of Nidhi company registration is Director Identification Number (DIN) and Digital Signature Certificate (DSC), and generally, it takes 2 days to procure DSC.
• Further, all the required documents need to be submitted online.
• After receiving Director Identification Number (DIN) and Digital Signature Certificate (DSC), the next step is to file an application to the Ministry of Corporate Affairs (MCA) for the reservation of the name of the Nidhi Company. While selecting the name of the Company, it should be kept in mind that the name you chose is unique and doesn’t resemble the name of registered companies in the past. Spice+ web-based form helps in reserving the unique name.
• After the approval of the name by MCA, the next step is to prepare for the Memorandum of Understanding (MOU) and Articles of Association (AOA).
• Further, apply for incorporation.
• After receiving the incorporation certificate apply for PAN and TAN.
• The final step is to open the bank account.

Restrictions of a Nidhi Company

Some of the restrictions of Nidhi Companies are as follows:

• Nidhi Companies cannot carry on the business of chit fund, hire-purchase finance, leasing finance.
• A Nidhi Company cannot accept deposits from or lend to any person other than its member.
• They are not allowed to take deposits or lend money to any corporate body.
• Moreover, a Nidhi Company cannot carry on the business other than the business of lending or borrowing in its own name.
• Unlike and NBFC, a Nidhi Company cannot issue advertisements.

Mandatory Compliances for Nidhi Company

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.

• NDH-1: In this form a Nidhi Company is required to submit the list of members of the Nidhi Company within 90 days from the closure of first financial year after incorporation.
• NDH-2: If a Nidhi Company is unable to add 200 members in its first financial year, a Nidhi Company can request to MCA for an extension of time. One needs to file this return along with the fee for an extension of time to the Regional Director.
• NDH-3: This is a half-yearly return that is required to file with the registrar along with a fee after each half year.
• Income Tax Returns: A Nidhi Company must file annual returns in the following financial year by September 30.

Final Thoughts