If we use the layman language, the General Meaning of Finance is Money. And of Finance Company as any Firm either Proprietor or Partnership Firm which deals in lending of money. In India a no. of people do the business of finance specially the LALA people which give the money on interest to their relatives or some known persons. However, in the eyes of law, the same is not legal but however, the people do this business at the back of eyes of law. When their business grows from one known person to many other people, they think of getting their firm registered and do the business legally.

But it has been seen that due to not much awareness among the people, they get the name registered with Trade Mark authorities or under Registration of Firm Act and take their firms as registered for carrying on their business for objects of financing. Such Registrations are not the Finance company registration under the law and these firms violate the provisions of the RBI Regulations or the other allied acts for carrying on the finance business.

So what are the basic registrations required to get the finance company/ Firm as legal firm status under the respective acts/ laws, to carry on the business with objects of business of finance/ lending business is the main question. There may be a no. of ways, but being a Company Secretary, in my point of view are the ways for getting the firms registered for doing the business as Finance Company which shall be valid under the respective acts and which shall allow the business concerns to carry on the business of lending and taking deposits from the general public. Following are the various types of Finance company registration:

1. CO-OPERATIVE SOCIETIES

An Act to consolidate and amend the law relating to co-operative societies, with objects not confined to one State and serving the interests of members in more than one State, to facilitate the voluntary formation and democratic functioning of co-operatives as people’s institutions based on self-help and mutual aid and to enable them to promote their economic and social betterment and to provide functional autonomy ,was being felt necessary by the various cooperative societies, and federation of various cooperative societies as well as by the Government. In order to achieve the objective The Multi State Cooperative Societies Bill was introduced in the Parliament. The bill having been passed by both the Houses of Parliament received the assent of the President on 3rd July 2002 and it came on the Statute Book as The Multi State Cooperative Societies ACT 2002 (39 of 2002).

2. NON BANKING FINANCE COMPANY (NBFC COMPANIES)

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 2013 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities etc. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).

A Company registered under Companies Act 2013 and desirous of commencing the business of Non Banking Financial Institutions as defined under Section 45 (1)(a) of RBI Act, 1934 should have a minimum new owned fund of Rs. 2 crores. Companies are required to submit its applications for registration in the prescribed format along with necessary documents with Reserve Bank of India for their verifications and in case the RBI is satisfied with the intention of promoters and the documents being provided by them, the certificate of NBFC shall be issued to them which comprises of two category.

Category A: These are those NBFC Companies which deal in advancing of loan as well as accepting of deposits

Category B: These are those NBFC Companies which deal in only providing of advances and loan to general public. The permission of accepting the deposits is not allowed to such companies under category B.

3. NIDHI COMPANIES

The Third and the trending way to get the Finance Companies registered is incorporating of Nidhi Companies. This is the trending way which is prevailing among a no. of promoters to incorporate the Nidhi Companies and to start the business of finance along with accepting the deposits.

Nidhi Companies were existed even prior to the existence of companies Act 1913. The basic concept of Nidhi is “Principle of Mutuality” (“Paraspara Sahayata”). Thus Nidhis function for the common benefit advantage of all their Members/Share holders. These companies are more popular in South India and 80% of Nidhi companies located in Tamil Nadu.

NIDHI COMPANY, is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. It is regulated by Ministry of Corporate Affairs. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhis deal with their shareholder-members only.

BENEFITS OF NIDHI COMPANIES

1. These are the mutual benefit companies being incorporated to benefit the members/ shareholders of the company

2. Company can accept the deposits and can advance the loans subject to restrictions being imposed under the act and allied rules.

3. Need not to have a Huge Net Worth of Rs. 2 crores as required for running NBFC Companies.

4. Need not to follow the stringent provisions issued by Reserve Bank of India from time to time as being followed in NBFC Companies.

Conclusion: The article conclude that there are a no. of ways where the intended promoters who wish to start their finance business can get themselves registered under various prevailing laws and acts. Hence, instead of carrying the unregistered Finance Firms better options shall be to choose any of the above or other options as may be suggested to them by their concerned Professions, as a safeguard from the future un-necessary litigations by the Government authorities.

CS Mohit Saluja, Mohit Saluja & Associates, 2nd Floor, Malhotra Complex, Sehdev Market, Jalandhar City, M- 9914558709, csmohitsaluja@gmail.com

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