Introduction

The term ‘Nidhi’ is used to describe a company that is incorporated with the aim of promoting the habit of saving and thrift among members. As per the provisions of the Nidhi Rules 2014, the company accepts deposits as well as lends to members for mutual benefit. In order to form a company called a ‘Nidhi company’, the Central Government must declare the company as a ‘Mutual Benefit Society’. The company is declared as such when its transactions are limited to its members and shareholders. A company called ‘Nidhi’ does not require a ‘RBI’ license to form. Therefore, forming a company is not a difficult process. A company can be registered as a ‘Nidhi Company’ if it is registered as a ‘Public Company’. The last part of the name of the company must be ‘Nidhi’.

Nidhi Company is defined in section 406 of the Companies Act, 2013. It should be read in conjunction with the Nidhi Rules 2014 and amendment rules 2022. The primary business of these companies is the lending and borrowing of money among the members. They belong to the non-banking financial sector. The Minister of Corporate Affairs governs these companies. Nidhi companies belong to the category of non-banking financial companies (NBFCs) and unlike other NBFCs these companies are partially regulated by RBI. This regulation deals with deposit acceptance activities

Composition and membership of Nidhi Company

A Nidhi company can be incorporated when there are a minimum of seven members. Out of the 7 members, 3 must be the directors of a company.

The following are the membership rules of a Nidhi company:

  • A body corporate or trust cannot be admitted as a member
  • A minor cannot obtain membership in a Nidhi company. Deposits may be admitted on behalf of the minor in their name. This is done only if they are made by a natural or legal guardian who is a member of a Nidhi company
  • Within a year of its incorporation, a Nidhi company needs to ensure that its membership comprises at least 200 members.

Features of Nidhi Company

The following are the characteristics of a Nidhi company:-

  • A Nidhi company promotes a behavior of savings in the middle and lower class.
  • Term deposits are accepted for occasional returns in the case of Nidhi companies
  • A loan is provided against collateral.
  • It becomes an easy source of loans for the members.
  • Savings and loans are given with minimal documentation.
  • The rigid membership structure of Nidhi companies becomes a secured means of investment.

The objective of Nidhi companies

 The main objects of Nidhi companies are as follows:-

  • The acceptance of Nidhi deposits and loans that may apply to members only
  • Grant loans to the members at a reasonable rate of interest on certain immovable properties, on deposits with the company, and valuable metal as well as jewelry
  • Encourage the members to save money
  • Restrict the business to only the members, as well as transact with only them

Benefits of a Nidhi company:

The following are the benefits of a Nidhi company:-

1. No third party: There is no third-party member involved hence one can manage the financial aspects more easily. The members can help each other. However, there are certain guidelines issued by the RBI that are to be complied with.

2. No need for a license: A Nidhi Company is to be registered as a public company and does not require any license from the Reserve Bank of India.

3. Low credit rate: Loans can be taken at low credit rates. The money can be invested in very profitable income sources.

4. Funding venture: Raising funds from Nidhi Company members is easier as all members follow a limited liability policy where the primary goal is to create a policy of savings.

5. Easy to manage: The financial processes at Nidhi Company can be followed easily. Simply put, one has to follow the guidelines and ensure that they lend or narrow accordingly. The government becomes lenient about the minimum equity shares, credit rates, and more.

6. Savings: When one becomes a member of a Nidhi company, one will be determined to save income for beneficial investments. The members will be motivated to increase their savings. This will enable them to invest and lend their money as well.

Conclusion

Nidhi companies are a special feature of the Companies Act, 2013.  Nidhi companies have been introduced to encourage savings among the members of the Nidhi company. Nidhi companies are not difficult to incorporate and with no licensing and lesser regulatory guidelines become cheap and low-maintenance forms of Companies under the Companies Act.

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