Nidhi Company Registration

Ideal for Financial and Banking Services with many exemptions from various Regulations

What is a Nidhi Company and its Incorporation?

A Nidhi Company is a Structured small financial services provider which enjoys many exemptions from RBI regulations and other acts as well. Nidhi Company is a business structure incorporated under Section 406 of the Companies Act, 2013 read with Nidhi Rules 2014 and is governed by the Ministry of Corporate Affairs (MCA). Nidhi Company is mainly formed for developing the habit of savings among its members only for their mutual benefit. The major source of funding for the Nidhi Company is the contribution from the members.

Nidhi Company is a certain category of NBFC. Though not directly regulated by the RBI, still RBI has powers to issue directives for them related to their deposit acceptance activities. Moreover, because these Nidhis deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.

Benefits to Registering a Nidhi Company

  • Very Easy formation
  • Cost Efficient Registration
  • More Certainty
  • Less level of Risk – Non- payment loans
  • No RBI Regulations – less compliance
  • Less Capital Required
  • Base to Establish NBFC
  • Best Structure to provide Finance Services
  • Very Low Investment and NOF required
  • Better Credibility
  • No External Involvement
  • Loans with Minimum eligibility Criteria

The Documents required to incorporate a Nidhi Company

Passport Sized photographs of all the directors.

ID proof of all the designated directors and shareholders. (PAN card and Passport are valid).

Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).

Address Proof of the Company (Make sure that the address proof is not older than 2 months).

Copy of the Property papers (if the property is owned).

NOC (No-Objection-Certificate) from the owner (if the property is rented).

Prerequisites before Registration

  • Minimum number of shareholders or members – 7
  • Minimum number of Directors -3
  • The minimum capital requirement is of Rs. 5 lakhs
  • DIN for Directors
  • No Preference Shares shall be issued.
  • The objective of the company shall be cultivating the habit of saving by receiving deposits from and lending to its members only for their mutual benefits.

Scope of Business to Nidhi Companies

Deposits
Period Minimum period of 6 Months (except Recurring deposits which shall be for a minimum period of 12 Months) and a maximum period of 60 months.
Saving Account Deposits Maximum balance in a savings deposit account qualifying for interest shall not exceed Rs.1,00,000 at any point of time and the rate of interest shall not exceed 2% above the rate of interest payable on savings bank account by nationalised banks.
Term Deposits A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non- Banking Financial Companies can pay on their public deposits (12.5%).
Repayment Period A Nidhi Company:

  • Shall not repay within 3 months
  • After 3 months before 6 months no interest shall be paid
  • After 6 months before expiry interest shall be reduced by 2% from the rate which it was accepted.
Repayment in case of death In case of death of depositor, it shall be repaid to the surviving depositor or nominee or legal heir with interest upto the date of repayment without any reduction in the interest rate.
Loans
Ceiling Limit for Loans
Total Deposits accepted from Members Maximum

Loan

amount to A

MEMBER

a) Less than Rs.2.00 Crore Rs.2,00,000
b) More than Rs.2.00 Crore but Less than Rs.20.00 Crore Rs.7,50,000
c) More than Rs.20.00 Crore but Less than Rs.50.00 Crore Rs.12,00,000
d) More than Rs.50.00 Crore Rs.15,00,000
Ceiling Limit for Loans in case of Loss Where a Nidhi has not made profits continuously in the

three preceding financial years, it shall not make any

fresh loans exceeding 50% of the maximum amounts of

loans specified in clauses (a), (b), (c) or (d).

Default in Repayment A member who has defaulted in repayment of loan shall not be eligible for further loan
Loan against Gold, Silver and Jewellery Repayment period not exceeding One Year) Loan sanctioned would be Upto 80% of the value of the Gold, Silver and Jewellery.
Loans Against Immovable Property
  • Total loans against immovable property [excluding mortgage loans granted on the security of property by registered mortgage, being a registered mortgage under section 69 of the Transfer of Property Act, 1882 (IV of 1882)] shall not exceed 50% of the overall loan outstanding on the date of approval by the board.
  • Individual loan shall not exceed 50% of the value of property offered as security and the period of repayment of such loan shall not exceed seven years.
Loan against fixed deposit receipts, national savings

Certificates, other government securities and insurance Policies

  • Such securities duly discharged shall be pledged & maturity date of such securities shall not fall beyond the loan period or one year whichever is earlier:
  • Provided further that in the case of loan against fixed deposits, the period of loan shall not exceed the unexpired period of the fixed deposits.
Interest on loan The rate of interest shall not exceed 7.5% above the highest rate of interest offered on deposits calculated on reducing balance method. Nidhi shall charge the same rate of interest on the borrowers in respect of the same class of loans.
Locker Facility
Nidhis which have adhered to all the provisions of these rules & may provide locker facilities on rent to its members subject tothe rental income from such facilities not exceeding 25% of

the gross income.

Compliance Requirements

What are the Compliances of a Nidhi Company?

Compliances of a Nidhi Company are divided into three parts:

  • First is Pre-Incorporation Compliances,
  • Second is Post –Incorporation General Compliances,
  • Third is Post –Incorporation Annual Compliances, and
  • Fourth is Event-based Compliances.

Pre- Incorporation Compliances:-

  • Minimum of seven members is needed to start a Nidhi Company, out of which three members must be the Directors of the Company.
  • Minimum paid-up equity share capital of Rs. 5 lakh is required to start a Nidhi Company.
  • Not to issue preference shares and if it is issued the same to be redeemed as per the terms of the issue.
  • “Nidhi Limited” must be used as part of the name.
  • Minor cannot be a member of a Nidhi Company.
  • A trust or body corporate cannot be admitted as a member of Nidhi Company.
  • Cannot accept the deposit of more than 20% of Net Owned Funds.
  • Nidhi Company cannot open branches if it has not earned any profit after tax for consecutive three financial years.
  • The rate of interest on the loan shall not exceed 7.5% above the highest rate of interest offered on deposits.

Post- Incorporation General Compliances:-

The Nidhi Company must ensure the following compliances within a year of Nidhi Company registration:

  • The number of members should increase to at least 200 within one year of its incorporation.
  • The Net owned Fund should be Rs. 10 lakh or more.
  • The ratio of Net-owned Funds to the deposits must not exceed 1:20.
  • As prescribed in Rule 14 of the Nidhi Rules, 2014, the unencumbered deposits should not be less than 10% of the outstanding deposits.
  • Appointment of Chartered Accountant within 30 days of Incorporation
  • Filing of form INC-20A (to obtain certificate of commencement of business) within 6 months of incorporation.
  • Maintenance of Books of Accounts.
  • Maintain the statutory Registers.
  • Convene Statutory Meetings.

Post Incorporation Annual Compliances:-

It is mandatory for Nidhi Companies to follow annual compliances mentioned below:

Form No

 

Compliance Due Date
Form NDH-1 Return of Statutory Compliance. This form contains all the details regarding members, deposits, loans, reserves etc. for the full financial year. Within 90 days from the close of financial year along with fees. It must be duly certified by Practicing Professional.
Form NDH-2 Application for Extension of Time. This form is filled in case :

  • The company fails to add at least 200 members within one year of incorporation.
  • Failure to maintain the Net owned Fund to deposit ratio of 1:20
NDH-2 must be filed with the Regional Director within 90 days from the closure of financial year along with the prescribed fees.
Form NDH 3 Half-yearly return to be filed with the ROC (Registrar of Companies). Within 30 days from the conclusion of half a year. It must be duly certified by a Practicing Professional.
Form MGT-14 For filing the relevant Board Resolutions with ROC Within 30 days of passing of Board Resolution.
Form AOC-4 For filing financial documents and other supporting documents to the Registrar of Companies. Within 30 days of the annual general meeting.
Form MGT-7 Annual Return Within 60 days of the Annual General Meeting.
ITR-6 Income Tax Return By 30th September

Event Based Compliances:-

Generally, event-based compliances are required to file only once during the company incorporation process. Furthermore, these compliances must be followed when there is any change in the company’s structure which are non-periodical in nature.

Below is the list of event-based compliances:

  • Any change in the company’s name.
  • Change in Registered office address.
  • Appointment or Resignation or Removal of Director.
  • Appointment or Resignation or Removal of Auditor.
  • Any amendment in the company’s objective.
  • Transfer of shares.
  • Increase in the Authorized capital of the company.
  • Increase in paid-up Capital of the Company
  • Appointment of the Key Managerial Personnel.

What are the penalties for Non-Compliance for Nidhi Companies?

Timely filing of compliances is mandatory for every Nidhi company. Non- Compliance attracts penalty for the Nidhi Bank Operators.

  • If the company does not meet the compliance, the organization and the concerned officers will be fined an amount up to Rs. 5,000.
  • In the case of continuation of infringement, the company will be charged a further fine of Rs.500 per day.

Hence it is important to hire professionals to help in the compliance procedures.

Author Bio

Qualification: CS
Company: Garv Agarwal & Associates
Location: Jaipur, Rajasthan, IN
Member Since: 19 May 2020 | Total Posts: 2

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One Comment

  1. ca_rohan says:

    A Nidhi Company Accepting deposits from its members in Cash. Whether Section 269SS/T/ST of Income tax Applicable on such transaction or deposits?

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