What is Nidhi Company ?
A 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 between their members. Nidhi Companies are created for cultivating the habit of saving amongst the members.
Nidhi Companies can accept/ lend funds only from/ to its members. They are regulated by Ministry of Corporate Affairs, Section “406” of Companies Act 2013 and Companies Nidhi Companies Rules, 2014 govern Nidhi companies. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities, However as Nidhi Companies only accept/lend funds only from/to its members, RBI has exempted Nidhi Companies from the core provisions or regulations applicable on NBFC.
You can download Exemption Notification in this regard: https://taxguru.in/income-tax/amendments-nbfc-regulations.html
Requirements for Nidhi Company:
1. The name must contain “Nidhi Limited”;
2. Nidhi company that has to be incorporated under this Act shall be a “Public Company”;
3. It must have a minimum paid up equity share capital of Rs. 5,00,000/-;
4. There will be no issuances of preference shares by Nidhi Company. (If such shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares);
5. The objective of Nidhi would be to imbibe in the members a habit of thrift and saving and the services would only be restricted to its members;
Post Incorporation Requirements for Nidhi Company:
Every Nidhi must, within a period of one year from the commencement meet all of the following criteria:
1. It must have minimum 200 members,
2. It must also ensure that net owned funds are Rs. 10,00,000/- or more,
(‘Net owned funds’ mean the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet),
3. It must also ensure that the ratio of net owned funds to deposit is not more than 1:20.
4. It must have unencumbered term deposits of not less than 10% of the outstanding deposits.
If the Nidhi Company satisfies above conditions, The Company shall within 90 days from the close of first financial year after incorporation, file NDH-1 duly certified by a Practicing CA/CS/CWA along with the prescribed fees.
In case at the end of first financial year Nidhi is not able to meet above requirements, Nidhi Company shall within 30 days from the close of first financial year, apply to the
Regional Director in form NDH-2 for extension of time along with the prescribed fees.
If even after second financial year Nidhi is not able to meet the above requirements, then the Nidhi Company shall not accept any further deposits till it complies with the provisions, and Nidhi will be liable for penal consequences .
Required Documents for Nidhi Company Registration
Apart from all these documents, Some other required documents will be prepared by your Corporate Professional i.e. CA/CS for submission to ROC.
Process of Registration of Nidhi Company
Usually Nidhi Company Registration Process takes up to 45 days, Registration of a Nidhi Company consists the following steps:
1. Minimum 7 Members and 3 Directors will be required to start the Incorporation of Nidhi Limited.
2. Apply for DIN and DSC.
3. After getting the DIN and DSC, file an application in INC-1 to MCA for reservation of name of Nidhi Company.
4. Once the name is approved, Prepare Memorandum of association and Articles of Association according to Nidhi objects and all other required documents carefully.
5. Apply for Incorporation.
6. Get Incorporation Certificate.
7. Apply for PAN and TAN
The Ministry of Corporate Affairs (MCA) has issued an integrated incorporation form INC-32. So now, an Company can be incorporated online by filling the Simplified Proforma for Incorporating Company Electronically (SPICe) form in Form INC-32 (using Digital Signature Certificate of the Director)along with (eMoA) in Form INC-33 and (eAoA) in Form INC-34.
Restrictions on Nidhi Companies
There are some restrictions on Nidhi Companies under Nidhi Rules, 2014. According to Rule ‘6’ of Nidhi Rules, 2014, a Nidhi Company shall not:
1. Carry on the business of-
2. Issue Preference Shares, Debentures or Any other debt instrument by any name or in any form whatsoever.
3. Open any Current Account with its members.
4. Acquire another company by Purchase of securities or control the composition of Board of Directors of any company in any manner whatsoever or enter into any arrangement for the change of its management unless it has approved by a Special Resolution in its general meeting and also obtain the prior approval of Regional Director.
5. Carry on any business other than borrowing/lending in its own name.
(Nidhi which have adhered to all the provisions of Nidhi Rules may provide locker facilities on rent to its members on rental basis, but the rental income from such facilities not exceed 20% of the gross income of the nidhi at any point of the time.)
6. Accept deposits from or lend to any person, other than its members.
7. Pledge any of the assets that have been lodged by its members as security,
8. Take Deposits from or lend money to any body corporate,
9. Enter into any Partnership Arrangement in its borrowing or lending activities,
10. Issue or cause to be issued any advertisement in any form for soliciting deposit,
(Private circulation of the details of Fixed Deposit Scheme among the members of Nidhi carrying the words “ For Private Circulation to Members only” will not be considered as an advertisement.)
11. Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
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