What is Nidhi Company?
Nidhi Company is a type of NBFC (a non-banking finance company) registered under Section 406 of the Companies Act 2013. Its primary function is to accelerate lending and borrowing money between the prime members of the company. This helps inculcate the habit of savings among its members and fosters mutual benefit. The company then gives loans or advances to its member (or shareholders) and buys government securities/stocks/debentures/ bonds with the deposits. The Ministry of Corporate Affairs controls this type of company, and the RBI keeps an eye on all its money matters. These companies generally operate in the southern part of the country and are not required to receive a license from the Reserve Bank of India (RBI). It must be registered as a public company and must use ‘Nidhi limited’ at the end of its name.
What is the Process of Nidhi Company Registration?
Steps to get Nidhi Company Registration:
Obtaining DSC and DIN:
Getting the DSC (Digital Signature Certificate) and DIN (Directors Identification Number) from the MCA-certified agencies is the first step for all directors. The agencies ask for basic documentation and charge standard fees for these services. DSC is used to sign the e-form and other documents electronically in a secure and legit way. It authenticates the document.
Name Approval:
You have to propose 3 distinct names for your Nidhi company. The names should be original and not resemble any existing company. MCA will select one name from the three options. The selected name will be valid for 20 days only as per the Company Act rule 8.
Filling of SPICe+ Form:
After getting name approval, the details with respect to the Nidhi company registration have to be filled in SPICe+ form. It is a simplified method of incorporating company electronically. The form consists of the following -
- Details of the company
- Details of members and subscribers
- Application for DIN
- Application for PAN and TAN
- Declaration by directors and subscribers
- Declaration and certification by professionals
Drafting Articles of Association and Memorandum of Association:
You have to submit the articles of association and the memorandum of association to the Register of Companies (ROC) along with the statement of subscription. The main objective of the Nidhi company should be clearly stated in MoA and AoA.
Getting CIN (Certificate of Incorporation):
It usually takes around 15-25 days to form a Nidhi company and get the registration certificate. This certificate will authenticate your company, and you will also receive the identification number (CIN).
You are almost ready to start your Nidhi company. At this stage, you have to apply for PAN, Bank account, and TAN for your company. It normally takes around a week to get the PAN and TAN, and then you have to open a bank account by providing documents like the certificate of incorporation MoA and AoA to the bank.
What are to Documents Required for the Nidhi Company?
The following documents are required for the registration of a Nidhi company:
- Photographs of passport size
- NOC from the landlord/owner of the premises
- DSC of the directors
- DIN of the directors
- MoA of the company
- AoA of the company
- PAN card: It is essential for filing the financial transactions and taxation of the company
- Proof of address: Any government-issued identity proof with address such as bank statement, driving license, residence card, etc.
- Proof of residence: Any utility bill or bank statement with name and address
- Passport: It is mandatory only for foreign directors of Nidhi companies. Indian directors do not need to submit passport.
- Proof of registered office: It is important for availing government schemes and loans for Nidhi companies.
What are the Benefits of Nidhi Company Registration?
Nidhi company registration has multiple benefits and fosters saving habits among its members. Given below are the benefits of Nidhi registration -
Simplified Establishment:
Nidhi Company registration is a straightforward process that involves minimal complexity. The key requirements for setting up a Nidhi Company are having at least seven members, appointing three directors, and completing a hassle-free documentation process.
Exemption from Reserve Bank of India Regulations:
One significant advantage of a Nidhi Company is that it is not required to comply with the guidelines set by the RBI (Reserve Bank of India). This allows the Nidhi Company to establish its own rules and regulations, granting it greater flexibility and autonomy.
Reduced Financial Risk:
In a Nidhi Company, all lending, borrowing, and depositing transactions are carried out exclusively among the members. This closed-loop system significantly reduces the risk of encountering financial issues within the Nidhi Company, providing a sense of security for its members.
Affordable Registration:
Registering a Nidhi Company is a cost-effective option for directors, as the process is relatively simpler compared to registering other types of Non-Banking Financial Companies (NBFCs). This economical registration not only benefits the directors financially but also facilitates the acquisition of business loans when necessary, promoting the growth of the company.
Focus on Savings:
The fundamental concept and objective of a Nidhi Company revolve around promoting saving habits among the Indian populace. By emphasizing the importance of savings, Nidhi Company aims to foster a culture of financial stability and prosperity among its members.
Net-Owned Funding System:
A distinguishing feature of a Nidhi Company is its utilization of the net-owned funding system. This approach involves members investing funds directly into the business, thus raising capital. By adopting this system, a Nidhi Company becomes a cost-effective venture for its owners, facilitating business growth and expansion.
What are the Conditions to Get Nidhi Status?
To attain the coveted Nidhi Status, a Nidhi company needs to meet the following conditions within one year of incorporation -
- A Nidhi Company must have at least 200 members within one year of commencement.
- Additionally, the net owned funds should be ₹10 lakh or more. Net owned funds are calculated as: Equity Share Capital + Free Reserves - Accumulated Losses - Intangible Assets.
- Unencumbered term deposits must be 10% or more of the outstanding deposits, and the ratio of net owned funds to deposits should not exceed 1:20.
If the Nidhi Company meets these requirements, it must file form NDH-1 along with the prescribed fees within 90 days of the end of the first financial year after incorporation. The form must be certified by a practicing CA, CS, or CWA.
An extension for another financial year can be requested by submitting form NDH-2 to the Regional Director within 30 days of the end of the first financial year.
If the Nidhi Company still fails to meet the requirements after the second financial year, it will not be allowed to accept deposits until it complies with the provisions. Additionally, penalties will be imposed for non-compliance.
What Activities are Prohibited in a Nidhi Company?
A Nidhi company cannot deal in chit funds, lease finance, hire-purchase finance, insurance, or securities business. In addition to this, it cannot accept deposits or lend funds to any person who is not a member of the company. In other words, it can only lend money or accept deposits from its members. A Nidhi company is also not allowed to advertise itself or ask for any deposits.
What are the Documents Required for Nidhi Company Registration?
Here is a list of documents that are required to complete Nidhi Company registration -
- Proof of registered place of business
- Identity proofs
- No Objection Certificate
- Members Address Proofs
- Members Photos
- PAN card copies of the members
- Digital Signature Certificate (DSC)
- Director Identification Number (DIN)
- Memorandum of Association of the Company (MOA)
- Articles of Association of the company (AOA)
Nidhi Company plays an important role in financial inclusion. Now that you know about Nidhi company registration in India, its process, the documents required, and benefits, you can go ahead and register yourself under Nidhi company status. If you need assistance with company registration or have any queries, you can get in touch with our experts. Book an expert now!
Quick Turnaround Time
Trusted by Thousands of Businesses
Experienced Legal and Tax Professionals
