Know All about Nidhi Company Registration

A company can be incorporated for different purposes like if any person wants to start a business for profit then he may apply for the normal registration of the company. If the person wants to start a company for not for profit purpose then he may apply for the registration as per section 8 of the companies act, 2013.

Similar to the above, there is the concept of Nidhi Company defined under section 406 of the companies act, 2013. In this article, we will understand the concept of Nidhi Company, its advantages and its process for registration. The general meaning of the Nidhi is Treasure.

The meaning of the Nidhi Company can be understood by understanding its characteristics. It is basically a finance company which can accept deposits from its members and lends the same amount to other members of the company for mutual benefit. 

Nidhi Company’s main source of income is through interest on loans and its main expenditure is to pay the interest on deposits from FD, RD and savings Account.

A Nidhi Company can be open as a public company and the minimum share capital requirement for the registration is Rs. 5 Lakhs. Also, It is compulsory that all the directors of the company shall be the members of the company. In Simple words, they work like an NBFC however they didn’t have to comply with various rules of RBI.

Applicability for the Registration of the Nidhi Company

The Government has established the Nidhi Rules, 2014 which are required to be followed by the Nidhi Company registered under the provisions of Section 406 of the companies act, 2013.

Following are the benefits for the registration of the Nidhi Company

• Relaxation from RBI Regulations: Since the Nidhi Company can accept the deposit only from their own members hence the compliance requirement in relation to Nidhi Company is limited.

• Capital Requirement: As we have discussed above, the minimum share capital of the Nidhi Company is Rs. 5 lakhs and every Nidhi Company should have Net owned funds of Rs. 10 Lakhs or more within 1 year of registration.

• Easy to register: Nidhi company do not have to get a license from RBI which is a compulsory requirement in case of NBFC.

• Lower rate of interest: Mostly Nidhi companies are incorporated in mutual interest and it lends the money to its own members hence the rate of interest is comparably is lower than the market rate.

• Managing of Funds: The objective of the Nidhi Company is developing the habit in the lower section of the society to save funds for the future. The members contribute to the company and eligible for taking the credit.

• No Loan to an outsider: Since the company does not lend any loan to outsiders hence the chance for the bad debts is very low as compared to any NBFC.

Other Note:

• A Nidhi Company may take a maximum of 20 times of the net owned fund. Where Net owned fund means the total amount of funds invested by the company less any accumulated loss. For example, if you have invested Rs.2 crore, then you may raise funds maximum of Rs. 40 Crore.
• At least 200 persons should become the members of the company within 1 year of its incorporation.
• At least Rs. 10 Lakhs should be invested at the end of the 1st year.
• The company should keep at least 10% of the funds in the Fixed Deposits in a Scheduled Bank.
• Nidhi Company cannot issue the Preference Share, if the company has already issued the preference shares before the commencement of the act, it has to be redeemed it, in accordance with the specified rules under the Act.
• A Nidhi Company cannot carry out the following business:

1. Chit Fund
2. Hire purchase Finance or 
3. Leasing finance.

Procedure for the Nidhi Company Registration

For the registration of the Nidhi Company, following documents are required

• Permanent Account Number & passport size photo is required of each & every director & shareholder in India.
• Identity Proof which can be Aadhar card or voter ID or Driving license or passport.
• Address Proof which can be Bank statement or Mobile bill or Electricity bill or Landline bill.
• The Electricity bill/rent agreement and copy of No objection certificate from the owner of the place in which the company wants to establish its registered office.
• Declaration from the directors in a prescribed format in DIR-2
• Director Identification Number and Digital Signature of the directors.
• Reservation of Name of the company by filing Form INC-1
• Preparation of Memorandum of association and Article of Association.
• Filing of application for the registration of the company in form INC-7
• At last, DIR-12 for the appointment of directors and INC-22 

Compliance requirements for the Nidhi Company

Once the Nidhi company has been incorporated as per the requirements of the companies act, 2013, then it has to file the following statutory forms to ROC:

• NDH-1: It is a yearly form required to be filed with the ROC as per the terms of Nidhi Rules. IF the return is not filed within time, then the company shall lose the Nidhi Company status under the companies act, 2013.
• NDH – 3: It is a half-yearly return to be filed with ROC in order to check whether the Nidhi company is working as per the rules or not. This return is required to be filed until 30th September and 31st March each year.
• Additional other Compliance: There are other acts under which the company has to comply with the Companies Act, Income tax act, Money Laundering, etc.

Restriction on the Nidhi Company 

Since, the objective of the Nidhi Company is mutual benefit, hence to maintain this objective, companies act, 2013 has made the following restrictions on the Nidhi Company:

• One restriction is already discussed above, that the Nidhi Company cannot issue preference shares.
• Nidhi Company cannot acquire any other company by purchase of the securities or made control of the company in any manner
• Nidhi Company cannot open any current account jointly with its members.
• Take deposits or lend money to any outsider
• Carry any business other than the business of accepting and lending the money form its members.