Nidhi Company is a financial non-banking organization (NBFC). It was created so that its members may borrow and lend money. It teaches the value of saving in its members and operates on the mutual benefit principle.
Typically, these businesses are found in the southern United States. The Reserve Bank of India (RBI) does not need Nidhi Company to get a license, making it simple to establish. It’s a public corporation, thus the last words of its name should be “Nidhi Limited.”
Nidhi company registration
Nidhi businesses are set up to lend and borrow money to all of the community’s members. This is built on the mutual benefit principle and encourages all of its members to save. In India’s southern states, these businesses are increasingly common.
Nidhi Company is a company that is based in India.
A Nidhi Company is a Non-Banking Financial Institution (NBFC). Nidhi Corporations are established to borrow and lend money to its members. It is based on the mutual benefit idea and encourages its members to save money.
These businesses are primarily active in India’s south. The Reserve Bank of India does not need Nidhi companies to apply for a license (RBI). They must, however, be registered as a public corporation with a name ending in ‘Nidhi Limited.’
The Nidhi Company’s Prohibition Activities
Certain prohibitions are imposed on the Nidhi Companies in terms of their operations, and they must adhere to them. Following is a list of these activities:
• Chit money are not accepted by Nidhi Companies.
• Nidhi Companies are unable to offer hire-purchase financing.
• Nidhi Corporations are unable to handle financial leasing.
• Insurance is not a business Nidhi Companies can handle.
• Nidhi Companies are prohibited from dealing in securities.
• Other than members, Nidhi Companies are not permitted to collect deposits.
• It is against Nidhi Company policy to lend money to anyone who is not a member.
The Advantages of Forming a Nidhi Company/Corporation
By registering as a Nidhi Company, you may have access to a variety of advantages. The following are a few of the benefits:
• Legal existence:
A Nidhi Company is a separate legal entity once it is registered. As a registered Mutual Benefit Society, it has a separate legal status. The corporation can buy and sell assets in its own name since it is a separate legal entity from its members.
• Limited Liability:
The company’s members’ obligations will be limited based on the amount invested or provided by them. Only the members’ shares in the corporation will be held accountable. The members’ personal obligations can’t be utilized to cover the company’s debts.
• Fund Flow:
Members can borrow at cheaper interest rates from funds they have contributed themselves.
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What are the prerequisites for being a Nidhi Company?
In order to be registered as a Nidhi Company, a business must meet certain standards. The following is a list of the requirements:
• Under the Companies Act, the business must be organized as a Public Limited Company.
• There should be at least 7 shareholders in the corporation.
• A minimum of three directors are required for the firm.
• A minimum of Rs.5 lakh in equity capital is required for the firm.
• A minimum of 200 people should be in the firm.
• Net Owned Funds of Rs.10 lakh or more should be held by the firm.
• The company’s name must finish in ‘Nidhi Limited.’
• The company’s sole purpose should be to lend and borrow money amongst its members.
• At least 10% of the outstanding deposits must be in unencumbered term deposits.
• The Net Owned Funds to Deposits Ratio should be less than 1:20.
• Each director must supply his or her Director Identification Number (DIN).
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Nidhi Company Registration (Documents Required)
In order to register a firm as a Nidhi Company, the following papers must be submitted:
• As proof of address of the registered place of business, ownership documents or a rent/lease agreement must be submitted.
• A signed No Objection Certificate (NOC) from the landlord or owner of the business location.
• Proofs of identity
• Company members’ address proofs
• Pictures of the company’s employees.
• The company’s DSC (Digital Signature Certificate).
• Members’ copies of their PAN cards
• All of the directors’ Director Identification Numbers (DINs).
• A verified copy of the most recent Memorandum of Association for the company (MoA)
• A certified copy of the company’s most recent Articles of Association (AoA)
A Nidhi Company must have a minimum of seven members, with three of them serving as directors.
Owners’ Funds vs. Share Capital
To form a Nidhi Company, you would need a minimum of 5 lakh rupees in equity share capital. Preference shares cannot be issued by Nidhi Company.
Two forms must be filled out and submitted.
- INC 9
- DIR 2
Forms should be completed in order to form a Nidhi Company.
The following forms must be filled out in order to register a firm as a Nidhi Company:
- INC 9:
All subscribers to the Memorandum of Association are required to file the INC 9 form (MoA).
- 2. DIR 2:
All of the company’s directors must complete and submit the DIR 2 form. All subscribers must sign the declaration in accordance with Nidhi regulations 2014, rules 5 and 6.
How can you form a Nidhi Company?
In order to form a Nidhi Company, the following measures must be taken into consideration:
1. DIN and DSC:
The applicant must get all of the company’s directors’ Director Identification Numbers (DIN) and Digital Signature Certificates (DSC).
2. Approval of the business name:
The addition of ‘Nidhi Limited’ to the company name is required. As a result, the company’s name must be authorized as a Public Limited Company, with the words ‘Nidhi Limited’ added at the end.
3. Conflict of Interest (COI) Form: The candidate must complete and submit a Conflict of Interest (COI) Form. INC-7, INC-22, and DIR-12 are the forms that must be filed.
4. Member information: The firm must have at least 200 members at the time of the application, according to the registration criteria. Under MCA/ROC, the Nidhi board must receive the names and addresses of all members.
Consider these factors before naming your Nidhi company.
The first impression of a firm is formed by its name. When choosing a name for a Nidhi company, consider the following factors:
• Meaning: The first and most important consideration is the meaning of the given name. The name should, in theory, be related to the business’s operations.
• Name length: The name should be brief and memorable. It’s crucial to keep it brief since it makes it easier for potential consumers to remember.
• One-of-a-kind: The name’s one-of-a-kindness is crucial. It should not be confusingly similar to or identical to the name of another firm. It’s more likely that the name will be rejected as a result of this.
• Legal: The name of the business should not be in violation of the Emblems and Names Act of 1950.
• No names that are unlawful or offensive: The company’s name should be legitimate. It is best to avoid using derogatory words for a name or using a name in a way that goes against any caste, creed, or religion’s beliefs or conventions.
• ‘British India’: The word ‘British India’ should be removed from the name.
To obtain ‘Nidhi’ status, several requirements must be met.
• It was registered for a year.
• Within one year of starting, the Nidhi Company should have at least 200 members.
• Furthermore, the net retained money must be valued at least Rs. 10 lakh. Net owned funds = equity share capital + free reserves (-) cumulative losses (-) intangible assets.
• The total amount of unencumbered term deposits must be at least 10% of the total amount of outstanding deposits.
• The ratio of net-owned funds to deposits should not be more than 1:20.
If Nidhi Company meets all of the aforementioned requirements, it must submit NDH-1 together with the required costs within 90 days of its establishment. The form must be certified by a professional CA, CS, or CWA.
Another financial year can be sought by filing NDH-2 to the Regional Director within thirty days after the conclusion of the first financial year.
If it still doesn’t meet the standards after the second fiscal year, it won’t be able to receive deposits until it does, and a penalty will be applied.
Is it possible for a Nidhi business to have many locations?
A Nidhi Company can have branches, yes. However, in order to be qualified to open branches, the business must adhere to the following guidelines:
• The Nidhi Company will be permitted to open branches only if it has consistently produced net profits after taxes for the previous three fiscal years.
• A Nidhi Company can only have three branches. All of these locations must be in the same geographic area.
• If a Nidhi Company intends to open more than three branches, it must request and gain authorization from the Regional Director beforehand. These branches might be located within the same district or in a different one.
• Within 30 days of each branch’s opening, the registrar must be notified.
Often Asked Questions (FAQs) Nidhi Companies
Q) How many directors does a firm need to be a Nidhi Company?
Ans: To register as a Nidhi Company, you must have at least three directors.
Q) Is it possible for a Nidhi company to build more branches?
Ans: A Nidhi Company can, in fact, establish branch offices. However, in order to be qualified, the requirements for operating a branch office must be satisfied.
Q) Is it possible for a Nidhi company to have many branches?
Ans: A Nidhi Company can only have three branches within a district. The corporation must request the consent of the Regional Director for each new branch if it wishes to open more than three.
Q) What are the requirements for becoming a Nidhi Company director?
Ans: A director must be a company member and abide by the Companies Act’s Section 152(4) criteria.
Q) Is it possible for me to invest in a Nidhi firm?
Ans: The following are the requirements for investing in a Nidhi Company:
1. To begin, you must be an Indian citizen.
2. You must be over the age of eighteen to participate.
3. You must be a Nidhi Company member in order to participate.
Q) Is it possible for a Nidhi Company to lend money to everyone who needs it?
Ans: No, a Nidhi Business can only utilize the collected cash to pay out in the form of loans to the members of the company, according to the approved standards. A loan from a Nidhi Company cannot be obtained by anybody else.
Q) How long does it take for a business to become a Nidhi business?
Ans: It might take up to 45 days to register a Nidhi Company.
Q) Can a Nidhi Company have a body corporate as a member?
Ans: A Nidhi Company will not accept a body corporate as a member.
Q) Can a Nidhi Company’s director be a salaried individual?
Ans: A salaried individual can serve as a director of a Nidhi Company.
Q) What are the financial activities that a Nidhi Company is not allowed to engage in?
Ans: A Nidhi Company cannot engage in the business of chit funds, hire-purchase funds, insurance, financial leasing, or securities.
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