Nidhi Company Registration in India
A Nidhi Company is a unique financial institution registered under the Companies Act, 2013, governed by the Ministry of Corporate Affairs (MCA) and regulated by the Nidhi Rules, 2014. These companies play a vital role in promoting savings and financial stability by encouraging members to invest and share benefits. In India, Nidhi Companies must meet specific requirements, including having a minimum of 200 members and ensuring that the company achieves a net-owned fund of at least INR 20 Lakhs within 120 days of incorporation.
Nidhi Companies are designed to limit deposit-taking and loan-providing to their members, making them a safe financial alternative for community-based savings and lending. These entities are regulated under the framework of Non-Banking Financial Companies (NBFC) but are not subject to the same RBI guidelines as commercial banks.
What is a Nidhi Company?
A Nidhi Company is a specialized form of Non-Banking Financial Company (NBFC), operating under Section 406 of the Companies Act, 2013 in India. The company's primary objective is to promote thrift and savings among its members and provide them with financial benefits. By accepting deposits and providing loans exclusively to its members, a Nidhi Company creates financial stability within its community.
Despite being part of the broader NBFC category, Nidhi Companies have unique operational freedoms, including exemptions from certain requirements of the Reserve Bank of India (RBI), making them an ideal choice for community-based savings and lending activities.
Registering a Nidhi Company offers several advantages for both management and shareholders while promoting financial security among its members:
- Simplified Formation Process: The registration process for a Nidhi Company is relatively quick and easy, making it an accessible option for those wishing to form such entities.
- Exemption from RBI Compliance: Unlike banks, Nidhi Companies are not bound by many of the RBI’s regulations, providing greater operational flexibility.
- Lower Risk Exposure: Since all operations (borrowing, lending, and depositing) involve only the members, there is a lower risk of financial losses, ensuring the safety of the company’s operations.
- Encouraging Savings Culture: Nidhi Companies promote the concept of saving for the future, enhancing financial security for their members.
- Cost-Effective Registration: The registration process for a Nidhi Company is cost-effective compared to other NBFCs, helping businesses access various financing options and loans.
- Optimal Funding System: Nidhi Companies follow a net-owned funding system, which ensures a more sustainable and efficient business model by utilizing available funds and resources.
The following documents are required for the registration process:
- Photographs of promoters and members
- PAN cards of all promoters and members
- Identity proof (Aadhar, Driver's License, Voter ID, Passport)
- Address proof (Utility bills or bank statements)
- Business address proof (Utility bills)
- NOC from premises owner (if applicable)
- Property documents or rent agreement (if applicable)
- Director consent (Form DIR-2)
- DSC and DIN for all directors
- Signed subscriber sheet
- Company registration questionnaire
The process for registering a Nidhi Company involves the following steps:
Step 1: Obtain DSC & DIN
- DSC (Digital Signature Certificate): Directors need to get a DSC to sign electronic documents.
- DIN (Director Identification Number): Directors must apply for a unique DIN through the MCA portal by submitting identity and address proof.
Step 2: Draft MOA & AOA
- MOA (Memorandum of Association): Defines the company’s goals, such as promoting mutual benefit by accepting deposits and lending funds.
- AOA (Articles of Association): Outlines how the company will be governed, including the powers of directors and members. Both MOA and AOA must be signed by the members.
Step 3: Name Approval
- Propose at least 3 names to the Ministry of Corporate Affairs (MCA) for approval.
- The name must be unique and reflect the company’s objectives. The MCA will approve one name.
Step 4: Incorporation Application
- File the SPICe+ form on the MCA portal with company details, including the name, registered address, and directors.
- Submit required documents like proof of address, director’s ID, and the signed MOA & AOA.
Step 5: Certificate of Incorporation
- After approval, the Registrar of Companies (RoC) issues a Certificate of Incorporation along with a Corporate Identification Number (CIN).
- The company is now legally registered.
Step 6: Apply for Nidhi License
- Apply for a Nidhi License within four months after incorporation.
- Ensure the company has at least 200 members and a minimum capital of Rs. 5 lakhs, and meets other regulatory conditions.
- Once approved, the company will receive the Nidhi License to operate legally.
How Does a Nidhi Company Operates?
A Nidhi company operates on the foundational principle of mutual benefit, focusing on serving its members. Below is a breakdown of how a Nidhi company functions:
- Membership: Individuals become members by purchasing shares in the Nidhi company. A key requirement for a Nidhi company is to have a minimum of 200 members within one year of incorporation.
- Deposits: Members contribute their savings to the company, which are then utilized to provide loans to other members. The company typically manages these deposits conservatively, ensuring both liquidity and the safety of funds.
- Loans and Advances: A Nidhi company offers loans to its members at interest rates that are often lower than those of traditional banks. Loan terms and conditions are customized based on the company’s policies and the needs of its members.
- Compliance with Regulations: Nidhi companies are required to comply with the provisions of the Companies Act and the relevant rules. They must file annual returns, maintain accurate records, and ensure adherence to legal requirements.
- Profit Distribution: The profits generated by the Nidhi company are usually distributed among its members as dividends, in proportion to their individual deposits.
- Governance: A Nidhi company is governed by a board of directors, elected by the members. The board is responsible for overseeing strategic decisions and ensuring the company complies with all legal and regulatory obligations.
Nidhi Company Registration Requirements:
To establish a Nidhi Company in India, the following criteria must be met:
- Minimum Members: At least 7 members are required at the time of incorporation.
- Minimum Directors: A Nidhi company must have a minimum of 3 directors to oversee operations.
- Maximum Members: The company can have up to 200 members in the first year after incorporation.
- Minimum Paid-Up Capital: A minimum of INR 10 Lakhs must be raised as paid-up capital.
- Net-Owned Funds: The company must maintain INR 20 Lakhs in net-owned funds within 120 days of incorporation.
- Deposit and Reserve Requirements: At least 10% of total deposits must be held as term deposits in nationalized banks or scheduled banks.
Legal Framework Governing Nidhi Companies:
Nidhi companies in India operate under a well-defined legal structure to ensure stability and compliance. Key regulations include the Nidhi Rules, 2014, the Companies Act, 2013, and oversight by the Ministry of Corporate Affairs (MCA).
Nidhi Rules, 2014
- Purpose & Definition: Focus on promoting savings and providing loans exclusively to members.
- Operational Guidelines: Set rules for activities, lending/borrowing restrictions, and member count.
- Financial Management: Regulate deposit handling, loan disbursement, and interest rate compliance.
Companies Act, 2013
- Incorporation & Structure: Governs Nidhi company formation, including MOA, AOA, and obtaining a Certificate of Incorporation.
- Corporate Governance: Guidelines for director appointments, record maintenance, and AGMs.
- Compliance & Reporting: Requires filing of annual returns and financial statements.
Ministry of Corporate Affairs (MCA)
- Regulatory Oversight: Ensures compliance with the Companies Act and Nidhi Rules.
- Approval & Registration: Responsible for name approval, incorporation forms, and issuing certificates.
- Guidance & Enforcement: Provides regulatory guidance and ensures compliance through audits and penalties.
Mandatory Compliance for Nidhi Companies:
Though Nidhi Companies are exempt from certain RBI regulations, they must comply with various statutory requirements, including:
- Filing Form NDH-1 within 90 days of the end of the financial year
- Filing Form NDH-2 if membership remains under 200 in the first financial year
- Filing Form NDH-3 for half-yearly returns with a certificate from a CA/CS
- Holding quarterly board meetings and an annual general meeting
- Filing Form AOC-4 and Form MGT-7 annually
- Regular maintenance of books of accounts
- Filing Income Tax Returns by September 30th annually
Prohibited Activities for Nidhi Companies:
Certain activities are strictly prohibited for Nidhi Companies:
- Chit fund operations
- Hire-purchase finance
- Leasing of finances
- Insurance or securities business
- Accepting deposits from non-members
- Lending funds to non-members
Timeline for Nidhi Company Registration:
The timeline for obtaining the Certificate of Incorporation is typically 30-45 days, depending on the speed at which documentation and forms are correctly submitted.
At FilingIn, we provide a seamless and efficient process for Nidhi Company Registration. Our expert team ensures that your application meets all the regulatory requirements and helps you navigate the complexities of compliance with ease. Contact us today to start your Nidhi Company journey!
Frequently Asked Questions in India
What is a Nidhi Company?
A Nidhi Company is a type of non-banking financial company (NBFC) that is formed to encourage savings and mutual benefits among its members. It operates mainly by borrowing and lending money to its members.
What are the main objectives of a Nidhi Company?
The primary objective is to cultivate a habit of saving and mutual benefit among its members by accepting deposits and lending funds.
Who can start a Nidhi Company?
A Nidhi Company can be started by Indian citizens. The minimum requirement is 3 directors and 7 members.
What is the minimum capital required for Nidhi Company registration?
The minimum paid-up capital requirement is Rs. 5 lakhs for a Nidhi Company.
What are the eligibility criteria to register a Nidhi Company?
The company must be registered under the Companies Act, 2013. It must have at least 3 directors, 7 members, and a minimum paid-up capital of Rs. 5 lakh.
How long does it take to register a Nidhi Company?
It typically takes 30-40 days for Nidhi Company registration, depending on the completeness of documents and government processing times.
Is there any restriction on the nature of business a Nidhi Company can engage in?
Yes, Nidhi Companies can only engage in activities like borrowing and lending money among members, and they cannot take public deposits or operate like commercial banks.
What are the benefits of registering a Nidhi Company?
Benefits include easy access to finance for members, a stable and growing business model, tax advantages, and protection of the interests of members.
Can a Nidhi Company issue shares to the public?
No, a Nidhi Company is not allowed to issue shares to the public or invite public deposits.
Can a Nidhi Company accept deposits from non-members?
No, Nidhi Companies are permitted to accept deposits only from their members.
What is the role of the Reserve Bank of India (RBI) in Nidhi Companies?
While RBI does not directly regulate Nidhi Companies, it ensures that these companies comply with the regulations of the Companies Act, 2013, and the Nidhi Rules, 2014.
What is the difference between Nidhi Company and other financial institutions?
Nidhi Companies are member-based and focus on mutual benefit among members, whereas banks and financial institutions serve the general public and have a broader scope of operations.
What are the annual compliance requirements for Nidhi Companies?
Nidhi Companies need to file annual returns with the Registrar of Companies (RoC), hold annual general meetings, and comply with other regulations set by the Ministry of Corporate Affairs (MCA).
What happens if a Nidhi Company fails to comply with the regulations?
Non-compliance can result in penalties, fines, or even the cancellation of the company’s registration.
Can Nidhi Companies operate outside India?
No, Nidhi Companies can only operate within India and must restrict their activities to Indian members and locations.
