Nidhi Company Registration is a pivotal step for businesses in India specialising in borrowing and lending money within its members. Governed by the Ministry of Corporate Affairs, Nidhi companies operate under the premise of fostering the habit of thrift and savings amongst its members, offering a safe and reliable avenue for financial transactions. This article provides an insightful guide into the process of registering a Nidhi company, detailing the regulatory framework, essential requirements, and procedural steps needed to secure official recognition and commence operations legally.
What is a Nidhi Company?
A Nidhi Company is a type of non-banking financial company (NBFC) recognised under the Companies Act, 2013, in India. These companies are formed to cultivate the habit of thrift and savings among their members and to lend funds to their members only for their mutual benefit.
The key goals of a Nidhi Company include encouraging saving habits and thrift among its members, facilitating borrowing and lending activities exclusively among its members, and offering a secure platform for savings and lending within a community. Nidhi Companies are primarily involved in accepting deposits from members and providing loans to them, making them distinct from other NBFCs, which are more engaged in commercial activities.
Purpose and nature of Nidhi Company
Nidhi Companies hold a unique position in the Indian financial system, with their primary aim being to promote savings among their members. These companies stand apart as they can accept deposits from, and provide loans to, their members only. The word "Nidhi" originates from Hindi, meaning "treasure," reflecting their role in facilitating financial security within a closed group.
1. Category: Nidhi Companies are a form of Non-Banking Financial Companies (NBFCs), but unlike traditional NBFCs, they are not directly regulated by the Reserve Bank of India (RBI). However, the RBI does have the authority to issue directives regarding their deposit-related activities.
2. Member exclusivity: What distinguishes Nidhi Companies is that they operate solely with their members, who are also shareholders. This exclusive membership allows them certain exemptions from key provisions of the RBI Act and other regulations that apply to typical NBFCs.
3. Legality: Nidhi Companies are legally sound for accepting deposits and offering loans, but only within their specific member base. This limited engagement makes them a distinctive financial institution in India.
Understanding what a Nidhi Company is boils down to these core features and their purpose, which sets them apart from other types of companies in the financial landscape.
Requirement to be fulfilled for getting “Nidhi company” status
1. Membership requirement: Within one year of registration, a Nidhi Company must have a minimum of 200 members from the date of commencement.
2. Net owned funds: The company’s net owned funds should be ₹10 lakh or more. Net owned funds are calculated as:
Equity share capital + free reserves (-) accumulated losses (-) intangible assets.
3. Term deposits: The company must maintain unencumbered term deposits that are at least 10% of the total outstanding deposits.
4. Funds-to-deposits ratio: The ratio of net owned funds to deposits should not exceed 1:20.
5. Filing NDH-1: If the Nidhi Company meets all these conditions, it must file Form NDH-1 along with the prescribed fees within 90 days from the end of the first financial year post-incorporation. This form must be certified by a practising Chartered Accountant (CA), Company Secretary (CS), or Cost and Works Accountant (CWA).
6. Extension via NDH-2: If needed, an extension of another financial year can be requested by submitting NDH-2 to the Regional Director within 30 days of the end of the first financial year.
7. Consequences of non-compliance: If the 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 regulations, and penalties will be imposed.
Required documents for registering a Nidhi Company in India
To register a Nidhi Company in India you need digital signature certificates along with the following key documents:
- Directors Identification Number (DIN)
- PAN Number (Permanent Account Number)
- Residential proof and address proof
- Photographs of the proposed directors and members
- Identification documents like Aadhar card
- Proof of the registered business place, such as a rent agreement or lease
- Ownership proof of the business place
- NOC (No Objection Certificate) if required
- Memorandum of Association (MOA)
- Articles of Association (AOA)
Nidhi Company incorporation requirements before registering
The incorporation requirements for a Nidhi Company in India include:
- Minimum of 7 shareholders and 3 directors, with at least one director being an Indian resident.
- Minimum capital requirement of Rs. 5 lakhs, to be deposited in a bank account.
- Incorporation as a public limited company under the Companies Act, 2013.
- The company's name must incorporate "Nidhi Limited" as part of its official name.
- The company's objective must be specified in the Memorandum of Association (MOA) to carry out the business of a Nidhi Company.
Requirements After Registration
After registering a Nidhi company in India, the following requirements must be fulfilled:
- Opening of Bank Account: The company must open a dedicated bank account in the name of the Nidhi Company.
- Compliance with Statutory Audit: Conducting an annual statutory audit of accounts by a chartered accountant.
- Filing of Annual Returns: Filing of annual returns with the Registrar of Companies (RoC) within prescribed timelines.
- Maintaining Statutory Records: Ensuring proper maintenance of statutory records and registers as required by law.
Nidhi Company Registration Procedure
Incorporating a Nidhi company in India requires several important steps, including legal provisions for handling member defaults. Here’s a rephrased step-by-step guide to the Nidhi registration process:
1. Applying for DIN and DSC: The directors of the Nidhi company must apply for the Director's Identification Number (DIN) and obtain a Digital Signature Certificate (DSC). The DIN is issued by the Ministry of Corporate Affairs (MCA), while the DSC is required for all electronic filing procedures. Directors who already have a DIN and DSC can skip this step.
2. Drafting MoA & AoA: Prepare the Memorandum of Association (MoA) and Articles of Association (AoA), clearly outlining the main objective of establishing the Nidhi company. These documents, along with a subscription statement, must be filed with the Registrar of Companies (ROC).
3. Name approval process: Submit three preferred names for the Nidhi company to the MCA. The MCA will approve one name from the list. The chosen name must be unique and not currently in use. Once approved, the name is valid for 20 days.
4. Application for registration: After securing name approval, the directors must file an application for registration. This application requires the submission of the MoA, AoA, and other relevant documents to the MCA.
5. Certificate of incorporation (CIN): The Certificate of Incorporation is typically issued within 15–20 days by the relevant authority. Along with this certificate, the company is assigned a unique Company Identification Number (CIN).
6. PAN, TAN, and Nidhi bank account: Apply for the Permanent Account Number (PAN) and the Tax Deduction and Collection Account Number (TAN). Once these are acquired, open a bank account for the Nidhi company using the Certificate of Incorporation, MoA, AoA, and PAN.
These steps ensure a smooth process for incorporating a Nidhi company in India, facilitating the efficient operation of the company under legal compliance.
Compliance for Nidhi Company
Nidhi companies are required to follow several compliance measures to ensure smooth operations and meet regulatory standards in India. These include:
1. NDH-1 form: A list of members must be submitted within 90 days after the close of each financial year using this form.
2. NDH-2 form: If a Nidhi company has not reached the required 200 members in its first financial year, it can apply for an extension from the Ministry of Corporate Affairs (MCA) using this form.
3. NDH-3 form: In addition to the NDH-1 form, a half-yearly return must also be filed using this form.
4. Annual returns with ROC: Nidhi companies are required to file annual returns with the MCA through Form "MGT-7."
5. Financial statements: The company's financial statements, along with supporting documents, must be submitted annually in Form "AOC-4."
6. Income tax returns: Like other businesses in India, Nidhi companies must file their annual income tax returns by 30th September of the following financial year.
Salient features of Nidhi Company
The restriction of a NIDHI company's services to its members is one of its key distinguishing features. Since the company only lends to its members and accepts deposits from them, this significantly reduces the risk of loans not being repaid. Additionally, here are some of its important features:
- Encourages Savings: Promotes the habit of saving among members.
- Simple Investment Procedures: Provides straightforward methods for members to invest in profitable income sources.
- Facilitates Member Transactions: Eases the process for core members to lend to and borrow from one another.
- Investment in Government Securities: Utilises deposits to invest in government securities and bonds.
- Stable Investment Flow: Ensures a steady flow for profitable investments at reduced credit rates.
Challenges in India for Nidhi Companies
In India, Nidhi companies face several challenges that impact their operational effectiveness and growth potential:
1. Member specificity: Nidhi companies can only accept deposits from and lend money to their members. This limitation restricts their ability to attract a broader base of depositors, thereby capping the amount of capital they can raise. Since no outsiders are allowed to deposit money, the funds available for lending are constrained by the contributions of their members alone.
2. Limited lending capacity: The restriction to member-only transactions means that a Nidhi company's lending capacity is inherently limited. If the amount raised from members is insufficient, the company’s ability to provide loans to its members is diminished, potentially undermining the core purpose of its establishment.
3. Prohibition on advertising: Unlike other financial institutions, Nidhi companies are prohibited from publicly advertising their deposit schemes. They can only run advertisements within their member base, which limits their outreach and hampers efforts to attract new members.
4. Single ownership: Nidhi companies can only operate under their own name and are restricted to lending and borrowing activities exclusively among their members. This single-entity restriction can limit their operational flexibility and market presence.
5. Time-bound operations: Nidhi companies are allowed to operate their deposit plans for a maximum of five years. This time constraint can affect long-term planning and stability, as companies must frequently reassess and renew their operational strategies within a set timeframe.
These challenges collectively restrict the growth and operational efficiency of Nidhi companies, impacting their ability to scale and serve a broader community effectively.
Benefits of a Nidhi Company
The benefits of a Nidhi Company include:
- Encouragement of Savings: Nidhi Companies promote a culture of saving among members by accepting deposits and encouraging regular contributions.
- Access to Credit Facilities: Members of a Nidhi Company have easier access to credit facilities for various personal and business needs.
- Minimal External Interference: Nidhi Companies enjoy autonomy and self-regulation, reducing external interference in their operations.
- Simple Operational Procedures: The operational procedures of Nidhi Companies are relatively straightforward compared to other financial institutions.
Restrictions on Nidhi Companies
The restrictions on Nidhi companies include:
- Member-Only Transactions: Nidhi Companies can only engage in transactions with their members and cannot deal with the public at large.
- Deposit Limits: There are limits on the amount of deposits that a Nidhi Company can accept from its members, ensuring that it remains focused on serving small savers.
- Lending Restrictions: Nidhi Companies are restricted in the types of loans they can offer and are typically limited to lending for personal and business purposes among their members.
- Business Activities: Nidhi Companies are prohibited from engaging in certain businesses such as hire purchase financing, insurance, or chit fund activities.
Nidhi company registration fees
Nidhi companies in India face several challenges, primarily due to regulatory and operational constraints. Registration fees, which depend on the authorised share capital, can be burdensome for small businesses. Additionally, the Ministry of Corporate Affairs (MCA) charges for filing the SPICe+ form and obtaining the Certificate of Business Commencement (CBC), adding to the financial load. Stamp duty on the Memorandum of Association (MoA) further escalates costs. Operationally, limited public awareness, strict compliance requirements, and restricted services to members make it difficult for Nidhi companies to expand and compete with mainstream financial institutions.
Law governing Nidhi Company in India
In India, NIDHI companies are governed by Section 406 of the Companies Act, 2013, and the Companies (Nidhi Companies) Rules of 2014. These laws provide the framework for the establishment, regulation, and management of NIDHI companies. Chapter XXVI of the Companies Rules, 2014, outlines additional requirements for their operation. NIDHI companies are designed to encourage savings and financial inclusivity, with services limited to their members. They are also subject to periodic compliance and reporting obligations, ensuring transparency and adherence to regulations. These laws aim to ensure secure and ethical financial practices within NIDHI companies.
Conclusion
In conclusion, the registration process and operational framework of Nidhi Companies in India are governed by specific regulations to ensure transparency, accountability, and the promotion of savings and credit among members. Nidhi companies play a crucial role in fostering financial inclusion and empowering communities through accessible financial services tailored to the needs of small investors and savers.
Business loans can greatly facilitate the operations of Nidhi companies by offering necessary working capital to enable them to expand their member base and serve their community more effectively. Bajaj Finance offers competitive business loan interest rates and convenient repayment tenure, making these loans a wise financing option. This symbiotic relationship between business loans and Nidhi companies contributes to overall economic development and financial stability at the grassroots level.
