According to Section 406 of the Companies Act, 2013, the Nidhi company is a type of non-banking financial corporation. Its members mostly lend and borrow money from one another. The terms mutual benefit funds, advantage funds, fixed funds, and mutual funds are also used to describe them. In India, these businesses are regulated by the Ministry of Corporate Affairs, which can give instructions about how deposit acceptance operations should be run. The main goal of these groups is to teach their members how important it is to save money and be careful with money. In the southern part of India, people like the idea of the Nidhi company registration a lot.
In this article, we’ll talk about what Nidhi company is, how to register it, and why that’s important. We will also try to understand the benefits of registering as a Nidhi company and how to register one.
It goes without saying that we have a lot to cover.
Therefore, let’s start by discussing our first topic.
What is Nidhi Company?
Nidhi Company Meaning: NIDHI stands for National Initiative for Developing and Harnessing Innovations. The Nidhi Company is a type of financial institution that lets its members put money in the bank and borrow money from the bank.
This business is registered under the Companies Act of 2013 and is run according to the rules set by the RBI. Members of the company are the only ones who can do business. Also, RBI has exempted the notified Nidhi companies from its core acts because all of the transactions involve the shareholders of the Nidhi Company. This is how Nidhi companies are different. The Ministry of Corporate Affairs (MCA) started Nidhi companies and they are connected to the MCA. Some of their decisions, though, are made by the MCA.
Nidhi Company Registration: Eligibility Criteria
Before you can sign up as a Nidhi Company, you must meet the following requirements:
- Nidhi companies must have at least 200 shareholders in addition to the core members. A company can only apply for Nidhi company registration if it has at least this number of shareholders.
- To become a Nidhi company, a company needs to have at least Rs. 10 lakh in net-owned funds. This is required for registration, so you must do it. A Nidhi company registration is not possible for any company with less than a certain amount of net-owned funds.
- In order for a company to register with Nidhi Company, the ratio of net-owned funds to deposits cannot be greater than 1:20. A Nidhi company registration cannot be done with a ratio greater than this.
- A company that wants to become a Nidhi Company must have at least 10% of its outstanding deposits in term deposits that are not tied down in any way. Term deposits of more than 10% are fine, but deposits of less than 10% are not enough to register a Nidhi company.
- Nidhi Limited must always be part of the name of the company.
- Companies that sign up with Nidhi will be open to the public.
- A 5 lakh rupee equity share capital payment must have been made by the registering company.
Benefits of Nidhi Company
1. Lower risk
A Nidhi company has less risk than any other company that does financial business. The Companies Act, of 2013, says that the members of these companies are protected by the fact that they have limited liability.
2. Savings and mutual benefits choices
A Nidhi company is made to help its members save more money. Also, Section 406 of the Companies Act of 2013 says that these companies are mutual benefit corporations.
3. Compared to a credit society
The Societies Registration Act tells credit societies what they need to do. There are more rules to follow when setting up a credit society. People choose Nidhi companies because they don’t have to follow as many rules.
4. Simple lending
Under Section 406 of the Companies Act of 2013, this kind of business is set up as a mutual benefit society. Because of this, most of the benefits go to the group’s members and stockholders. Aside from that, this kind of business can easily lend money to people.
5. Reduced capital needs
To start this business, you only need a small amount of capital. The main reason for this kind of registration is that a small amount of money is needed.
6. Management is simple to form
A candidate who intends to form a Nidhi corporation may select a group of individuals to carry out this process. After this business is set up, there is no use for outside management.
7. Raising funds
The main goal of this kind of business is to get money from people in the general public. Besides that, the Nidhi company is set up like an NBFC. This type of NBFC is involved in activities like accepting public deposits. As a result, it’s simple to raise money using this kind of enterprise.
8. Adherence compliance
Even if this business was set up according to the Companies Act of 2013, there is still less compliance than with other types of organisations. Even under the RBI Act of 1934, this corporation doesn’t have to follow many rules.
9. Less involvement of the RBI
The rules set by the NBFC must be followed by these types of organisations. Because of this, the Nidhi company has to follow the rules set by the RBI. Some parts of the RBI Act of 1934 don’t apply to these corporations, though.
10. Advantages of company status
This kind of business would be able to use the benefits of the Companies Act of 2013. The same limited liability status would be given to this type of organisation as to any other. Aside from that, the members and directors don’t have anything to do with the status of this type of entity.
Documents required for Nidhi Company Registration
The list of documents needed for Nidhi company registration is shown below:
1. Passport-sized images
2. NOC(No Objection Certificate), which has been signed by the owner or landlord
3. Digital Signature (DSC)
4. Director Identification Number (DIN) of directors
5. Company’s Memorandum of Association (MoA)
6. Company’s Articles of Association (AOA)
7. PAN card: This is required for the company’s financial transactions to be filed. The company’s taxes process also requires a PAN card.
8. Residence Card
9. Bank Statement
10. Address Proof
11. Driving License
12. Any other government-issued identification document that has an address
a) Residential Proof
b) Telephone Bill
c) Electricity Bill
d) Bank Statement
13. Passport: Only businesses whose director is foreign nationals are required to have passports. The requirement of a passport for Indian directors of Nidhi corporations is not applicable.
14. Due to the significance of the registered office in government-sponsored programmes and loans, registered office evidence is required for Nidhi company registration.
15. The Nidhi company registration application can be completed online, it should be noted. Once the registration money for the Nidhi firm has been paid in full, the registration form is sent for additional approval procedures. The registration process for the Nidhi Company is finished after submission.
Forms that need to be filled out for a Nidhi Company Registration
The following forms must be submitted in order to register a business as a Nidhi Company:
- INC 9: All of the subscribers to the Memorandum of Association must file the INC 9 form (MoA)
- DIR 2: All of the company’s directors must submit the DIR 2 form. The declaration must be signed by each subscriber in accordance with rules 5 and 6 of the Nidhi rules 2014
Nidhi Company Registration Process
The steps to getting Nidhi Company registered are as follows:
Step 1: Obtain DSC and DIN
A DIN (Director Identification Number) and DSC (Digital Signature Certificate) must be obtained by each Director as their first and most important step.
Step 2: Name approval
In the second step, shareholders or directors must apply for name approval by giving the MCA(Ministry of Corporate Affairs) three names they think would work. Also, the MCA will choose one name for the said Company from all the names that have been suggested. Additionally, all of the names that are suggested must be unique and not too similar to the name of a company that already exists. Also, Rule 8 of the Companies Act of 2013 says that the approved name will only be valid for 20 days.
Step 3: Drafting of MOA and AOA
After the name is approved, the directors must submit the Application for Registration on form INC-32 along with the Articles of Association (AOA) and Memorandum of Association (MOA). Also, it’s important to remember that the documents must explain why a Nidhi Company is being formed.
Step 4: Certificate of incorporation
Most of the time, it takes between 15 and 25 days for a Nidhi company to get its Certificate of Incorporation. Also, this certificate is a piece of proof that the company in question has been set up. The Company’s CIN(Company Identification Number) is also written on this certificate.
Step 5: Applying for a TAN and PAN and opening a bank account
Last, the directors must apply for a PAN (Permanent Account Number) and a TAN (Tax Deduction Account Number). Shareholders or members of the company are also required to open a bank account. They can do this by taking the Certificate of Incorporation, copies of the Memorandum of Association and Articles of Association, and the PAN number to the bank.
Prohibition Activities in Nidhi Company
The Nidhi Companies are subject to a number of restrictions on their operations that they must follow. These activities include the following:
1. Chit funds are not acceptable to Nidhi Companies.
2. Hire-purchase financing is not something Nidhi Companies can do.
3. The Nidhi Companies cannot engage with financial leasing.
4. The Nidhi Companies cannot engage in the insurance industry.
5. Nidhi Companies cannot engage in securities transactions.
6. Nidhi Companies are only permitted to take deposits from members.
7. Nidhi Companies are only permitted to lend funds to members.
Disadvantages of Nidhi Company
1. Insufficient fundraising
The amount of funds raised is proportional to the number of members.
2. Limited credit availability
When fundraising is constrained, loan availability is likewise constrained.
3. Subject to RBI observation
Even if the Reserve Bank does not impose rigorous regulations on Nidhis, their activities, notably their deposit acceptance procedures, are nevertheless administered by the Reserve Bank.
India’s financial markets are quite extensive, and the country’s financial requirements are likewise steadily growing in scope. In this regard, the Nidhi Company offers a novel approach to the market for financial services. Because of the numerous advantages it offers, a sizable number of people from all across India are drawn to the concept and are now in the process of registering with the Nidhi company.
1. How many directors must a firm have in order to be registered as a Nidhi Company?
Ans: To apply and register as a Nidhi Company, you must have at least three directors.
2. Can a Nidhi Company establish branch offices?
Ans: A Nidhi Company may really establish branch offices. Although there are conditions that must be met in order to operate a branch office.
3. Can a salaried individual serve as a Nidhi Company director?
Ans: Yes, a salaried individual may serve as a director of a Nidhi Company.
4. What kind of documentation should I provide if I don’t yet have an office?
Ans: You can submit your rental agreement and a NOC from the landlord for Nidhi company registration if you don’t own an office but are renting one.
5. What types of financial transactions are not permitted for Nidhi Companies?
Ans: A Nidhi Company is not permitted to conduct business in the areas of chit funds, hire-purchase funds, insurance, financial leasing, or securities.