Nidhi Company Registration

Ideal for lending and borrowing amongst members

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Nidhi Company Registration

About Nidhi Company

The feature that differentiates Nidhi Company from other companies, NBFCs etc. is that “Nidhi” deals with “deposits from” and “loans to” it’s members (shareholders) only, and works for the mutual benefits of it’s members. Accordingly, certain exemptions have been provided to these companies in respect of annual compliances and taxation.

Nidhi Companies in India are formed, governed, and regulated by Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.

The objective of incorporating a Nidhi Company is to encourage savings amongst it’s members. And To fulfill this objective of cultivating the habit of saving amongst it’s members. Nidhi companies are allowed to take a deposit from and lend to the members only. In other words, the funds contributed to a Nidhi company come only from it’s members (shareholders) and are to be used only by the shareholders of the Nidhi Company.
The name “Nidhi” in Nidhi Company means “treasure” and it originates from the Hindi vocabulary.

Nidhi Company is a certain category of NBFC. Though not directly regulated by the RBI, still RBI has powers to issue directives for them related to their deposit acceptance activities. Moreover, because these “Nidhis” deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.

Nidhi Company Registration

Section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 is comprising of all the provisions which are in relation to the “incorporation and governance of the Nidhi Companies in India”.

The guidelines and directives for the Nidhi Companies are also issued by the RBI. These are mainly related to financial activities and investments by companies including the NBFCs.

Because of “Nidhi Companies” being engaged in the business of deposits and loans by it’s members only, certain exemptions have been provided to these companies, by the RBI.

The interest charged on the loans under a Nidhi Company is quite reasonable. The purposes these are sought for, includes, manufacturing/renovation of houses or child’s education, etc. The loans are provided against security only.

The deposits under Nidhis do not earn much interest as compared to deposits in the organized banking sector.

All lending and borrowing of the Nidhi Companies is done by it’s members, exclusively. Hence, such companies are also referred to as Mutual Benefit Societies. Because they work for the mutual benefit and welfare of all members.

If you are looking to start a business in financing or loans in India, then Nidhi Company is the best option for it.

Key Features

Some points about the working of Nidhi Companies in India, as mentioned in Rule-6 of the “Nidhi Rules of 2014”, are significant to note:

It cannot carry any of the following kinds of transactions. Such as leasing finance, hire purchase finance, chit fund, insurance, or acquisition of securities issued by any corporation.
It cannot accept deposits from or give loans to some external individual or corporation.
A Nidhi Company is not empowered to issue preference shares, debentures, or some other debt instruments in any form.
Companies Act 2013 and Nidhi Rules 2014 act as the governing bodies, which regulate the functions and operations of a “Nidhi Company” in India.
A “Nidhi Company” does not come under the purview of RBI. Therefore, it does not need any license from RBI to operate a loan business.
It is not entitled to perform either a “vehicle finance business or microfinance business” in India.
Within 12 months of registration, the number of members must be at least 200.
A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
The maximum rate of interest that can be offered on savings deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently.
The rate of interest that can be offered on Fixed and Recurring Deposits shall not exceed the maximum rate of interest prescribed by RBI for the NBFCs to be offered on deposits. The maximum limit for the rate of interest for NBFCs is also applicable to the Nidhi companies.
It’s operations must be limited to the district level for the first 3 Years. After completion of 3 years, 3 offices can be set up within the same district. For expansion out of the district, prior approval from the “Regulator Director” is required.
It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities, or Life Insurance Certificates.
Unencumbered deposits (Deposits which aren’t offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.

You can start your Nidhi Company at about Rs. 25,000 only.

Benefits of Starting a Nidhi Company

The central goal behind establishing a Nidhi Company is to encourage it’s members to save so that they can meet their financial requirements which arise from time to time. By being critical thinkers, they become self-sufficient and would meet all future expenses that may come up. And the benefit of getting a company registered as Nidhi doesn’t end there.

There are many more advantages to forming a Nidhi Company. Some are listed below:

Liability is Limited: Liability of Directors and shareholders of the Nidhi Company is limited. In case the company suffers from any loss and faces, financial distress in the course of it’s business activity, the personal assets of any of the Directors or members are not at risk of being seized by banks, creditors, and government.
Less Regulations: “Nidhi” companies are governed under the Nidhi Rules, 2014. The Central Government is the regulating authority, which controls it’s activities and operations. Guidelines imposed by the RBI on “Nidhis” are very few.
Better Credibility: “Nidhi” companies enjoy better credibility as opposed to any other member-based organizations like Trusts, Cooperative Societies or NGOs.
Better Option for Savings : The main purpose of a Nidhi Company’s incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves the other goal of it’s registration of being mutually beneficial. The Nidhi Companies are to “lend and borrow money” to and from it’s shareholders/members only.
Easy Access of Public Funds: The loans from the Nidhi Company come at a cheaper rate than loans from banks and other NBFCs, for it’s shareholders. And the process of obtaining the loan and customized services are much more convenient and quicker.
Ease of Fund: Nidhi Company is the safest and the cheapest way of inviting deposits from the general public. You just need to take them as registered members.
Micro Banking: Nidhis provide banking services to the remote and rural public of India which still is based in far-off locations and is, hence, devoid of accessing finance from national banks and NBFCs.
It acts as a “Better Credit Co-operative Society”: Nidhi Company is a close substitute for credit co-operative society. And, therefore, more preferred by the small financer. Once a Nidhi company has been registered, the members can avail of all the benefit’s of a credit co-operative society.
Simple Processing: Borrowing and lending to known persons, belonging to the same group, is much less complicated than dealing with banks, where the procedure is impersonal and fixed.
Easy Registration Process: The process to register a “Nidhi Company” with LegalRaasta is quite simple and transparent. You don’t need to take any license from RBI. You just have to incorporate your company as a public limited one with the MCA.
Single Regulatory Body: After the Amendment in Companies act 2013, Nidhi Companies are overseen by Nidhi Company Rules.
Low Capital Requirement: Ministry of Corporate Affairs (MCA) commands the minimum capital requirement of Rs.5 lakhs for the incorporation of a “Nidhi”. And, within 1-year, the capital has to be raised to at least Rs.10 lakhs. The Fees, DIN, DSC & Other Expenses are approx. Rs.25-30,000. These include Government fees that differ from State to State.
Fulfilling the needs of Lower & Middle-income groups: Nidhi Companies play an important role in meeting the needs of lower and middle-income groups by providing them financial help without complex formalities and documentation.
Easier Eligible: People getting minimum wages and belonging to lower strata are usually unable to take loans from traditional banks because of their high eligibility criteria. For them, Nidhi Company is a good option to obtain finance because of fewer conditions.
No External Involvement: Nidhi Companies take funds from their members and further provides loans to their members only. All transactions are done within this group only. So, no external factors are affecting the working of these companies. The investors/members themselves oversee the operations of the company.
Separate Entity: Nidhi Company is a separate legal entity that can acquire assets and incur debts in it’s own name.

Requirements for a “Nidhi Company Incorporation”

Given below are the essential conditions that must be met with for registering or operating a Nidhi Company.

Requirement before Registration

Minimum number of shareholders or members – 7
Minimum number of Directors -3
The minimum capital requirement is of Rs. 5 lakhs
DIN for Directors
Minimum 3 Directors.
No Preference Shares shall be issued.
The objective of the company shall be to cultivate the habit of saving by “receiving deposits” from and “lending to” it’s members only for their mutual benefit.

Requirement after Registration

By the end of the 1st year, the number of members or shareholders of the Nidhi Company must be 200 at least.
NOF should be more than Rs. 10 lakhs.
The ratio for NOF to Deposit should be more than 1:20.
Unencumbered deposits should exceed 10 % of outstanding deposits.

Procedure for Nidhi Company Registration

Though the process of registering a Nidhi Company is simple, still, assistance from a professional is advised for the completion of various complex forms and filing them within time. Moreover, the government portals and language are a bit on the difficult side, too.

And LegalRaasta is an expert in Nidhi Company Incorporations, with over 7 years of experience in the field and has successfully registered more than 500 Nidhi Companies. Our operations are spread all over India.

Step 1: Applying for DIN and DSC

First, the Directors of the Nidhi company are to apply for DIN (Director’s Identification Number) and DSC (Digital Signature Certificate). DIN is issued by the MCA and DSC is a digital signature used for all e-filing processes. This step can be skipped for the Director who already has DIN and DSC.

Step 2: Name Approval

Now, you need to choose and suggest 3 different names to the MCA for your Nidhi Company. Out of these 3 names, only one will be accepted for your Company by the MCA. The proposed names must be unique and not matching to the names of other already registered companies. As
per Rule 8 of the Company Act. The approved name will remain valid for 20 days only.

Step 3: MoA & AoA (Memorandum of Association) and AoA (Articles of Association).

Association) and AoA (Articles of Association). These must mention the main objective of incorporating a Nidhi company as a charity. The MoA and AoA are to be filed to the ROC (Registrar of Companies) with the subscription statement.

Step 4: Certificate of Incorporation (CIN)

It takes between 15-25 days to form a Nidhi company and get the incorporation certificate. This certificate declares that a company has been created and it mentions the company identification number (CIN) as well.

Step 5: PAN, TAN and Bank Account

Lastly, you need to apply for both “PAN and TAN”. The PAN and TAN are usually received within 7 working days. Later, you have to get a bank account opened by submitting the Certificate of Incorporation, MoA, AoA, and PAN to the bank.

Why Choose LegalRaasta

Get the edge over others with a highly qualified team of professionals at LegalRaasta. And get highly ranked professional services with full customer satisfaction. We assist with each step of a Nidhi company registration so that you can concentrate on your business.

We get companies registered anywhere in India
Experts are available 24×7
Fixed and Affordable Fee
No Hidden Cost means No Last-Minute Surprises
20+ Experienced & Senior CAs & CS
India’s Leading Online Portal for Company Formation

Documents Required

Passport Sized photographs of all the directors.
ID proof of all the designated directors and shareholders. (PAN card and Passport are valid).
Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).
Address Proof of the Company. Make sure that the address proof is not older than 2 months.
Copy of the Property papers (if the property is owned).
NOC (No-Objection-Certificate) from the owner (if the property is rented).

Compliances for Nidhi Company

NDH-1 Form: A Nidhi Company has to submit the list of members within 90 days at the end of every financial year, in this Form.
NDH-2 Form: It can request MCA for an extension in this Form, in case it has not been able to add 200 members in it’s first financial year.
NDH-3 Form: Other than the above NDH-1 Form, a half-yearly return is also required to be filed in NDH-3 Form.
Annual Returns with ROC: The Nidhi Company has to file it’s Annual Returns with MCA through Form MGT-7.
Profit & Loss Statement and Balance sheet: The financial statements and other related documents are to be submitted, annually, in Form AOC-4.
Income Tax Returns: Nidhi Company, like all other businesses, must file it’s Annual Income Tax Returns by 30th September of the following financial year.

Deposits & Loans

Here we understand the rules and regulations which govern “the loan and deposit” aspects under Nidhi Company.

Deposits under Nidhi Company

There are 3 types of deposits, which a Nidhi can accept. These are Savings, Fixed Deposit (FD), Recurring Deposit.
Nidhi can pay a maximum interest 2% plus the rate of interest payable on savings bank account by nationalised banks on the Saving Deposits and on Fixed Deposit (FD), Recurring Deposit not exceeding the maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.
The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed 1 lakh rupees at any point of time
Nidhi can deposit up to 20 times the funds invested.

Loans from Nidhi Company

Following types of securities can be accepted by Nidhi Company while providing loans to its members:
-> Gold, Silver and Jewellery
-> Immovable Property
-> Fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies.
The rate of interest to be charged on any loan given by a Nidhi shall not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method.
A member shall not be eligible for any further loan if he has borrowed any earlier loan from the Nidhi and has defaulted in repayment of such loan.

Restrictions on Nidhi Company

Though the sole purpose of Nidhi companies is taking up non-banking financial activities, they are prohibited to perform those transactions that may involve external factors, such as:

Advertise themselves to invite deposits,
Chit funds,
Leasing Finance,
Hire-Purchase finances,
Lotteries,
Insurance,
Sell, pledge or mortgage the assets kept with it as security for a loan,
Getting into a partnership for carrying out lending and borrowing activities,
Taking deposits or lending funds to someone other than its shareholders,
Issue preference shares, debentures or any other debt instruments,
Issue equity shares of the nominal value of over Rs. 10/- each,
Provide it’s deposit holders equity shares which are more than 10 in number and the value of the shares must be more than Rs.100/-,
Open a current account with it’s members (though it is allowed to open a Savings Account),
Lend to or take a deposit from a corporate,
Pay commission, fee or incentive for mobilizing deposits,
Carry on any other business than borrowing and lending to its members,
Hire a Purchase Financer,
Pay any brokerage for granting a loan to its members.

What is included in Our Nidhi Company Registration Package

DIN for 3 Directors

Digital Signature For 3 Directors

Name search & approval

MOA/AOA

Registration Fees

Company Pan Card

Frequently Asked Questions

What is Nidhi Company?

Who can get Nidhi Company Registration?

What is the process of Nidhi Company Registration?

What documents are required for Nidhi Company Registration?

What is the limit on deposits in Nidhi Company?

What is the maximum limit of saving bank account?

How many Directors are required in a Nidhi Company?

How do I choose the name of Nidhi Company?

What are Nidhi Rules?

Who can become a member of Nidhi Company?

What are the rules after Nidhi Company registration?

How long does the registration process take?

Can a salaried person open a Nidhi Company?

Is a separate office required?

What restrictions are there for Nidhi Company?

What is DIN?

What is DSC?

What is NOF?

Nidhi Company can take deposits on what basis?

What are the requirements for registration of a Nidhi Company?

Are the deposits with the company safe and secured?

In which cities does LegalRaasta incorporate Nidhi Company?

Why should I choose LegalRaasta for Nidhi Company registration?

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Updates as on March 21, 2020

March 21, 2020, To enhance transparency and investor-friendliness, Nidhi companies are now instructed to follow the time frame for applying in Form NDH-4. In case of non-compliance, a Nidhi Company will not be allowed to file Form No SH-7 and Form PAS-3
March 17, 2020, To protect the interest of investors, the Ministry has advised them to verify a Nidhi Company status before pumping in money. They can verify it from the notification in the official gazette.