A Nidhi Company in India is a type of non-banking financial institution (NBFC) that primarily deals with accepting deposits and providing loans to its members. It operates on the principle of mutual benefit, where its members contribute funds and receive financial assistance from the company. Nidhi companies are regulated by the Ministry of Corporate Affairs and are established as public limited companies. They are formed with the objective of promoting thrift, savings, and financial stability among their members.
BENEFITS
EASY FORMATION
Nidhi companies are relatively easy to form compared to other financial institutions, such as banks. The registration process is simpler and requires fewer regulatory approvals.
LIMITED LIABILITY
Members of a Nidhi company enjoy limited liability. This means that their personal assets are not at risk in case the company faces financial difficulties or becomes insolvent.
MUTUAL BENEFIT
Nidhi companies operate on the principle of mutual benefit, where members pool their funds to provide financial assistance to each other. This encourages savings, thrift, and financial stability among the members.
AFFORDABLE FINANCIAL SERVICES
Nidhi companies provide affordable financial services to their members, including savings accounts, fixed deposits, and loan facilities. These services are often tailored to the needs of the local community.
NO EXTERNAL SHAREHOLDING
Nidhi companies do not allow external shareholding, which means the ownership and control remain in the hands of the members. This helps maintain the focus on the welfare and interests of the members.
NO RBI REGULATIONS
Unlike banks and other NBFCs, Nidhi companies are not regulated by the Reserve Bank of India (RBI). Instead, they are governed by the Ministry of Corporate Affairs, which reduces the regulatory burden on these companies.
STEPS TO REGISTER
To register a One Person Company (OPC) in India, you need to follow these steps:
- DIGITAL SIGNATURE CERTIFICATE (DSC): The first step is to obtain a DSC for the proposed directors of the company. This is required for filing the online application and other registration documents.
- APPLY FOR DIRECTOR IDENTIFICATION NUMBER (DIN):Each director of the company must obtain a DIN from the Ministry of Corporate Affairs. This can be done by filing an online application with the necessary documents.
- CHOOSE A UNIQUE COMPANY NAME: Select a unique name for the Nidhi company. The name should not be similar to any existing company or trademark. Check the availability of the name on the Ministry of Corporate Affairs website.
- MEMORANDUM OF ASSOCIATION (MOA) AND ARTICLES OF ASSOCIATION (AOA): Prepare the MOA and AOA of the company. These documents outline the objectives, rules, and regulations governing the company's operations.
- FILE SPICE FORM: Fill the Simplified Proforma for Incorporating Company Electronically (SPICe) form with the required details, including the company name, registered office address, director information, and subscriber details. Attach the MOA, AOA, and other necessary documents.
- OBTAIN PAN AND TAN: Once the SPICe form is approved, the company will be allotted a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) by the Income Tax Department.
- OPEN BANK ACCOUNT AND DEPOSIT INITIAL CAPITAL: Open a bank account in the name of the company and deposit the minimum required capital as specified by the regulatory authorities.
- APPLY FOR CERTIFICATE OF COMMENCEMENT: After the company is incorporated, within one year of its registration, it must apply for a Certificate of Commencement of Business. This involves filing a form with the Registrar of Companies, providing details of the bank account, capital, and other required information.
- COMPLY WITH POST-INCORPORATION REQUIREMENTS: Fulfill other post-incorporation requirements, such as issuing share certificates to the subscribers, maintaining statutory registers and books, and ensuring compliance with applicable laws and regulations.
DOCUMENTS REQUIRED FOR NIDHI COMPANY
- Identity and address proof of directors.
- Passport-sized photographs of directors.
- Address proof of the registered office.
- No Objection Certificate (NOC) from the office owner.
- Memorandum of Association (MOA) and Articles of Association (AOA).
- Declaration and affidavit by directors and subscribers.
- Director Identification Number (DIN).
- Digital Signature Certificate (DSC).
- Subscribers' details.
REGISTERATION COMPLIANCES
Nidhi companies in India are required to comply with various regulations and compliances. Here are some key compliance requirements for Nidhi companies:
- MINIMUM NUMBER OF MEMBERS: Nidhi companies must have a minimum of 200 members within one year of incorporation.
- NET OWNED FUNDS: Nidhi companies must maintain a minimum Net Owned Funds (NOF) of Rs. 10 lakh or higher as per regulatory guidelines.
- DEPOSIT LIMITS: Nidhi companies cannot accept deposits exceeding 20 times their Net Owned Funds. They must ensure compliance with the prescribed deposit limits.
- RESERVE FUND: Nidhi companies must create and maintain a Reserve Fund, to which a certain percentage of net profits must be allocated until it reaches a specified limit.
- LOAN RESTRICTIONS: Nidhi companies can provide loans only to their members and cannot engage in any other form of lending, such as personal loans or commercial loans.
- RATE OF INTEREST: Nidhi companies must adhere to the maximum interest rates prescribed by the regulatory authorities for the deposits and loans they offer.
- FINANCIAL STATEMENTS: Nidhi companies are required to prepare and file annual financial statements, including balance sheets, profit and loss statements, and annual returns with the Registrar of Companies.
- STATUTORY REGISTERS: Nidhi companies must maintain various statutory registers, such as Register of Members, Register of Deposits, Register of Loans, etc.
- REGULATORY REPORTING: Nidhi companies need to file various periodic reports and returns with the Ministry of Corporate Affairs, including e-forms for annual compliances and other regulatory filings.
- AUDITING: Nidhi companies must undergo an annual audit by a qualified Chartered Accountant and submit audited financial statements to the regulatory authorities.
- GENERAL MEETINGS: Nidhi companies must conduct annual general meetings (AGMs) and other required general meetings, ensuring compliance with notice, quorum, and other provisions.
- REGULATORY COMPLIANCE: Nidhi companies must comply with all relevant provisions of the Companies Act, 2013, and other applicable laws, rules, and regulations.
FAQs
A Nidhi company is a type of non-banking financial institution that primarily deals with accepting deposits and providing loans to its members. It operates on the principle of mutual benefit.
Nidhi companies are distinct from banks as they operate on a smaller scale, serving a specific group of members, and have certain limitations and regulations imposed by the Ministry of Corporate Affairs.
No, Nidhi companies can only accept deposits from their members and cannot solicit deposits from the general public.
A Nidhi company must have a minimum of 200 members within one year of its incorporation.
No, Nidhi companies can only provide loans to their members and are restricted from engaging in any other form of lending.
Nidhi companies must adhere to the maximum interest rates prescribed by the regulatory authorities for the loans they offer.
No, Nidhi companies are not eligible for conversion into banks. They have their own distinct legal framework and purpose.
No, Nidhi companies are regulated by the Ministry of Corporate Affairs and do not require approval from the Reserve Bank of India (RBI).
Yes, a Nidhi company can operate in multiple states after fulfilling certain conditions and obtaining necessary approvals.
Yes, Nidhi companies must create and maintain a Reserve Fund, to which a certain percentage of net profits must be allocated until it reaches a specified limit.
No, Nidhi companies are prohibited from issuing equity shares. They can only issue preference shares to their members.
No, Nidhi companies cannot engage in chit fund activities. They are limited to accepting deposits and providing loans to their members.
Non-compliance by a Nidhi company can lead to penalties, fines, legal action, and even the cancellation of its registration.
Yes, a Nidhi company can change its registered office address by following the prescribed procedures and obtaining necessary approvals.
Yes, a Nidhi company can be voluntarily dissolved or closed down by following the applicable legal procedures and obtaining approvals from the regulatory authorities.