Nidhi Company Registration

Nidhi Company

Simplify the process of incorporating your Nidhi company. Get started now!

Nidhi company provide a platform for members to access funds and enjoy financial stability.

Need guidance or assistance with your Nidhi company?

Contact Tax Mother now!

What is a Nidhi Company?

Know the benefits, compliance, and operations of Nidhi company.

A Nidhi company is a type of non-banking financial entity that functions for the mutual benefit of its members. It acts as a platform for its members to deposit funds and avail loans within the group. By fostering a culture of thrift and savings, Nidhi company encourage financial discipline among their members.

Nidhi companies, operating under the provisions of Section 406 of the Companies Act, 2013, are unique entities in the non-banking finance sector. They focus on facilitating borrowing and lending activities among their members, promoting thrift and financial cooperation.

Nidhi companies offer numerous advantages within the financial sector, providing a platform for mutual benefits among its members.

Key Facts about Nidhi Company

Unveiling Key Insights into Nidhi Company

Mutual Benefit FocusNidhi companies primarily operate to serve the mutual benefit of their members, promoting savings and financial assistance within the group.
Limited OperationsNidhi companies have restricted operations and cannot engage in broader financial activities like regular banks. Their activities are limited to their members.
No RBI Consent RequiredUnlike other financial institutions, Nidhi companies do not require consent from the Reserve Bank of India (RBI) for their establishment in India.
Incorporation as Public CompaniesNidhi companies are incorporated as public companies under the Companies Act, 2013.
Name RequirementNidhi companies must include the term "Nidhi Limited" at the end of their name, as per the regulatory guidelines.
Similar to NBFCsNidhi companies' operations resemble those of Non-Banking Financial Companies (NBFCs), which brings them under the purview of the Reserve Bank of India.
In-house Lending and BorrowingNidhi companies primarily focus on facilitating in-house lending and borrowing activities without the involvement of third parties.
Locker FacilitiesNidhi companies, as per the Nidhi Rules, 2014, are allowed to provide locker facilities to their members on a rental basis, subject to certain limits.

Conditions for Incorporating Nidhi Companies

To establish a Nidhi company in India, certain conditions must be fulfilled:

Minimum Number of MembersA minimum of 7 members is required, out of which at least 3 members should be designated as directors.
Minimum Equity Share CapitalThe Nidhi company must have a minimum equity share capital of Rs. 5 lakhs.
Unique NameThe company's name should be unique and end with the words "Nidhi Limited".
Limited Company StatusThe Nidhi company must have a limited company status under the Companies Act, 2013.
Inclusion of Company Object in MOAThe Memorandum of Association (MOA) must clearly state the company's objective of promoting thrift and savings among its members.

Post Incorporation Requirements

After incorporation, the Nidhi company must fulfill the following criteria within one year:

Membership StrengthThe company should have a minimum of 200 members (shareholders).
Net Owned Funds (NOF)The company's Net Owned Funds should amount to Rs. 10 lakhs or more. NOF includes paid-up equity share capital, free reserves, minus accumulated losses and intangible assets.
Term DepositsThe company should maintain unencumbered term deposits amounting to at least 10% of its outstanding deposits.
NOF to Deposit RatioThe ratio of Net Owned Funds to deposits should not exceed 1:20.

Nidhi Companies Restrictions

Restricted Undertakings for Nidhi Companies as per the Nidhi Rules

Restrictions on Deposits, Assets, and PartnershipsNidhi companies are restricted from accepting deposits from or lending money to non-members, pledging members' assets as security, taking deposits or granting funds to corporate entities, entering into partnership arrangements for borrowing or lending activities, or issuing advertisements soliciting deposits.
Restriction on Membership LimitNidhi companies cannot have more than 200 members. This limitation aims to maintain the close-knit nature of Nidhi companies and foster mutual benefit among their members.
Business LimitationsNidhi companies are not permitted to engage in certain business activities, including chit fund operations, lease finance, hire purchase finance, or acquiring securities issued by any other corporate entity. These limitations help maintain the focus of Nidhi companies on their core lending and borrowing functions.
Prohibition on Issuing Preference Shares, Debentures, or Debt InstrumentsNidhi companies are restricted from issuing preference shares, debentures, or any other form of debt instruments. This ensures that the financial activities of Nidhi companies remain aligned with their primary purpose of serving the financial needs of their members.
No Opening of Current Accounts with MembersNidhi companies are not allowed to open current accounts with their members. This restriction prevents the mixing of personal and company funds and ensures transparency in financial transactions.
Restriction on Acquiring Other CompaniesNidhi companies cannot acquire or purchase securities or gain control over the composition of the Board of Directors of any other company. This limitation prevents Nidhi companies from deviating from their core objectives and helps maintain their stability and focus.
Consent and Special Resolution for Management ChangesAny legal arrangement or change in the management of a Nidhi company requires the approval of the board through a special resolution and the consent of the Regional Director in the respective jurisdiction. This requirement ensures proper governance and oversight in management changes.
Limited Scope of BusinessNidhi companies are required to focus solely on their core activities of borrowing and lending. They cannot engage in any other business ventures unless they have complied with all the provisions of the Nidhi Rules. However, Nidhi companies that comply with the rules can provide locker facilities to their members on rent, as long as the rental income does not exceed twenty percent of the company's gross income during a financial year.
Prohibition on Paying Incentives for Deposit MobilizationNidhi companies cannot pay any form of brokerage or incentives to mobilize deposits from members or for deploying funds or granting loans. This restriction aims to maintain fair and transparent practices within Nidhi companies.

Benefits of Nidhi Companies

Nidhi companies offer the following advantages:

Easy FormationNidhi companies can be formed without requiring consent from the RBI, making the incorporation process relatively simple and hassle-free.
Limited Regulatory ComplianceNidhi companies enjoy certain exemptions from annual compliance and tax assessment, reducing the regulatory burden and allowing them to focus more on their core operations.
Lower RiskDue to the closely knit nature of Nidhi companies and their focus on serving the financial needs of their members, the risk associated with lending and borrowing is comparatively lower.
Net-owned Funding SystemNidhi companies operate on a net-owned funding system, wherein the members' deposits serve as the primary source for lending activities, creating a self-sustaining financial ecosystem.
Branches for NidhiNidhi companies have the flexibility to open branches, expanding their reach and catering to a wider member base.

Documents Required for Nidhi Company Registration

To register a Nidhi company, the following documents are required:

Passport-sized photographs of all the directors.
Identity proof of the directors and shareholders, such as PAN card, passport, or Aadhaar card.
Address proof of the directors and shareholders, such as passport, utility bills, or bank statements.
Copy of the property papers (if the property is owned).
NOC (No-Objection-Certificate) from the owner (if the property is rented).
A copy of the proposed company name with details of the suffix "Nidhi Limited".

Procedure to Incorporate Nidhi Company

The procedure to incorporate a Nidhi company involves the following steps:

Obtain Digital Signature Certificates (DSC) for the directors.
Apply for Director Identification Number (DIN) for the directors.
Reserve a company name and apply for incorporation through the Ministry of Corporate Affairs (MCA) portal.
Prepare and file the necessary incorporation forms, including SPICe+INC 32, SPICe+AOA (INC-34), SPICe+MOA (INC-33), and SPICe+AGILE PRO (INC-35).
Obtain the Certificate of Incorporation.

SPICE + INC 32: This web form used for the incorporation of a company in India. It is a simplified form that integrates multiple services, including name reservation, incorporation, and application for the allocation of Director Identification Number (DIN) and Permanent Account Number (PAN). It streamlines the process of incorporating a company by eliminating the need for separate forms and applications.

SPICE + AOA (INC-34): This web form associated with the incorporation process in India. AOA stands for Articles of Association, which is a legal document that defines the rules and regulations governing the internal management of a company. This form is used to draft and submit the company’s Articles of Association during the incorporation process.

SPICE + MOA (INC-33): This web form used for the incorporation of a company in India. MOA stands for Memorandum of Association, which is a legal document that outlines the company’s objectives, scope of activities, and its relationship with shareholders and the outside world. This form is used to draft and submit the company’s Memorandum of Association during the incorporation process.

SPICE + AGILE PRO (INC-35): This web form related to the incorporation process in India. It is used to apply for Goods and Services Tax (GST) registration, Employees’ State Insurance Corporation (ESIC) registration, and Employees’ Provident Fund Organization (EPFO) registration. This form enables businesses to simultaneously apply for these registrations along with the company incorporation process, streamlining the overall process.

Loan & Deposit under Nidhi Company

Exploring Loan and Deposit Mechanisms in Nidhi Company

Loan under Nidhi Company: Nidhi companies can offer various types of loans, including Gold Loan, Silver Loan, Property Loan, and others such as LIC and FD, with interest rates up to 20%. In case of non-repayment, legal actions can be taken against defaulting members.

Deposits under Nidhi Company: Nidhi companies can accept three types of deposits: Fixed Deposits (FD), Recurring Deposits (RD), and Savings accounts. They can offer interest rates up to 12.5% on FD and RD and 6% on savings accounts. Nidhi companies can accept deposits up to 20 times the funds invested, allowing them to facilitate greater financial assistance to members.

Essential Forms for Nidhi Company Filing

Nidhi companies are required to file the following forms:

NDH-1 FormThis form is used to submit the list of members within 90 days at the end of each financial year, ensuring transparency in member records.
NDH-2 FormIf a Nidhi company has not been able to add 200 members in its first financial year, it can request an extension using this form, providing flexibility in compliance.
NDH-3 FormApart from NDH-1, a half-yearly return is also required to be filed in this form, ensuring periodic reporting. Annual Returns with ROC: Nidhi companies must file their annual returns with the Ministry of Corporate Affairs (MCA) through Form "MGT-7," enabling proper record-keeping and compliance.
Annual Returns with ROCNidhi companies must file their annual returns with the Ministry of Corporate Affairs (MCA) through Form "MGT-7," enabling proper record-keeping and compliance.
Profit & Loss Statement and Balance SheetThe financial statements and other related documents are to be submitted annually in Form "AOC-4", ensuring transparency in financial reporting.
Income Tax ReturnsSimilar to any other business, Nidhi companies must file their annual income tax returns by 30th September of the following financial year, fulfilling tax obligations.

New Nidhi Company Rules

Simplifying Compliance for Financial Entities

The government has introduced the New Nidhi Company Rules to enhance regulatory compliance for Nidhi companies. Key provisions include:

Enhanced Paid-Up CapitalThe minimum paid-up capital requirement has been raised to ₹10 lakh, ensuring a stronger financial base.
Streamlined Application ProcessNidhi companies can file the NDH-4 form within 120 days, and the government will make a decision within 45 days, expediting the process.
Fit and Proper Person DeclarationDirectors and promoters must meet necessary criteria to ensure their suitability for managing the company.
Revised Net Owned Fund RequirementNidhi companies must maintain a minimum net owned fund of ₹20 lakh, ensuring financial stability.
Compliance Timeline for Existing CompaniesExisting companies are granted an 18-month grace period for compliance, allowing them to adapt to the new regulations.
Branch Expansion and ReportingNidhi companies can apply in Form NDH-2 for opening branches and must file financial statements and annual returns, promoting transparency in operations.