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Overview

NIDHI Company is a financial institution or a type of NBFC that is involved in depositing and lending money to their members. 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. In addition, is managed, as per the RBI’s guidelines.
 
The company’s members only can perform all the transactions . Since all the transactions are focused on the shareholders of the Nidhi Company, it is not required to receive a license from RBI, but it remains under the purview of the RBI. Therefore, the formation of the Nidhi Company is easy. Public Companies registered, as Nidhi Company should have “Nidhi Limited” as their last name.
 
The objective of starting 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.

Documents required for registration

1. Proof of the registered place of business (Ownership documents/ Rent / Lease Agreement)
2. No Objection Certificate (Signed from Landlord in case of rented premises)
3. Identity proofs
4. Address proofs of the members
5. Photos of the members
6. PAN card copies of the members
7. Digital Signature (DSC)
8. Director Identification Number (DIN) of the Directors
9. Memorandum of Association of the Company (MoA)
10. Articles of Association of the Company (AoA)

Procedure and Forms

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 TaxUpp is an expert in Nidhi Company Incorporations. Below is the procedure of forming a Nidhi Company:
 
1. Obtaining the DSC & DIN
 
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.
 
2. Name Approval
 
Now, you have 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.
 
3. Drafting MoA & AoA
 
MoA and AoA 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.
 
4. Certificate of Incorporation
 
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.
 
5. Apply for PAN & TAN
 
Lastly, you have 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.
 
Forms to be Filed:
 
INC 9 – To be filed by all the subscribers to MoA
DIR 2 – To be filed by all the directors of the company, deceleration as per rule 5 & 6 of Nidhi rules 2014 – also to be signed by all the subscribers

Eligibility for Nidhi Company Registration

1. Nidhi companies must have a minimum of 200 shareholders of the company. Only when a company has this minimum number of shareholders, they can apply for Nidhi company registration.
2. Any company wanting to register as a Nidhi company must have a minimum of Rs. 10 lakh of net owned funds.
3. The ratio between the net-owned funds and the deposits cannot be more than 1:20 for any companies which want to register for Nidhi Company.
4. The name of the company must always contain ‘Nidhi Limited’.
5. Companies registered under Nidhi company will be a public company.
6. The registering company must have paid equity share capital of Rs. 5 lakh.

Key Features of Nidhi Company

Some points about the working of Nidhi Companies in India, as mentioned in Rule-6 of the “Nidhi Rules of 2014”, are important to be noted:
 
1. 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.
2. It cannot accept deposits from or give loans to some external individual or corporation.
3. A Nidhi Company is not empowered to issue preference shares, debentures, or some other debt instruments in any form.
4. Companies Act 2013 and Nidhi Rules 2014 act as the governing bodies, which regulate the functions and operations of a “Nidhi Company” in India.
5. 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.
6. It is not entitled to perform either a “vehicle finance business or microfinance business” in India.
7. Within 12 months of registration, the number of members must be at least 200.
8. A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
9. The maximum rate of interest that can be offered on savings deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
10. Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently.
11. 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.
12. 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.
13. It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities, or Life Insurance Certificates.
14. Unencumbered deposits (Deposits which aren’t offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
15. Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.

Applicability of Nidhi Registration

The Centre made ‘Nidhi Rules, 2014’ for carrying out the objectives of ‘Nidhi’ companies. These rules shall be applicable to:
 
1. A Nidhi or Mutual Benefits registered under Section 620A(1)of Companies Act, 1956
2. Every company functioning on the lines of a Nidhi company or mutual benefit society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under Section 620A (1) of Companies Act, 1956
3. Every company incorporated as a Nidhi with respect to the provisions of Section 406 of the Companies Act, 2013.

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