Nidhi companies are created lend and borrow money to all the members. This is based on the principle of mutual benefits and inculcates the habit of saving among all of its members. These companies are more prevalent in the southern parts of India.
Nidhi Companies and all you need to know about its incorporation
A Nidhi Company is a kind of Non-Banking Financial Company (NBFC). Nidhi Companies are formed to borrow and lend money to its members. It is dependent on the principle of mutual benefit and instils the habit of saving among its members.
These companies are more operative in the southern part of India. Nidhi Companies do not need to register for a license from Reserve Bank of India (RBI). However, they have to be registered as a public company and their names should end with ‘Nidhi Limited’.
Prohibition in activities in a Nidhi Company
The Nidhi Companies have to abide by certain prohibitions which are imposed on them in terms of their activities. These activities can be listed as follows:
- Nidhi Companies cannot deal with chit funds.
- Nidhi Companies cannot deal with hire-purchase finance.
- Nidhi Companies cannot deal with leasing of finances.
- Nidhi Companies cannot deal with insurance business.
- Nidhi Companies cannot deal with securities business.
- Nidhi Companies cannot accept deposits from any other person except members.
- Nidhi Companies cannot lend funds to any other person except members.
What are the advantages of incorporating a company into a Nidhi Company?
There are various advantages which can be availed by registering as a Nidhi Company. These advantages can be summed up as follows:
- Legal existence: The registration of a company as a Nidhi Company makes it a separate entity. It enjoys separate legal existence as a registered Mutual Benefit Society. Being a separate entity from the members of the company, the company can acquire or dispose of assets in its own name.
- Limited liability: Depending on the amount invested or contributed by the members of the company, their liabilities will be limited. The members will be liable only for their share in the company. Personal liabilities of the members cannot be used to meet the company’s liabilities.
- Availability of funds: The members can borrow from the funds contributed by themselves at lower interest rates.
What are the minimum requirements that are to be fulfilled for the registration as a Nidhi Company?
There are certain requirements which are to be fulfilled by a company in order to to be registered as a Nidhi Company. The requirements may be summed up as follows:
- The company must be incorporated as a Public Limited Company under the Companies Act.
- The company should have a minimum of 7 shareholders.
- The company should have a minimum of 3 directors.
- The company should have a minimum of Rs.5 lakh of equity capital.
- The company should have a minimum of 200 members.
- The company should have Net Owned Funds worth Rs.10 lakh or more.
- The name of the company should end with ‘Nidhi Limited’.
- The objective of the company should be lending and borrowing of funds among the members only.
- The company must have unencumbered term deposits of 10% or more of the outstanding deposits.
- The company should have a Net Owned Funds to deposits ratio of 1:20 or less.
- The Director Identification Number (DIN) of all the directors has to be provided.
What are the documents that are needed to initiate the registration of a Nidhi Company?
The following documents must be submitted in order to get a company registered as a Nidhi Company:
- Ownership documents or a rent/lease agreement has to be provided as a proof of address of the registered place of business
- A No Objection Certificate (NOC) duly signed by the landlord or the owner of the place where the business is registered
- Identity proofs
- Address proofs of the members of the company
- Photographs of the members of the company
- Digital Signature Certificate (DSC) of the company
- Copies of PAN cards of the members
- Director Identification Numbers (DIN) of all the directors
- Certified copy of the updated Memorandum of Association (MoA) of the company
- Certified copy of the updated Articles of Association (AoA) of the company
What are the forms to be filed for the incorporation of a Nidhi Company?
In order to register a company as a Nidhi Company, the following forms have to be filed:
- INC 9:The INC 9 form is to be filed by all the subscribers to the Memorandum of Association (MoA)
- DIR 2: The DIR 2 form is to be filed by all the directors of the company. Declaration as per rule 5 and 6 of Nidhi rules 2014 has to be signed by all the subscribers
What is the procedure of incorporating a Nidhi Company?
The following steps have to be taken into consideration in order to register a Nidhi Company:
- DIN and DSC: The applicant has to get the Director Identification Number (DIN) and the Digital Signature Certificate (DSC) of all the directors of the company.
- Name approval: It is mandatory to have ‘Nidhi Limited’ at the end of the company name. Thus, the name of the company has to be approved in the form of a Public Limited Company with the words ‘Nidhi Limited’ in the end.
- Filing COI: The Conflict of Interest (COI) has to be filed by the applicant. This has to be filed in form INC- 7, INC- 22, and DIR- 12.
- Submission of details of the members: As per the requirements of registration, the company should have at least 200 members at the time of application. The details of all the members must be submitted to the Nidhi board under MCA/ROC.
What are the factors that should be taken into consideration while selecting a name for a Nidhi Company?
Name of a company plays a huge role as the name is the first impression of the company. The following factors are to be kept in mind while selecting a name for a Nidhi Company:
- Meaning: The meaning of the name is the first and foremost consideration to be taken. Ideally, the name should be relevant to the company’s activities.
- Size of the name: The name should be short and meaningful. It is important to keep it short as it also makes your prospective customers recall the name easily.
- Unique: The uniqueness of the name is very important. It should not resemble or be identical to the name of any existing company. That increases the chances of the name being rejected.
- Legal: The company’s name should not violate the Emblems and Names Act, 1950.
- No illegal or offensive names: The name of the company should not be against the law. Use of abusive words for the name, or usage of a name in a way which might be against the belief or customs of any caste, creed, or religion should be avoided.
- ‘British India’: The name should not have the phrase ‘British India’ in it.
Can a Nidhi Company have branches?
Yes, a Nidhi Company is allowed to have branches. However, in order to be eligible to open branches, the company should follow the following prescribed provisions:
- The Nidhi Company will be allowed to open branches only if it has earned net profits after deducting tax, for the preceding 3 financial years continuously.
- A Nidhi Company is allowed to open up to 3 branches only. All these branches have to be opened within the same district.
- A Nidhi Company has to seek and obtain prior permission from the Regional Director in case it wants to open more than 3 branches. These branches can be within the same district or in a separate district.
- The registrar has to be intimated within 30 days of opening every branch.
Frequently Asked Questions (FAQs) on Nidhi Companies:
- What is the minimum number of directors needed to register a company as a Nidhi Company?
- Can a Nidhi Company open branch offices?
- How many branches can be opened by a Nidhi Company?
- What is the eligibility to be a director in a Nidhi Company?
- Can I invest in a Nidhi Company?
- You have to be a citizen of India.
- You have to be at least 18 years old.
- You have to be a member of the Nidhi Company.
- Can a Nidhi Company provide funds to any individual seeking for a loan?
- How long does it take for a company to get registered as a Nidhi Company?
- Is a body corporate allowed to be a member of a Nidhi Company?
- Can the director of a Nidhi Company be a salaried person?
- What are all financial activities are prohibited for a Nidhi Company?
At least 3 directors are needed to apply and register as a Nidhi Company.
Yes, a Nidhi Company can open branch offices. Although the provisions for opening a branch office has to be met in order to be eligible.
A Nidhi Company can open only 3 branches within a district. In order to open more than 3 branches, the company has to seek the Regional Director’s approval for every additional branch.
A director has to be a member of the company and must comply with the requirements of Section 152(4) of the Companies Act.
You can invest in a Nidhi Company under the following conditions:
No, according to the prescribed guidelines a Nidhi Company can use the accumulated funds to give out in the form of loans only to the members of the company. Any other individual cannot apply for and get a loan from a Nidhi Company.
The registration process of a Nidhi Company can take up to 45 days.
No, a body corporate will not be admitted as the member of a Nidhi Company.
Yes, the director of a Nidhi Company can be a salaried person.
A Nidhi Company cannot deal in chit funds, hire-purchase funds, insurance business, leasing of finances, and securities business.