Table of Contents
What is Nidhi Company?
A Nidhi company is a type of non-banking financial company (NBFC) in India that focuses on borrowing and lending money among its members, who are also shareholders. The primary objective of a Nidhi company is to help its members save money and borrow money when they need it.
Nidhi Company Example
Imagine a small community of friends and neighbours in a rural village. They decide to form a Nidhi Company to support each other financially.
How Nidhi Company Works?
STEP 1: Register for Membership
Anyone in the community can join the Nidhi Company by becoming a member.
STEP 2: Make Regular Deposits
Members contribute a regular amount to a common fund.
STEP 3: Apply for Loans
When a member needs a loan, they can apply to the Nidhi Company. The loan is typically granted from the accumulated savings of the members.
STEP 4: Interest Rates for Loans
The interest rates on loans are usually lower than those offered by banks.
STEP 5: Governance
The Nidhi Company is managed by a committee of members.
List of Nidhi Companies in India
Here’s the example of Nidhi companies in India:
- Saraswat Nidhi Limited: One of the oldest Nidhi companies, focusing on savings and loans for its members.
- Matrubhumi Nidhi Limited: Encourages savings and provides loan facilities to its members.
- Siddhivinayak Nidhi Limited: Aims to promote savings while offering personal loans and other financial products.
- Karnataka Nidhi Limited: Focuses on creating a savings culture among its members and offers loans.
Eligibility for Registering Under Nidhi Company
1. Minimum Number of Shareholders
A Nidhi Company must have at least 200 shareholders within one year of registration. This is mandatory for maintaining the company’s registration status.
2. Net-Owned Funds Requirement
To register as a Nidhi Company, a minimum of ₹10 lakh in net-owned funds is required. This includes equity share capital and free reserves minus any accumulated losses and intangible assets.
3. Unencumbered Term Deposits
The company must hold unencumbered term deposits equivalent to at least 10% of its total outstanding deposits. Any amount lower than this disqualifies the company from registration.
4. Funds-To-Deposits Ratio
The net-owned funds-to-deposits ratio should not exceed 1:20. This ensures that the company’s deposits are proportionate to its owned funds, maintaining financial stability.
5. Company Name
The name of the company must include ‘Nidhi Limited’ to be eligible for registration as a Nidhi Company.
6. Public Company Status
All Nidhi Companies must be registered as public companies under the Companies Act.
7. Paid-Up Equity Share Capital
The registering company must have a minimum paid-up equity share capital of ₹5 lakh to qualify for Nidhi Company registration.
8. Compliance Filings
The company must file Form NDH-1 within 90 days of the end of its first financial year once all conditions are met. This form must be certified by a practising Chartered Accountant (CA), Company Secretary (CS), or Cost and Works Accountant (CWA).
9. Request for Extension
If the company fails to meet the requirements within the first financial year, it can apply for an extension by filing Form NDH-2 with the Regional Director within 30 days of the financial year’s end.
10. Penalties for Non-Compliance
Failure to meet the necessary conditions by the end of the second financial year will result in the company being prohibited from accepting deposits, and penalties may be imposed until compliance is achieved.
Documents Required for Nidhi Registration
The following are the required documents for Registering as a Nidhi:
- Proof of registered business address (ownership documents/rent or lease agreement)
- No Objection Certificate (NOC) from the owner/landlord
- Identity and address proofs of members
- Photos and PAN card copies of members
- Digital Signature Certificate (DSC)
- Director Identification Number (DIN) of directors
- Memorandum of Association (MoA) with the objective of promoting thrift and savings among members, accepting deposits, and providing loans to members only
- Articles of Association (AoA)
Nidhi Company Registration Process and Procedure: A Step-by-Step Guide
STEP 1: Apply for DIN and DSC
Obtain a Director’s Identification Number (DIN) and a Digital Signature Certificate (DSC) for all directors. If any director already has a valid DIN and DSC, they can skip this step.
STEP 2: Draft the MoA & AoA
Prepare the Memorandum of Association (MoA) and Articles of Association (AoA), which outline the company’s objectives and operations. Submit these to the Registrar of Companies (ROC) for approval.
STEP 3: Name Approval
Submit three unique name options to the MCA for approval. Once approved, the name is reserved for 20 days, allowing time to complete other formalities.
STEP 4: File for Registration
After name approval, file the registration application with the ROC, including the MoA, AoA, and other necessary documents.
STEP 5: Issuance of Certificate of Incorporation
The ROC reviews the application and issues a Certificate of Incorporation (CIN) within 15–20 days, officially recognizing the company.
STEP 6: Apply for PAN, TAN, and Bank Account
Apply for a PAN and TAN for the company. After receiving these, open a company bank account using the Certificate of Incorporation, MoA, AoA, and PAN.
Conclusion
A Nidhi company is a type of non-banking financial company (NBFC) in India that encourages its members to save and provides easy access to loans. Operating on the principles of mutual benefit, Nidhi companies foster financial discipline and offer affordable financial services to their members, promoting economic growth and financial stability within their communities.