Nidhi Company Registration

Nidhi Registration
Nidhi Registration

Nidhi Company is a form of entity that carries out financing activities. The process of registering a Nidhi company is seamless and requires less time and effort. When this company is formed, it is registered as an NBFC (Non-Banking Financial Company).

  • Business Plan and Structure for the Nidhi Company
  • Compliance under RBI and NBFC
  • Compliance under the Companies Act, 2013
  • Assistance with the procedure to establish a Nidhi Company
  • Easy Access to Public Financing

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What is Nidhi Company?

Nidhi Company is governed by Section 406 of the Companies Act, 2013 and Company Nidhi Rules, 2014 which has a sole objective of cultivating the habit of thrift and savings amongst its members. Nidhi companies are allowed to take deposit from its members and lend to its members only. Therefore, the funds contributed for a Nidhi company are only from its members (shareholders) and used only among the shareholders of the Nidhi Company.

Nidhi Company is a class of NBFCs and RBI is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, in recognition of the fact that these Nidhi’s deal with their shareholder-members only, RBI has exempted the notified Nidhi’s from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal entity to take deposit from and lend to a specific group of people.

Pre-Registration Requirements For Nidhi Company

Minimum 7 MembersNo Preference Shares allowed to issue
Minimum 3 DirectorsThe object of the company shall be receiving deposits from and lending to its members only for their mutual benefits.
Authorized Capital: Minimum Rs. 10 lakhsA Minor, trust or a body corporate is not allowed to become a member of a Nidhi Company
Paid up-capital: Minimum Rs. 10 lakhs

Post-Registration Requirements For Nidhi Company

  • Minimum 200 Members within 12 months of registration A Nidhi company must add at least 200 members to comply with this requirement of law. Further, it has to maintain this during the course of time. If the total members fall less than 200 at any-time thereafter, it will leave the company at default. However, if you are not able to reach the limit of 200 members, then you must apply for time within 30 days of closure of financial year in Form NDH-2 with Regional Director, Ministry of Corporate Affairs.
  • Minimum Net Owned Fund (Paid Up Share Capital + Free Reserves) of 10 lakh or more
  • Open a current account with any scheduled bank in the name of the Company and file Form 20A accordingly before commencing its business operations.
  • The Nidhi Company shall keep invested an unencumbered term deposits with a scheduled commercial bank or post office, which shall be not less than 10% of the deposits outstanding at the close of business on the last working day of the second preceding month.
  • A Nidhi Company shall not admit a body corporate, trust or minor as a member.
  • Ratio of net owned funds to the deposits must not exceed 1:20, if you have net owned funds of 10 lakh, then your total deposit limit would be INR 2 Crore.
  • Nidhi Company cannot open its branches if it has not earned any profit after tax (PAT) for regular three years consecutively.
  • Rate of interest on the loan cannot be more than 7.5% above the highest rate of interest which are offered on deposits.
  • The maximum interest on savings account shall not exceed 2% above of what is being by the nationalized banks.
  • The rate of interest being offered on fixed and recurring deposits shall not exceed the rate of interest prescribed by the Reserve Bank of India which the Non-Banking Financial Companies can pay on their public deposits.

Transaction Which Nidhi Companies Cannot Enter

  • carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any Body corporate
  • issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever
  • open any current account with its members
  • acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless special resolution has been passed and obtained prior approval from Regional Director
  • carry on any business other than the business of borrowing or lending in its own name. Provided that the Nidhi Company may provide locker facilities and earn rental income thereof but such income shall not exceed 20% of the gross income.
  • accept deposits from or lend to any person, other than its members
  • pledge any of the assets lodged by its members as security
  • take deposits from or lend money to anybody corporate or trust or minor
  • enter into any partnership arrangement in its borrowing or lending activities
  • issue or cause to be issued any advertisement in any form for soliciting deposit:
  • pay any brokerage or incentive for mobilising deposits from members or for deployment of funds or for granting loans.
  • Levy service charge for issue of shares.

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Benefits Of Nidhi Company

  • It’s easy for Nidhi Company to get funding or borrow capital from or lend money to group members.
  • Easy to Manage
  • No External Involvement in Management
  • Relaxation in Compliances
  • Easy Transfer of Ownership
  • Low Rates of Interest
  • Secured Investments
  • Clear Objectives for easy donations and loans
  • Exemptions and Privileges under Companies Act, 2013
  • Least intervention of R.B.I.

Opening Of Branches By Nidhi Companies:

  • It may open branches, within the state, only if it has earned net profits after tax continuously during the preceding three years.
  • No Nidhi shall open branches outside the State where its registered office is situated.
  • No Nidhi shall open branches unless financial statement and annual return (up to date) are filed with the Registrar.
  • A Nidhi shall not close any branch unless it publishes advertisement, fixes a copy of such advertisement on the notice board of Nidhi Company and gives intimation of such closure to the Registrar thereof.

Acceptance Of Deposits By Nidhi Companies

  • It shall not accept deposits exceeding twenty times of its Net Owned Funds as per its last audited financial statements.
  • Fixed Deposits shall be accepted for minimum 6 months and maximum 60 months.
  • Recurring Deposits shall be accepted for minimum 12 months and maximum 60 months.
  • The maximum balance in a saving account qualifying for interest shall not exceed Rupees One Lacs at any point and the rate of interest on the same shall not exceed 2% above what being paid by nationalized banks.

Preliminary Conditions To Grant Loans:

  • No person other than members of a Nidhi Company shall be eligible to accept loans. Further, with respect to the membership of Nidhi Companies as well, there are following restrictions:
  • A Nidhi shall not admit a body corporate or trust as a member.
  • A minor shall not be admitted as a member of Nidhi
  • The maximum of loan amount that can be given away by a Nidhi Company is linked with the deposits accepted by it i.e. explained in the table given below:
Sr. NoDeposits accepted from Members (in Rs.)Loan amount eligible (in Rs.)
1Less than Rs. 2 CroresRs. 2,00,000
2More than Rs. 2 Crores but less than Rs. 20 CroresRs. 7,50,000
3More than Rs. 20 Crores but less than Rs. 50 CroresRs. 12,00,000
4Exceeds Rs. 50 CroresRs. 15,00,000
However, in the event the Nidhi Company has not earned profit during preceding three years, the eligible loan amount shall be only 50% of what is mentioned above i.e. Rs. 100000, Rs. 375000, Rs. 600000 and Rs. 750000 respectively.
  • Only secured loans can be given to the members.
  • It shall not pay any brokerage or incentive for deployment of funds or for granting loans.

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Security Against Such Loans:

The profits and loss statement and Balance sheets are to be submitted as per the requirements of the Company on an annual basis. This is done through form AOC 4

A Nidhi Company is required to file Income Tax Returns as per the Income Tax Act requirements.

A Nidhi Company must have Net Owned funds that are more than Rs. 10 lakhs. The ratio must be in the proportion of 1:20 Basis.

Sr. NoType of SecurityTerms of Repayment
1Gold, silver and jewellery* Repayment periodshall not exceed one year.
* The outstanding amount of loan shall either be recovered or renewed within three months from the due date of repayment.*
2Immovable property* Period of repayment of such loan shall not exceed seven years.
* The loan shall not exceed 50% of the value of property offered.**
3National Savings Certificates, other Government Securities and insurance policiesMaturity date of such securities shall not fall beyond the loan period or one year whichever is earlier.
4Fixed DepositThe period of loan shall not exceed the unexpired period of the fixed deposits.
However, in the event the Nidhi Company has not earned profit during preceding three years, the eligible loan amount shall be only 50% of what is mentioned above i.e. Rs. 100000, Rs. 375000, Rs. 600000 and Rs. 750000 respectively.

*In case of loan against jewellery, the loan to value ratio shall not exceed 80 percent i.e. the amount of loan given shall not exceed 80% of the value of the property.

**In case of loans against immovable property, the total loans (against immovable property specifically) shall not exceed 50% of the overall loan outstanding.

Rate Of Interest

The rate of interest to be charged on any loan given shall not exceed 7.5% above the highest rate of interest offered on deposits. For instance, in case the Nidhi Company is offering 5% rate of interest on fixed deposit and recurring deposit and also 3% on savings, then the Company can chare up to maximum 12.5% on loan given..

Further, the following are the limitations on charging rate of interest from its borrowers:

  • It should be charged on reducing balance method only.
  • It shall charge the same rate of interest in respect of the same class of loans.
  • Rates of interest of all classes of loans shall be prominently displayed on the notice board at the registered office and each of its branch office.

For Registration of Your Nidhi Company Contact Us Now