Registration of Nidhi Company and its Pre and Post Requirements

Nidhi Company, is one that belongs to the non-banking Indian Finance sector and is recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money only between their members. Nidhi Companies were existed even prior to the existence of companies Act 1913. The basic concept of Nidhi is “Principle of Mutuality” (“Paraspara Sahayata”). Thus Nidhis function for the common benefit advantage of all their Members/Share holders.

Displaying incorporation.jpgIf you are thinking of incorporating a Nidhi Company, then you must look into the general restrictions on Nidhi Company as stated in Nidhi Rules, 2014. Nidhi Company is one of the categories of Non Banking Financial Company (NBFC) which does not require any approval from the Reserve Bank of India (RBI). It is bounded by the Nidhi Rules, 2014.

What is Nidhi Company??

Nidhi Company is a company registered under the Companies Act, 2013, 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 by 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 Nidhis deal with their shareholder-members only, RBI has exempted the notified Nidhis 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.

Law Governing to Nidhi Company

Nidhi Company is governed by Nidhi Rules, 2014. Nidhi companies are incorporated in the nature of Limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi Rules, 2014. Displaying nidhi-company-by-legalraasta-com.jpg

Is RBI approval necessary to register a Nidhi Company?

No RBI approval is necessary to register the Nidhi Company. RBI has specifically exempted this category of NBFC in India to comply with its core provisions such as registration with RBI etc.

What is the requirement for registration of Nidhi Company?

If we talk about the requirements of the registration of the Nidhi Company then there are two sets of requirements for registration of Nidhi Company, which we are going to discuss.

Requirements before registration of Nidhi Company

Nidhi Company is incorporated in the nature of Public Limited Company. Hence, all requirements for the Public limited company will be applicable. There is also a myth in the industry that a Nidhi Limited Company is first incorporated as a Public Limited company, and then registration of Nidhi is initiated.

However, the above statement does not hold truth. Nidhi Company is registered from the beginning as a Nidhi limited. There is no separate approval process except further compliance.

Here is the list of requirements for a Nidhi limited company:

  1. Minimum Seven Members: Nidhi Company can be started with seven members. Out of which 3 are also to be appointed as directors including a female director. These members can be your relatives.

Also, there is no educational qualification required for any of any member.

  1. Documents Required: Documents required can be further classified into two subheads: Documents of Members and Registered Office.

Documents required for Members are as under:

  • PAN Card
  • Identity Proof – (Voter ID, Passport, Aadhaar Card, DL etc)
  • Current Address Proof – (Bank Statement/Passbook, Electricity Bill, Telephone Bill, Mobile Bill – Any One (Should not be older than two months)
  • Passport Size Photograph

 Documents required for Registered Office are as under:

  • If premises are on rent: Rent Agreement + Utility bill + Signed NOC
  • If Premises are owned: Ownership Proof + Utility Bill + Signed NOC

Electricity bill, Gas bill, Telephone Bill, Water Bill is served as utility bill for registered office.

  1. No Minimum Capital Requirement: This requirement has been officially waived off by the Ministry of Corporate Affairs (MCA). Earlier, it was used to be INR 5 lakh, but now you can register Nidhi Company with any amount of capital of your choice.

However, we recommend you to start the company with INR 10 lakh, because of Rule 5 of Nidhi Rules, 2014, which mandates you to have INR 10 lakh owned fund invested into the . So, it is recommended to start the Nidhi Company with INR 10 lakh capital.

The Requirement after incorporation: 

The things after incorporation are known as post compliance. Unlike other companies, Nidhi Companies compliances are complicated and very important. You just cannot afford to miss those. Here are the lists of requirement that you need to be complied with:

  1. a) Nidhi limited should have at least two hundred members to avoid being in default with Rule 5 of Nidhi Rules, 2014.
  2. b) Net Owned Funds (capital invested) should not be less than ten lakh.
  3. c) Ratio of Net owned funds to deposits should not be more than 1:20. In other words, if you have total Net owned Funds of INR 10 lakh then Nidhi Company can accept maximum deposits upto INR 2 crore.

What if a Nidhi Company cannot reach the member size of 200 within a year? In that case, Company will have to apply for extension with the Regional Director of the company in the Form NDH – 1.

Conclusion

There are still many points in Nidhi Rules, 2014 which will affect your business. But, since it is only an article, we cannot write everything into one article. Hence, would always recommend you to consult to a professional before you proceed for Nidhi Company registration.