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What is a Nidhi Company?
A Nidhi Company is formed to borrow and lend to its members with an objective to promote the habit of saving money among its members and works on the principle of mutual help. Nidhi companies are very popular in southern states in India. Unlike an NBFC, a Nidhi Company is not required to obtain a license from RBI. So, it is easy to incorporate. To start with, you need to first incorporate a public limited company that should have “Nidhi Limited” as the last word of its name. Secondly, within one year of its incorporation, when the number of shareholders has reached 200, then a separate application is filed before the ROC for grant of Nidhi Company Status. The Company cannot advertise asking for deposits from the public at large. It shall also keep its borrowing and advance activities to and from among its members.
Requirements to start a Nidhi Company
Procedure for Nidhi Company Registration
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- Two Photographs of Promoters
- Identity Proof of each Promoter
- Address Proof of each Promoter
- PAN Card of each Promoter
- Signed Declaration(s) from Promoters
- Proof of Registered Office
- Utility Bill as Proof must be latest
- NOC from the Owner of Premises
Frequently Asked Questions
A Nidhi Company is a Company which carries on the business of accepting deposits and lending the same on demand. Nidhi Company is similar to NBFC but the only basic difference between the two is that Nidhi Companies accept deposits only from its members. The main aim of these companies is to work for the mutual benefit of its members. These companies are not entitled to carry on the business of Hire Purchase Financing, Insurance, Chit Funds, and Acquisition of securities or Issue of any Debt Instruments.
Following provisions are applicable to Nidhi Companies.
- As they are incorporated into the nature of Public Company so rules and regulations of Companies Act, 2013 are applicable.
- RBI provisions related to Interest rate payable on deposit are applicable to Nidhi Companies. But the core provisions of RBI are not applicable to Nidhi Companies as RBI has exempted the Nidhi Companies from the same.
- Nidhi Rules, 2014.
As to incorporate a Nidhi Company it is to be registered as a Public Limited Company. So, to incorporate a Nidhi Company it is necessary to fulfill following criteria:
- It should have at least 3 Directors.
- It should have at least 7 Members.
- The main objective to be written in the MOA should be to cultivate the habit of thrift and savings among its members. And it can accept deposits and lend money only to its members and shall work for the mutual benefit of its members.
Once the Nidhi Company is incorporated it must fulfill the following requirements:
- It must have at least 200 members/shareholders.
- Minimum Net Owned Fund should be Rs. 10 Lakhs.
- Unencumbered term deposit must be at least 10% of the term deposit.
- The ratio of Net Owned Fund to term deposit should not be less than 1:20.
The exclusive advantage which is offered by Nidhi Companies are:
- It is a single office institution governed exclusively by its members with no involvement of the third party.
- Provide loans at minimal interest rates and minimum documentation.
- Secured investments are guaranteed by such companies.
Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.
The Nidhi Company uses the funds in lending to shareholders as per Nidhi Rules. It lends such money in the form of small loan for business and finance.
Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.
Nidhi Companies are not allowed to do the following business:
- They are not allowed to start the business of chit funds, Insurance, Hire Purchase Finance, Leasing Finance and acquisition of shares issued by companies.
- Nidhi Company cannot issue securities such as preference shares, debentures etc.
- They are prohibited from opening any current account with its members.
- It cannot enter into partnership for doing lending and borrowing business.
- It is not allowed to acquire any other company.