What is a Nidhi Company?

It is a company classified as an NBFC (a Non-banking financing company) and registered under Section 406 of Companies Act, 2013. The main business of such a company is to facilitate lending money between the core members of the company. This way members (or shareholders) are encouraged to save money and invest them within the company. These deposits are then used by the company for its members (or shareholders), to provide loans or advances, and to acquire government-issued stocks/bonds/debentures/securities. It is regulated by the Ministry of Corporate Affairs, while the RBI monitors all its financial dealings.

Benefits of a Nidhi Company

• Cheaper To Borrow:As a member, one can borrow money at a minimum rate, relative to the rate at which banks lend money. This can be a major advantage in times of need, as different individuals in the mutual benefit society are likely to need funds at different points in time.

• Encourages Savings:It encourages all its members to save money and encourages a thrifty lifestyle. A Nidhi Company, after all, is a mutual benefit society wherein members can lend or borrow money and accept financial aid amongst them.

• Fewer Complications:Borrowing and lending to known persons, where the procedure is fixed, is much less complicated than dealing with banks or in an informal setting. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.

Checklist For A Nidhi Company

• At least seven members are mandatory to form a Nidhi company. Out of these, three should be designated as the directors. However, it should acquire a minimum of 200 members within one year of commencement.

• Moreover, the company should have a minimum equity share capital of ₹10 lakhs, for registering as a Nidhi Company. This entire amount has to be paid up. However, the Net Owned Funds (NOF) must be increased to ₹20 lakhs or more within a year of registration.
  • a.At least 10% of its outstanding deposits should comprise of un-encumbered term deposits.
  • b.The prescribed NOF to deposits ratio should be 1:20.
  This includes equity share capital and free reserves and excludes accumulated losses as well as intangible assets.

• The prescribed NOF to deposits ratio should be 1:20, where 10% of the total deposits are in a fixed deposit account of a nationalized bank.

What are the 10 things Nidhi Companies cannot do as an NBFC (Non-Banking Financial Company)?

A Nidhi company cannot deal in the following –

• Carry on the business of Chit Fund, Hire Purchase finance, Leasing finance, Insurance or Acquisition of securities issued by any Body Corporate.

• Shall issue Preference shares, debentures or any other instrument by any name or any form whatsoever.

• Open a current account with its members.

• Carry on any business other than the business of borrowing or lending in its own name.

• Accept deposits from or lend to any person, other than its members.

• Pledged any of the assets lodged by its members as security.

• Take deposits from and lend to any body corporate.

• Enter into any partnership agreement in its borrowing or lending activities.

• Issue or cause to be issued any advertisement in any form for soliciting deposit.

• Pay any brokerage or incentives for mobilizing deposits from members or for deployment of funds or for granting loans.

Barrister Babu Procedure for Nidhi Company Registration

Contrary to what you might think, registering a Nidhi Company is a simple 3-Step process and can be done completely online. We’ve laid it out below.

• Name Reservation – We help you reserve your name with MCA.

• DSC and DINs – We help you get 1 DSC and 3 DINs.

• Documents and approval – We help you at every stage of the documentation process and in getting in-principle approval from the RBI (if required).

Documents Required for Nidhi Company Registration

To Be Submitted By All Directors:

• Self-attested copy of PAN Card;
• Self-attested copy of Driver’s License/ Voter ID/ Aadhaar Card/Passport;
• Self-attested copy of Bank Statement/ Telephone Bill/Mobile Bill/ Electricity Bill;
• Passport-size Photograph;
• Specimen Signature.