Nidhi Companies belong to the non-banking financial companies’ structure. Registering a Nidhi Company allows a Nidhi to borrow from its members and lend to the members.
Nidhi Companies are registered in India are created to cultivate the habit of thrift and savings among its members. The funds that are contributed to a Nidhi Company are only from its members.
For Incorporating a Nidhi Company, no license is required from the Reserve Bank of India. Nidhi Companies are registered as Public Companies and should have Nidhi Limited at the last of the name. It should also be noted that the Nidhi Companies fall under the purview of the Reserve Bank of India as the functioning of Nidhi Companies is similar to NBFCs.
Nidhi Company in India, at least seven members are mandatory, out of which three should be the designated directors. However, the Nidhi Company should acquire at least 200 members within one year of commencement.
For registration of a Nidhi Company, it is necessary to have a minimum equity share capital of Rs. 5 lakh. But it is to be noted that the Net Owned Funds (NOF) must be increased to Rs 10 lakhs within one year of registration. While Registering as a Nidhi Company, it is necessary to first incorporate a Limited Company under the Companies Act, 2013. Also necessary to ensure that the objective mentioned in the Memorandum of Association is to cultivate the habit of thrift and savings among the members, receiving and lending to its members only for its mutual benefit.
Post incorporation as a Limited Company, the Nidhi Company should meet the following capacities:
Not have less than two hundred shareholders (members)
Have Net owned funds of 10 lakh rupees or more
Have encumbered deposits of not less than ten percent of the outstanding deposits.
Have a ratio of Net owned funds to deposit of not more than 1:20.
Restrictions on Nidhi Company
As per rule 6 of the Nidhi Rules, 2014, a Nidhi Company shall not:
- Carry a business of Chit fund, hire purchase finance, lease finance, or acquisition of securities issued by anybody Corporate.
- issue preference shares, debentures, or any other debt instrument by any name or form whatsoever.
- Open Current account with its members.
- Acquire another Company by the 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 it has passed a special resolution in the general meeting and also obtain the previous approval of the Regional Director having jurisdiction over such Nidhi Company.
- Carry on any business other than the business of borrowing or lending in its name: Provided that Nidhis, which have adhered to all the provisions of these rules, may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty percent of the gross income of the Nidhi at any point of time during a financial year.
- Accept deposits or lend to anyone other than its members;
- Pledge away any of the assets lodged by its members as security;
- Take deposits or lend money to anybody from corporate;
- Enter into any partnership arrangement in borrowing or lending activities;
- Issue or cause to be issued any advertisement in any form for soliciting deposit
- Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or granting loans.
Benefits of a Nidhi Company:
- The major objective of this form of entity is to raise funds from the public. This is also a type of NBFC that carries out activities such as accepting deposits from the members. So, a Nidhi Company can raise funds easily.
- The Companies are registered under section 406 of the Companies Act 2013; this form of entity is based on the mutual benefit principle. The primary beneficiaries are the members of the shareholders of the entity. Hence, a Nidhi Company easily provides loans to its members.
- An applicant can select a group of members to carry out this process. Once the Nidhi Company is registered, there is no need to involve any external management.
- There are fewer Compliances as compared to other forms of entities. Under the RBI act, Nidhi companies are exempted from carrying out a different form of Compliances.
- Under the Companies act, this form of entity would secure the status of limited liability. Also, this form of entity is independent of the members and Directors.
- As the Nidhi Companies are similar to the NBFCs, they have to comply with the requirements of the NBFC, and the entities are exempt from a specific provision of the RBI act.
Compared to the credit societies that are regulated by the societies registration Act, there are fewer Compliances for Nidhi Companies. Hence, when an individual wants to adhere to fewer compliances, he can opt for Nidhi Company.