Nidhi Company Registration

Nidhi Company Registration

The purpose of Nidhi Companies, which were founded in India, is to encourage its members to practise frugal living. The borrowing and lending of funds between Nidhi companies' members is permitted. So, only the company's shareholders (members) can contribute money to a Nidhi company. As a group of people's primary means of saving money, nidhi companies are small compared to the banking industry. The article "Starting a Nidhi Company" located in the IndiaFilings Learning Centre can also be used to learn more about how to establish a Nidhi Company in India. The specifics of registering a Nidhi Company in India are the focus of this essay.

Nidhi Company Overview

Registered limited companies, the Nidhi Companies, engage in deposit taking and member lending. Due to its resemblance to an NBFC, a Nidhi Company's operations do come under the scrutiny of the Reserve Bank of India. Nidhi Companies are free from the RBI's basic rules and other NBFC-specific restrictions, nevertheless, because they ONLY deal with shareholder-member money.

Restrictions on Nidhi Company

The following are some of the restrictions a Nidhi Company is subject to under Nidhi Rules, 2014. As per Rule 6 of Nidhi Rules, 2014, a Nidhi Company shall NOT:

1. carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;
2. issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
3. open any current account with its members;
4. 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 it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;
5. carry on any business other than the business of borrowing or lending in its own 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 per cent of the gross income of the Nidhi at any point of time during a financial year.
6. accept deposits from or lend to any person, other than its members;
7. pledge any of the assets lodged by its members as security;
8. take deposits from or lend money to anybody corporate;
9. enter into any partnership arrangement in its borrowing or lending activities;
10. issue or cause to be issued any advertisement in any form for soliciting deposit: Provided that private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.
11. Pay any brokerage or incentive for mobilising deposits from members or for the deployment of funds or for granting loans.

Nidhi Company Registration

A limited company must initially be incorporated in India in accordance with the Companies Act of 2013. Thus, the Limited Company incorporation process must be started with a minimum of three Directors and seven shareholders. When forming the Nidhi company, care must be taken to ensure that the Limited Company's stated purpose—to foster a culture of saving and thrift among its members by accepting deposits from and lending only to them for their mutual benefit—is adhered to.

Post incorporation of the Limited Company, within a period of one year from the commencement, the Nidhi Company must meet all of the following criteria:

• not have less than two hundred members (shareholders);
• Have Net Owned Funds (NOF) of ten lakh rupees or more;
• Have unencumbered term deposits of not less than ten per cent of the outstanding deposits; and
• Have a ratio of Net Owned Funds to deposits of not more than 1:20.

“Net Owned Funds” means the aggregate of paid-up equity share capital and free reserves as reduced by accumulated losses and intangible assets appearing in the last audited balance sheet.

If the Nidhi Company satisfies the aforementioned requirements for operating as a Nidhi Company, the company shall, within ninety days from the close of the first financial year following its incorporation and, where applicable, the second financial year, file a return of statutory compliances in Form NDH-1 duly certified by a practising CA/CS/CWA along with the necessary fees.

The Nidhi Company may submit an application for an extension of time to the Regional Director in Form NDH-2 within thirty days of the end of the first financial year if, after one year from the date of beginning, it is unable to meet the aforementioned condition.

The Nidhi Company shall not accept any further deposits from the beginning of the second financial year until it complies with the requirements for operating as a Nidhi Company and shall be subject to penal consequences if, even after the second financial year, it is unable to meet the requirements for a Nidhi Company.

Nidhi Amendment Rules, 2020

As per notification from the Ministry of Corporate Affairs on 3rd February 2020, the amendment to existing rules was released where the stakeholders are advised to use the revised and latest forms by the Nidhi companies and they are:

• Form No.NDH-1 – Return of Statutory Complainces
• Form No.NDH-2 – Application for extension of time
• Form No.NDH-3 – Return of Nidhi Company for the half year ended