Nidhi Company is a very popular lending mechanism in case you need to obtain secured loans. Nidhi Companies are one of the categories of Non-Banking Financial Company (NBFC) which does not require any license from the Reserve Bank of India (RBI) . Nidhi Companies are a type of Public companies which are formed for cultivating the habit of thrift and savings amongst its members.
Such companies borrows from its members and lends to its members only. They have now become so famous as a lending company because they are very easy to form and inexpensive to register. Furthermore, they are a good substitute for credit co-operative society and has fewer compliance’s to follow.
You can Apply for Nidhi company registration online through “Legal Window” and can get Nidhi company certificate of registration within a week of time.
Mostly operating in the southern part of India, they should have “Nidhi Limited” as the last words of its name.
Before you plan to form a Nidhi Company, you should be well aware of its following advantages:
Limited Liability: As per the Companies Act, 2013, the liability of the Directors and shareholders of the Nidhi Company are limited. In case the company suffers from any loss or face any financial difficulty during the course of its business activity, the personal assets of any of the Directors or members are not at risk of being held by banks, creditors, and government. The liability of the members is only for the unpaid amount on shares held by them and not more than that. Shareholders are not liable for the Company’s debts and liabilities.
Separate Legal Entity One of the best advantages of a Nidhi Company is that it is entirely separate from its members. Like any other type of company, a Nidhi Company is also a separate entity having its own rights & Obligations.
Simple Registration Process: New regulations as per the Ministry of Corporate Affairs has made the entire process of Nidhi Company quite simple and hassle free. You can easily form it with minimum of seven persons. You just need to comply with the prescribed limited formalities of the Companies Act, 2013 and Nidhi companies Rules, 2014 to register it.
Cost-Efficient: When we talk about the amount which is involved in registering Nidhi Company, it is not much high now. The minimum amount of capital which you require for registration of Nidhi Company is now Rs 5,00, 000 lakh.
Few Regulations: Nidhi companies simply needs to follow the Nidhi Rules, 2014 which are provided by the Central Government with regard to its activities. Moreover, the Regulations as are directed by Reserve Bank of India (RBI) is quite limited.
Lower rate of credit: The loans provided by Nidhi Company to its members are much at a lower side which ultimately brings much savings to its members.
Helps in saving the funds: The main motto of Nidhi companies is to promote the habit of savings and thrifts amongst the lower and the middle section of the society. Such small sections of the population contribute to the funds and avail the credit from the Nidhi Companies as and when required.
No Involvement of Outsiders: The Nidhi Companies are formed, managed and provide benefits only to their members. The outsider will not be allowed to get involved in Nidhi company operations in anyways. Be it depositing any money with them or taking any loan from Nidhi Company or any internal management decisions, there would be no external involvement.
Cheaper to Borrow: When we compare with the borrowing rate of a normal lending bank, a member can borrow money at a less rate from the Nidhi Company which is one of its major advantages.
Prohibition of certain activities in a Nidhi Company:
The Nidhi Companies are little burdened with some prohibitions that are imposed on them in terms of their activities. Following are certain activities under which Nidhi Company cannot deal, accept deposits and lend funds:
Acceptance of Deposits by Nidhi Companies
Nidhi Companies are not allowed to accept deposits exceeding twenty times of its net owned funds.
Nidhi Companies should not accept fixed deposits for a minimum period of 6 months and a maximum period of 60 months.
Recurring deposits can be accepted by Nidhi Companies for a minimum period of 12 months and a maximum period of 60 months.
Ceiling Limits on Loans provided by Nidhi Companies
A Nidhi Company is allowed to provide loans to its members only upto the below limits:
Amount of Deposits
Permissible Loan Limits
Deposit Amount less than Rs. 2 crore
Rs. 2 Lacs
Deposit Amount between Rs. 2 crore and less than Rs. 20 crore
Rs. 7.5 Lacs
Deposit Amount between Rs. 20 crore and less than Rs. 50 crore
Rs. 12 Lacs
Deposit Amount Rs. 50 crore or more
Rs. 15 Lacs
How much Interest on a loan can be charged by Nidhi Companies?
Nidhi Companies charge a certain percentage of interest rate on every loan provided by them. It is stipulated that Nidhi Companies should not charge interest rate exceeding 7.50 per cent above the highest rate of interest offered on deposits accepted by Nidhi companies.The Interest rate shall be calculated as per the Reducing Balance Method.
Opening of Branches by Nidhi Companies
As per the legal rules, a Nidhi Company can open branches only when it has earned profits /profits after tax (PAT) continuously for last three financial years.
Nidhi Companies are allowed to open a maximum of 3 branches in the district where the registered office is located
In case the Nidhi Companies wants to open more than 3 branches in the district or outside the district, then it must take prior permission of the Regional Director and must inform regarding the same to the Registrar within 30 days of such opening
A Nidhi Company is not allowed to establish its branches or any type of centers outside the state in which its registered office is located.
Checklist for Nidhi Company Registration
Number of Directors You have to make sure that there must be at least 3 directors to form a Nidhi Company and the age of directors must be 18 years or more than that.
Number of shareholders or members If we talk about the minimum number of shareholders or members required to form a Nidhi Company, then it must be a minimum of 7 in number. Please note that Directors can also own shares and be the shareholders in a Nidhi Company
Requirement of Capital The minimum amount of capital which you require is at least Rs. 5 lakhs or more. Furthermore, Nidhi Companies are not allowed to issue preference shares.
Registered Office The registered office of a company is not necessarily to be a Commercial premise. It can be a rented home or your own house. Make sure to obtain NOC from landlord in case your premise is rented.
DIN for Directors DIN for directors will be automatically obtained after registering your Nidhi Company through SPICe+ form. However, a maximum of 3 Directors can obtain DIN through SPICe+. In case a person already holds a DIN number, then he just needs to provide it in the application form.
The object of the Nidhi Company
The main and only object for which a Nidhi Company must be formed should be “cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.”
Scanned copy of PAN Card (Passport in case of Foreign Nationals & NRIs)
Scanned copy of Voter’s ID/Passport/Driver’s License (Anyone)
Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill of the individual (It must not be older than two months)
For the foreign nationals, an apostilled or notarized copy of the passport needs to be provided compulsorily. All documents submitted should be valid and genuine.
For Registered Office Proof Every company must have a registered office in India for which specific documents need to be provided. They are as follows:
Scanned copy of the latest bank statement/telephone or mobile bill/electricity or gas bill in case you own property
Scanned copy of Notarized rental agreement
Scanned copy of No-objection certificate from the property owner
Important to Note: Your registered office can be a commercial premise or it can be your residence (owned or rental) too.
Registration Process for Nidhi Company Registration
Though MCA has completely simplify the online registration process of of registering a Nidhi Company, but still guidance from a professional is required to file the various complex forms and get them authenticated. The procedure of registering a Nidhi Company is as follows:
Step 1: Apply for Digital Signature Certificate (DSC): Since the process is completely online, hence all those authorized signatories/directors who needs to sign the online incorporation documents must apply for Digital Signature Certificate.
Step 2: Apply for Director Identification Number (DIN): Every proposed director requires a DIN which can be applied along with the company registration application form i.e. SPICe Plus. However, maximum 3 Directors can obtain DIN along with SPICe Plus. In case the subscriber already have a valid DIN, he just need to provide that number.
Step 3: Fill SPICe Plus form – Part A for Name Reservation: or the name approval step, an application used to be filed in the prescribed Form RUN (Reserve Unique Name) with the Ministry of Corporate Affairs. But after deployment of the SPICe Plus Form, RUN shall be applicable only for change of name of existing companies. Hence, now name reservation will also be done through SPICe Plus form – Part A along with the application for incorporation of company. Please note that a minimum of 2 names at the time of incorporation are proposed. The name must contain the word “Nidhi” or “Mutual Benefit” in it. Furthermore, type, class, category, sub-category, main division of industrial activity of the company etc. also needs to be entered while reserving names. Note: The proposed name should not be prohibited under Section 4(2) & (3) of the Companies Act, 2013 read with Rule 8 of the Companies (Incorporation) Rules, 2014. Hence, it is highly recommended that you read and understand Rule 8 of the Companies (Incorporation) Rules, 2014 in respect of any proposed name before applying for the same. Along with it, users are also requested to check the Trademark Search.
Step 4: Filing application in Form SPICe Plus – Part B for incorporation of company and other services: Now, the complete details need to filled to incorporate the company as required like Authorised Capital, Paid up Capital of the proposed company, details of the proposed directors and subscribers of the company etc. Part B of SPICe Plus offers the following services:
Mandatory issue of PAN
Mandatory issue of TAN
Mandatory issue of EPFO registration
Mandatory issue of ESIC registration
Mandatory issue of Profession Tax registration(Maharashtra)
Mandatory Opening of Bank Account for the Company and
Allotment of GSTIN (if so applied for).
Step 5: Drafting and submitting final incorporation documents: One needs KYC, and other prescribed documents of Directors & Shareholders. Also, various consent and declaration forms like INC 9 and DIR 2 which are auto generated now needs to be provided by the subscribers and the directors of the proposed company respectively. Furthermore, online e-documents like SPICe Plus form along with MOA, AOA and AGILE-PRO needs to be filed to Ministry of Corporate Affairs (MCA).
Note: All new companies incorporated through SPICe+ (w.e.f 23rd February 2020) would also be mandatorily required to apply for opening the company’s Bank account through the AGILE-PRO linked web form.
Step 6: Receiving Certificate of Incorporation and opening Bank Account: Once your application is received by the Department and all the information are found to be true and correct, you will receive your Certificate of Incorporation including your Company Identification Number (CIN) along with PAN and TAN of your company.
Compliances after Nidhi Company Registration
Once you have successfully registered the Nidhi Company make sure that you comply with these requirements to avoid cancellation of your registration or penalties. Following table will help you to understand the post compliances relating to Nidhi Companies in a simple manner:
This form needs to be filed within 90 days from the closure of every financial year
This Form is used to request MCA to allow extension of time in case a Nidhi Company is not able to add 200 members in its first financial year
This form is used to file half yearly returns
This form is used to file Annual Returns
To file financial statements and other related documents
CS Urvashi Jain is an associate member of the Institute of Company Secretaries of India. Her expertise, inter-alia, is in regulatory approvals, licenses, registrations for any organization set up in India. She posse’s good exposure to compliance management system, legal due diligence, drafting and vetting of various legal agreements. She has good command in drafting manuals, blogs, guides, interpretations and providing opinions on the different core areas of companies act, intellectual properties and taxation.
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