Overview of Nidhi Company Registration

A Nidhi Company has become a popular model for obtaining secured loans, serving as a lending mechanism within its members. It is a type of financial institution established primarily to borrow and lend money exclusively to its members. Nidhi Companies are particularly common in the southern regions of India.

Under Section 406 of the Companies Act, 2013, the process for registering a Nidhi Company is clearly outlined. Notably, a Nidhi Company does not require a license from the Reserve Bank of India (RBI) for registration. Instead, it is registered as a Public Company, with the name must ending in "Nidhi Limited".

The core objective of a Nidhi Company is to encourage its members to save money, helping them meet their financial needs over time. The company operates on the principle of mutual benefit, where members contribute and benefit from the collective savings. While Nidhi Companies are regulated by the Ministry of Corporate Affairs (MCA), they operate under the purview of the RBI, as their functions resemble those of Non-Banking Financial Companies (NBFCs).

Advantages of Nidhi Company Registration in India

Nidhi Company registration offers several benefits, making it an attractive option for entrepreneurs interested in the financial sector. Some of the key advantages include:

• No External Interference: The management of the company is solely in the hands of its members, with no external involvement.
• Ease of Lending and Borrowing: It becomes easier to lend money or raise capital from group members or borrowings.
• Simple Management: The operations and management of a Nidhi Company are relatively straightforward.
• Low Capital Requirement: The initial capital requirement is relatively low, set at Rs. 5 lakhs.
• Fewer Compliance Requirements: Nidhi Companies benefit from relaxed compliance regulations compared to other types of companies.
• Cost-Effective Registration: The cost involved in registering a Nidhi Company is relatively lower.
• Privileges under the Companies Act, 2013: Nidhi Companies enjoy various privileges and exemptions granted under the Companies Act, 2013.
• Minimal RBI Involvement: Nidhi Companies face minimal intervention from the Reserve Bank of India.
• Secure Investment: Investments are secured with lower interest rates, making it an attractive option for members.
• Lower Risk: The risk involved in lending and borrowing within the group is lower.
• Better Savings Options: Nidhi Companies offer better savings options for members, particularly those in the lower and middle-income groups.
• Access to Public Funds: These companies find it easier to raise funds from the public.
• Limited Liability: The liability of the members is limited to the amount of their investment.

Pre-Registration Requirements for Nidhi Company

To successfully register a Nidhi Company, the following requirements must be met:

• Minimum of 7 Members: At least 7 members are required to form the company.
• Minimum of 3 Directors: The company must have at least 3 directors.
• No Preference Shares: Nidhi Companies are not allowed to issue preference shares.
• Minimum Capital: The minimum capital required for registration is Rs. 5 lakhs.
• Company Name: The name of the company must end with "Nidhi Limited".

Documents Required for Nidhi Company Registration

The following are the essential documents required to register a Nidhi Company in India:

• Passport-sized Photographs: Recent passport-sized photographs of all directors and members.
• No Objection Certificate (NOC): A signed NOC from the property owner or landlord, allowing the use of the property as the registered office.
• Director Identification Number (DIN) & Digital Signature Certificate (DSC): DIN and DSC of all directors are mandatory.
• Memorandum of Association (MoA) & Articles of Association (AoA): These documents define the objectives and operational rules of the company.
• PAN Card: A valid PAN card for the company.

Address Proof (for directors and members):

• Driving License
• Latest Bank Statement
• Residence Card
• Government-issued ID with a valid address

Residential Proof (for directors and members):

• Telephone Bill
• Electricity Bill
• Bank Statement
• Mobile Bill

For foreign directors, a Passport is mandatory. However, this is not required for Indian directors of Nidhi Companies.

• Registered Office Proof: A document confirming the address of the company's registered office

Procedure for Nidhi Company Registration

The process for registering a Nidhi Company involves several key steps, as outlined below:

Step 1: Obtain DSC and DIN

The first step for all directors is to acquire a Director Identification Number (DIN) and a Digital Signature Certificate (DSC).

Step 2: Apply for Name Approval

In the second step, the directors or shareholders must apply for the approval of the company name by suggesting three possible names to the Ministry of Corporate Affairs (MCA). Out of these, the MCA will select one. It is crucial that the proposed names are unique and do not resemble any existing company names. According to Rule 8 of the Companies Act, 2013, the approved name will be valid for 20 days.

Step 3: Drafting of MOA and AOA

Once the name is approved, the next step is to draft the Memorandum of Association (MOA) and Articles of Association (AOA). These documents must clearly state the objectives of the Nidhi Company. The application for registration should be submitted in Form INC-32, along with the MOA and AOA.

Step 4: Certificate of Incorporation

After submission of the application, it typically takes around 15-25 days to receive the Certificate of Incorporation. This certificate acts as official proof of the company's incorporation and includes the Company Identification Number (CIN).

Step 5: Opening a Bank Account and Applying for PAN and TAN

Once the Certificate of Incorporation is received, the directors must apply for a Permanent Account Number (PAN) and Tax Deduction Account Number (TAN). Additionally, the company needs to open a bank account by submitting the Certificate of Incorporation, along with copies of the MOA, AOA, and the PAN details.

Post-Registration Requirements for Nidhi Company

Within 120 days of incorporation, a Nidhi Company must fulfill the following requirements:

1. Minimum Membership: At least 200 members must be enrolled.
2. Paid-up Capital: The minimum paid-up capital must be ₹10 lakhs.
3. Net Owned Funds (NOF): The company must maintain NOF of ₹20 lakhs or more.
4. Filing of NDH-4: A Public Company must file the NDH-4 application form within 120 days of incorporation.
5. NOF-to-Deposit Ratio: The ratio of Net Owned Funds (NOF) to Deposits should not exceed 1:20. Any ratio higher than this will not be accepted for Nidhi Company registration.
6. Unencumbered Term Deposits: The company must have at least 10% of its outstanding deposits in unencumbered term deposits. Term deposits above 10% are acceptable, but any deposit ratio below 10% will not be considered valid for Nidhi Company registration.

By adhering to these post-registration requirements, the Nidhi Company can remain compliant and fully operational.

Compliances for Nidhi Company Registration

Below is the summary of various compliance requirements for Nidhi Companies, including forms and their due dates:

Event-Based Compliances for Nidhi Company

The following are critical event-based compliances that need to be fulfilled when there are structural changes or non-periodical events:

• Change in the Company’s Name
• Director Resignation/Appointment/Removal
• Transfer of Shares
• Appointment of Key Managerial Personnel (KMP)
• Increase in Authorized Capital
• Appointment/Removal of Auditor
• Change in Company's Objectives
• Change in Registered Office Address
• Other Event-Based Changes

Key Amendments in the Nidhi (Amendment) Rules, 2022

The Nidhi (Amendment) Rules, 2022 brought significant changes to the functioning of Nidhi Companies. Below are the major updates:

Restrictions Applicable to Nidhi Companies

Nidhi Companies in India are prohibited from engaging in certain activities, including:

• Chit Funds, Insurance, or Leasing Finance: Nidhi Companies cannot carry out activities like chit funds, insurance, hire purchase finance, lotteries, or advertising to invite deposits.
• Asset Pledging: They cannot sell, mortgage, or pledge assets held as collateral for loans.
• Partnerships: Nidhi Companies cannot form partnerships to conduct lending or borrowing activities.
• Deposits or Loans from Non-Members: Nidhi Companies can only accept deposits or offer loans to their shareholders.
• Preference Shares or Debentures: Issuance of preference shares, debentures, or any other debt instruments is not permitted.
• Current Accounts: They cannot open current accounts with their members (only savings accounts are allowed).
• Loans to Corporates: Loans cannot be provided to other corporate entities.
• Brokerage Payments: They cannot pay commission, incentive, or fees to mobilize deposits, nor pay brokerage for granting loans.

These restrictions help to ensure that Nidhi Companies maintain their primary function of mutual benefit among members while adhering to specific legal and regulatory boundaries.

Difference Between Nidhi Company and NBFC