What does a Nidhi Company mean ?
As per the provisions of the Companies Act, 2013, a "Nidhi Company" means a Company which has been incorporated as a Nidhi with the object of:
- Cultivating the habit of thrift and savings amongst its members,
- receiving deposits from, and lending to, its members only, for their mutual benefit, and which complies with the requirements under Chapter XXVI of the Companies Act, 2013 read with Nidhi Rules, 2014.
A Nidhi company belongs to the category of Non-Banking Finance Company & recognized under Section 406 of the Companies Act, 2013. It is governed by the Ministry of Corporate Affairs, Central Government. The basic business of such a Company is to facilitate lending money between the core members of the Company. The core idea behind creating a Nidhi Company is to receive funds (deposits) from members or lend to them, for the mutual benefit of both parties. All lendings and borrowings must comply with rules laid down under the Companies Act, 2013 read with Nidhi Rules, 2014.
Requirements for Incorporation of Nidhi Company
a) A Nidhi company to be incorporated under this Act shall be a Public Company;
b) It shall have a minimum paid up equity share capital of Rs.5,00,000/-;
c) No Nidhi shall issue preference shares.
d) The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits;
e) It shall have the words ‘Nidhi Limited’ as part of its name;
f) Every Nidhi shall issue equity shares of the nominal value of not less than Rs.10/- each.
g) The director shall be a MEMBER of Nidhi. He shall hold office for a term up to 10 consecutive years on the Board. He shall be eligible for re-appointment only after the expiration of 2 years ceasing to be a director.
Where the tenure of any director in any case had already been extended by the Central Government it shall terminate on expiry of such extended tenure. The person to be appointed as a Director shall comply with the requirements of Section 152(4) of the Act and shall not have been disqualified as provided in Section 164 of the Act.
Further, Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has—
a) Minimum number of members should be 200;
A Nidhi shall not submit a body corporate or trust as a member.
b) A minor shall not be admitted as a member of Nidhi.
c) Net owned funds shall be Rs.10,00,000/- or more (‘Net owned funds’ means the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet);
d) Ratio of net owned funds to deposit shall be not more than 1:20;
e) Unencumbered term deposits of not less than 10% of the outstanding deposits as specified in Rule 14;
f) Nidhi shall provide loan only to its members as per the provisions of Rule 15 of the Nidhi Rules, 2014.
g) A Nidhi shall not declare dividend exceeding 25%.
Restrictions for Nidhi Companies:
Rule 6 of Nidhi Rules, 2014 provides general restrictions for Nidhi Companies.
According to this rule, No Nidhi shall:
1. Carry on the business of;
a. Chit Fund,
b. Hire Purchase Finance,
c. Leasing Finance,
d. Insurance or Acquisition of Securities issued by anybody corporate;
a. Preference Shares,
b. Debentures or
c. 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;
a. Purchase of securities or
b. Control the composition of the Board of Directors of any other company in any manner whatsoever or
5. 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 Nidhi;
6. Carry on any business other than the business of borrowing or lending in its own name;
7. Accept deposits from or lend to any person, other than its members;
8. Must not pledge any of the assets that have been lodged by its members as security;
9. Take Deposits from or lend money to anybody corporate;
10. Enter into any Partnership Arrangement in its borrowing or lending activities;
11. Issue or cause to be issued any advertisement in any form for soliciting deposit;
12. Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.
Specific Returns for Nidhi Company:
Within 90 days from the closure of the first financial year after its incorporation and where applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form NDH– 1 along with such fee as prescribed with the Registrar duly certified by a Company Secretary in practice or a Chartered Accountant in practice or a Cost Accountant in practice.
If the company is not complying with the above it shall within90 days from the close of the first financial year, apply to the Regional Director in Form NDH -2 along with fee for extension of time and The Regional Director may consider the application and pass orders within 30 days of the receipt of the application.
If there is failure the Nidhi shall not accept any further deposits from the commencement of the second financial year till it complies with the provisions besides being liable for penal consequences provided in the Act.
EVERY COMPANY COVERED UNDER RULE 2 OF NIDHI RULES, 2014 SHALL FILE HALF YEARLY RETURN WITH THE REGISTRAR: In Form NDH-3 along with such fee as provided in Companies (Registration Offices and Fees) Rules, 2014 within thirty days from the conclusion of each half year duly certified by a company secretary in practice or chartered accountant in practice or cost accountant in practice.
Nidhi Rules, 2014 also contains the provisions for Acceptance of Deposits and providing loan to its members.
Acceptance of deposits:
* A Nidhi shall not accept deposits exceeding 20 times of its Net Owned Assets as per last audited financial statements.
* The fixed deposits shall be accepted for a minimum period of 6 months and a maximum period of 60 months. Recurring deposits shall be accepted for a minimum period of 12 months and a maximum period of 60 months.
* In case of recurring deposits relating to mortgage loans, the maximum period of recurring deposits shall correspond to the repayment period of such loans granted by Nidhi.
* The maximum balance in a savings deposit account at any given time qualifying for interest shall not exceed Rs.1,00,000/- and the interest shall not exceed 2% above the rate of interest payable to savings bank account by nationalized banks.
* Interest for fixed and recurring deposits shall be at a rate not exceeding the maximum rate of interest prescribed by RBI which the NBFC can pay on their public deposits.
* Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a scheduled commercial bank or post office deposits in its own name an amount which shall not be less than 10% of the deposits outstanding at the close of the business on the last working day of the second preceding month.
* In case of unforeseen commitments, temporary withdrawal may be permitted with the prior approval of the Regional Director for the purpose of repayment to depositors, subject to such conditions and time limit which may be specified by the Regional Director to ensure restoration of the prescribed limit of 10%.
* A Nidhi shall provide loans only to its members.
* The loans given to a member shall be subject to the following limits:
Rs.2,00,000/- where the total amount of deposits from members is less than Rs.2 crores; Rs.7,50,000/- where the total amount of deposits from its members more than Rs.2 crores but less than Rs.20 crores;
Rs.12,00,000/- where the total amount of deposits from its members is more than Rs.25 crores but less than Rs.50 crores;
Rs.15,00,000/- where the total amount of deposits from its members is more than Rs.50 crores.
Note: Nidhi Company is a Public Limited Company so we’ll follow the general procedure for incorporation of public Company in light of the compliance of provisions of Section 406 of the Companies Act, 2013 and Nidhi Rules, 2014 for incorporation of Nidhi Company.
Advantages of Nidhi Companies
- Limited Liability;
- Perpetual Succession;
- Separate legal entity;
- The day to day management and business is looked after by the Board of Directors;
- On registration, the name of a Nidhi Company shall end with the word ‘Nidhi Limited’;
- Can sue and be sued by other parties in its own name.
Limitations/ Shortcomings of Nidhi Companies
- Limited liability;
- Separate legal entity;
- Perpetual succession;
- Better credibility;
- Better management control;
- Cheaper to Borrow;
- Encouragement of savings: A Nidhi company 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 arrangement. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.
FAQs on Nidhi Companies
- Registration process is time consuming as compared to other entities;
- Modes of investment are limited to the number of members;
- Mandatory requirement to achieve a minimum of 200 members within one year of incorporation;
- Winding up is permitted only on following the tedious procedure as prescribed under the Companies Act, 2013;
- Expensive to maintain statutory records as compared to other forms of business;
- Mandatory appointment of auditors and numerous statutory compliances.
- What are the documents required for the registration of a Nidhi Company?
Documents Required for the registration of a Nidhi Company are as follows:
TO BE SUBMITTED BY ALL DIRECTORS:
- Self-attested copy of PAN Card of the proposed directors;
- Self-attested copy of Driver’s License/ Voter ID/ Aadhaar Card/Passport of the proposed directors;
- Self-attested copy of Bank Statement/ Telephone Bill/Mobile Bill/ Electricity Bill of the proposed directors;
- Passport-size Photograph of the proposed directors;
- Specimen Signature Certificate of the proposed directors;
- The financial dealings and all the registration processes of a Nidhi company are regulated by the Ministry of Corporate Affairs. The deposit acceptance activities conducted by the Nidhi Company also come under the scanner of Reserve Bank of India and the latter has the rights to look into the financial dealings. Nidhi companies are only allowed deposits which are over six months and less than five years old.
- A Nidhi Company is registered as a Public Limited Company.
- What are the number of members required to incorporate a Nidhi Company?
One needs to appoint a minimum of three directors and must have seven shareholders. So, a total of 10 individuals are needed to form a Nidhi Company. Three of its members will be appointed as directors and there must be seven stockholders on inception.
- How much equity share capital is required to incorporate a Nidhi Company?
A Nidhi Company must have an equity share capital of Rs. 5 lakh on its inception. This entire amount must be paid-up. Moreover, 10% of the total deposit collected from members must be in a fixed deposit in a nationalised bank.
- Can one expand the operations of a Nidhi Company to other places?
Yes, one can do so. A maximum of three branches can be opened in a particular district. In case you want to expand outside the district or want to open more than three branches, intimation needs to be issued 30 days prior to opening to the Registrar of Companies.
- My Nidhi Company has finished its one year tenure, but could not acquire the required number of members. Will I have to dissolve it?
The conditions laid down by the Act says that a Nidhi company should acquire a minimum of 200 members within one year. However, in case you have not been able to acquire the required numbers, you can apply for an extension to the Regional Director.
- Can any person other than the members deposit funds or transfer it to the general fund of the Nidhi Company?
No, only the members are allowed to deposit, borrow or lend funds.
- Who can become a member of a Nidhi Company?
Any person can deposit, lend or borrow money through the provisions provided by Companies Act, 2013. They can all become members of the Nidhi Company provided they are not a body corporate or a Trust.
- How much deposit can a Nidhi accept from its member(s)?
A Nidhi can accept deposits not exceeding 20 times of its net owned assets as mentioned in the last audited statements.
- Our organization will guide you to obtain DSC and DIN which are the first and the foremost requirements for incorporating a Company.
- Our experts will further guide you to choose a distinctive name (including trademark, if any) for the proposed Company.
- Our experts will do the requisite documentation such as the preparation of the MOA, AOA and the Affidavits, as required under the incorporation procedure as laid down under the Companies Act, 2013 and the Rules made thereunder.
- On incorporation of the Company, our team members will guide and assist you to ensure statutory compliances and also, to obtain PAN/TAN in the name of the Company.
- Our team will file all the requisite forms/documents for incorporation with the Registrar of Companies and will follow up the status of the certificate of incorporation.
- Our experts will offer their complete support for future statutory/ business related compliances.