Nidhi Company is one of the categories of Non-Banking Financial Company (NBFC) that does not require any Reserve Bank of India (RBI) license. Nidhi Companies are limited companies formed for cultivating the habit of thrift and savings amongst its members. It borrows from members and lends to members only. The main reason as to why the Nidhi Company is so famous between the business communities is the Nidhi Company is very easy and inexpensive to register.
Nidhi Companies mostly operate in the southern part of India. Moreover, it should have “Nidhi Limited” as the last words of its name.
Nidhi company is considered a good substitute for credit co-operative society and is more convenient to operate with fewer compliances.
Following are some of the advantages of forming a Nidhi Company in India:
Liability of Directors and shareholders of the Nidhi Company are limited as per the Companies Act, 2013. In case the company grieves from any loss or faces financial distress in 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.
One of the best advantages of a Nidhi Company is that it is distinct from that of its members. A company is a separate entity having its own rights & Obligations.
Nidhi Company initially can be registered by at least seven persons, by complying with the prescribed limited formalities of the Companies Act, 2013 and Nidhi companies Rules, 2014.
Registering Nidhi Company is quite cost-efficient. The minimum capital requirement for registration of Nidhi Company is Rs 5,00, 000 lakh.
Nidhi companies follow the Nidhi Rules, 2014 issued by the Central Government in respect of its activities. Regulations imposed on Nidhi Company by Reserve Bank of India (RBI) is very limited.
The loans given to the members are at a much lower rate of interest than the market rate. This ultimately brings much more savings to the members.
The goal of Nidhi companies is to promote the habit of savings and thrifts amongst the lower and the middle section of the society. These small sections of the population contribute to the funds and avail the credit from the Nidhi Companies as and when required.
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 working off the Nidhi companies or depositing money with them or even avail credit from Nidhi. There would be no external intervention in the management as well.
As a member, one can borrow money at a minimum rate, relative to the rate at which banks lend money. This can be a major advantage in times of need, as different individuals in the mutual benefit society are likely to need funds at different points in time.
Borrowing and lending to known persons, where the procedure is fixed, is much less complicated than dealing with banks or in an informal setting. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.
The Nidhi Companies have to abide by certain prohibitions that are imposed on them in terms of their activities. Following are certain under which Nidhi Company cannot deal, accept deposits and lend funds:
Two Names for proposed company
From All Directors and Shareholders
i. Copy of PAN Card
ii. Copy of Latest Bank Statement/Telephone or Mobile Bill
iii. Copy of Voter’s ID/Passport/Driver’s License/Aadhaar Card
iv. Passport-sized photograph of all directors and shareholder
v. Mail id and Mobile No.
vi. Educational qualification
vii. Shareholding details
For Proposed Registered Office
i. Copy of any Utility bill
ii. Copy of NOC from the owner.
Following provisions are applicable to Nidhi Companies.
As to incorporate a Nidhi Company it is to be registered as a Public Limited Company. So, to incorporate a Nidhi Company it is necessary to fulfill following criteria:
Once the Nidhi Company is incorporated it must fulfill the following requirements:
Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.
The Nidhi Company uses the funds in lending to shareholders as per Nidhi Rules. It lends such money in the form of small loan for business and finance.
Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.
Any individual of any nationality may register a limited company subject to a few conditions:
Yes, another can be a shareholder in a Nidhi company.
Yes, a salaried person can become a director in a Nidhi company. There are no legal hassles in this but one may have to go through their employment agreement if it contains any restrictions.
Once a company gets incorporated, it is active and in-existence for as long as the annual compliances are met with regularly. In a scenario where the annual compliances are not complied with, the company becomes a dormant company and then it may be struck off from the registrar after a period of time. A struck-off company can be revived for a period of up to 20 years.
No, one can open a company even at their residential address. There is no legal requirement to have a commercial place to open up a company.
No, as per the constraints mentioned in the Nidhi rules and regulations, no Nidhi company can do the business of asset.