Under Section 406 of Companies Act 2013, Nidhi Company is a type of company which core business is borrowing money from its members and lending money to its members. Nidhi Company are also known as benefits funds and mutual benefits companies. Nidhi companies incorporated with the main objective of developing the habit of thrift and reserve funds amongst its shareholders. The basic concept of Nidhi Companies is Principle of Mutuality. Nidhi Companies are regulated by MCA and RBI issue directions in matters relating to deposit acceptance activities. The concepts of Nidhi Company are more popular in south India. Most of the Nidhi companies are located in the South Indian state of Tamil Nadu.
Nidhi Company comply with the two set of norms
- Status of public limited company as per companies act, 2013 and
- Another is for Nidhi rules, 2014.
As per NBFCs norm which allows operating in the unorganized money market, Nidhis falls under this category. Since Nidhis come under one class of NBFCs, RBI empowered to issue directions. However Nidhis deal with their members-only therefore RBI has exempted the Nidhi from the core provisions of the RBI Act and other directions applicable to NBFCs.
Benefits of Nidhi Company Registration
- Easy funding within the minimum time scale
- Level of risk is low
- Separate Legal Entity
- Better savings option
- No RBI Regulations
- No outsider intervention
Basic Requirement for Nidhi Company Registration
To incorporate the Nidhi Company in India, following are the requirement to be complied for the Nidhi company registration
- Obtaining a Digital Signature Certificate
- Minimum Rs. 5 lacs equity share capital is required to registred a Nidhi Company
- Director Identification Number(DIN)
- Minimum no of 7 shareholders is required out of which 3 shareholders/member should be the proposed director of the Company
- The main object shall be carried out subject to the provisions of Section 406 of the Companies Act, 2013 and Nidhi Rules, 2014
- Every member must have the nominal value of equity shares which should not be less than Rs. 10 per share
Documents Required For the Nidhi Company Registration
For director and member of the Nidhi company, Rule 16 of incorporation Rules 2014 complies for the documents
- Passport size photo
- Income tax Pancard(mandatory)
- Proof of identity: Driving license /voter id /passport /unique identification number(UIN)
- Residential proof: Electricity bill /Bank Statement /mobile bill /Telephone bill
For Registered office address of the Company,
- Electricity bill /telephone bill /Mobile bill /Gas bill
- No objection certificate from the owner
- Rent or lease agreement
Procedure For Nidhi Company Registration
- Obtaining DSC and DIN
- Name reservation
- Drafting of Memorandum and Article of Association
- Certificate of incorporation
- Pan and Tan issuance
- Opening of bank Account
Requirement to Be a Nidhi Company
As per the rules Nidhi to ensure the following within one year from its commencement:
- Member strength not less than Two hundred members
- Value of Net owned Funds of Ten Lacs rupees or more
- As per Rule 14 of Nidhi rule 2014, the Unencumbered term deposits shall not be less than 10% of the outstanding deposit
- Net Owned Funds to deposits ratio shall not be more than 1:20 i.e for every one equity the Nidhi can borrow Twenty times.
Prohibited Activities for the Nidhi Company
Nidhi companies are involved in a non-banking financial transaction, they are prohibited from few activities, following are below –
- Unsecured lending
- Chit funds
- Entering into a partnership firm so as to hold out lending and borrowing activities
- Sell the assets of its members
- Leasing Finance and Hire-Purchase finances
- Advertise themselves for deposits
- Accepting deposits or lending funds aside from its members
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