Nidhi Company

Nidhi Company registration | under section-406| 2020

Nidhi company is the type of (Non-Banking Finance Company) and come under the preview of Reserve Bank of India. Nidhi Companies are formed under the section-406 of The Companies Act, 2013 and Nidhi Companies rules 2014. Nidhi company are much easier to formulate as compare to Nidhi Company. The objective of incorporating a Nidhi Company is to encourage savings and crediting money amongst its members. They are primarily engaged in the business of deposits and loans of its members. The term Nidhi in nidhi company means ‘Treasurer’ from Hindi vocabulary. Nidhi companies are allowed to take a deposit from shareholders and lend to the members only. In simple terms the funds contributed to a Nidhi company come only from its members and are to be used only by the shareholders of the Nidhi Company. Minimum of seven members are required to start a Nidhi company and three members can be directors. An equity share of the 5 lakh rupees is required to start Nidhi company. Nidhi Company can’t issue preference shares.

Requirements for Nidhi company registration-

  • Nidhi company should have a minimum of 200 members with 12 months
  • Net owned fund must be Rs. 10 lakh or above
  • Cleared deposits must be 10% or higher of the outstanding deposits.
  • Net owned fund vs deposits should not be more than 1:2.

Advantages of forming Nidhi Company

Limited regulations

Nidhi companies are registered under the Nidhi rules 2014. And the rules and regulations are less constraints as compared as compared to other Nidhi company registration.

Better Credibility

Nidhi companies has more credibility as compared to the other organisations like trusts, society and companies. Nidhi companies are monitored by the central government.

Limited liability

Liabilities are limited means that members of the Nidhi company do not seem to be in the command in person accountable for the liabilities of a Nidhi company.

Separate legal entity

Nidhi companies are separate legal entities which are registered under the government of India act. Nidhi Companies are formed under the section-406 of The Companies Act, 2013 and Nidhi Companies rules 2014.

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Documents required for Nidhi Company registration

  • Incorporation Certificate of the Company
  • Documents related to the Management and administration of the Company.
  • The documents stating the Article of Association and Memorandum of Association of the form or company.
  • Documents verifying the location of the company.
  • Company Account which has been well audited for last three years.
  • Elaborate Information regarding the Director and the Partners associated with the Company.
  • Resolution from the board favoring the formation of Nidhi company..
  • A bank account with a minimum equity share of INR 2Cr.
  • PAN Card of the Company
  • Additional documents which can be asked at the time of verification.

Frequently Asked Questions

  • A Nidhi company is the one which just like NBFC company belongs to the non-banking sector and is recognized under the section 406 of the Companies Act 2013. The core and sole objective of this firm is to borrow and lending money between their members. They are not regulated by the RBI (Reserve Bank of India) but however, the RBI can issue directions to them in relating to their deposit acceptance activities. However, the Nidhi company is directly regulated by the Ministry of corporate Affairs.

  • Following are the documents required for the Nidhi company:

    1. Pan card
    2. Latest Bank Statement
    3. Scanned copy of Notarized Rental Agreement
    4. Passport sized photograph, scan copy of signature
    5. Utility bill, Rent bill

  • Following are the advantages of the Nidhi company:

    1. Separate legal entity
    2. Perpetual existence
    3. Greater Credibility
    4. Limited Liability

  • Following are the disadvantages of the Nidhi company:

    1. Strict Rules
    2. Limited Issuance
    3. Forbidden to lend deposits to outside members

  • Following are the requirements for registration of Nidhi company in India:

    1. It should have 3 directors
    2. It should have at least 7 members
    3. The main objectives should be written in the MOA.

  • Following are the restrictions on Nidhi company:

    1. They are not allowed to start the business of chit funds, insurance, leasing etc.
    2. Nidhi company cannot issue securities such as preference of shares, debentures etc.
    3. They are prohibited from opening any current account with its members.
    4. Nidhi company cannot enter into the partnership for doing lending and borrowing business
    5. It is not allowed to acquire any other company.

  • Any person who is above 18 years of age and with a valid age proof can become a member of Nidhi company.

  • The Nidhi company lends to its shareholders as per the Nidhi rules. It lends money in the form of small loan for business and finance.

  • The deposits are lent according to the rules framed by the members of the Nidhi company. Furthermore, the Nidhi company keeps gold, jewellery etc. against the funds lended.

  • The Nidhi company is governed by the section 406 of the Companies Act, 2013.