Incorporation and Compliances of Nidhi Company

AN OVERVIEW OF NIDHI COMPANY

 

A Nidhi company is a company that is recognized under section 406 of the Companies Act, 2013 read with Nidhi Rules 2014. Their core functions are borrowing and lending money among its members and fall under the non-banking Indian finance sector. It is a company that has been incorporated with the express purpose of cultivating the habit of thrift and savings among its members.

They are known by different names such as Benefit Funds, Permanent Funds, Mutual Benefit Funds, or Mutual Benefit Company.

 

Prerequisites For Forming a Nidhi Company

To establish a Nidhi Company, the following criteria must be met:

  • The company must have the suffix “Nidhi Limited” in its name
  • The company must be a Public Company.
  • Minor, Body Corporate, and Trust cannot be admitted as members to Nidhi.
  • The minimum paid-up share capital must be Rs. 5 lakh.
  • The company cannot issue preference shares, in the case where such shares have been issued by the company prior to the commencement of the Act, the same shall be redeemed.
  • The primary objective of the company must be to inculcate the habit of savings in its members.

 

What are the advantages of incorporating a Nidhi Company?

 

a. Easy and simple way of forming Nidhi Company.

b.Such minimum of Seven Members, out of three persons will be appointed for directors and an easy and hassle-free documentation process.

c. It is a Separate legal entity which means it can acquire assets and incur debts in its own name.

d. The Concept and Objectives of a Nidhi company are certainties of saving and promoting among Indian people.

e. Nidhi Company rules are the single Regulatory Body.

f. If the Company suffers any losses or issues, the Personal assets of directors and Shareholders are secure. Because the Personal liabilities of the members cannot be used to meet the company’s liabilities.

g. The members can borrow from the funds contributed by themselves at lower interest rates.

Post Incorporation Requirements of a Nidhi Company

Within one year of incorporation, a Nidhi company must satisfy the following conditions:

  • The minimum number of members must be 200.
  • The Net owned funds must be Rs. 10 lakhs. (Net owned funds is the aggregate of paid-up capital and free reserves reduced by the accumulated and intangible assets as appearing in the last balance sheet.)
  • The net owned funds and the deposits shall be in a ratio not exceeding 1: 20 that is Net Owned Funds: Deposits = 1:20.
  • Unencumbered term deposits should be not less than 10 % of the outstanding deposits as specified in Rule 14 of Nidhi Rules 2014.

Registration Process of a Nidhi Company

To apply for registration the Nidhi Company must have a minimum of 7 members and 3 Directors. On fulfilling this condition the Nidhi Company can follow the below-mentioned process:

  • Apply for Director Identification Number (DIN) and Digital Signature Certificate.
  • Go for Name Approval by using the Reserve Unique Name (RUN) Service of MCA.
  • Prepare the Articles of Association and Memorandum of association according to the objectives of the company and all other documents.
  • File for Incorporation Form SPICe+.
  • Apply for PAN and TAN.

 

 Documents required for incorporating Nidhi Company:

  • Copy of PAN Card of Directors and Shareholders.
  • Identity proof for Directors and Shareholders like Voters ID, Passport, Driving License.
  • Address proof of Directors and Shareholders like Bank statements, utility bills.
  • Passport-size photographs.
  • Registered office – property proof. a) If the property is owned then – Utility Bill + Ownership document + NOC. b) If the property is rented – Utility bill + Rent Agreement +NOC.

 

Restrictions on Nidhi Companies

As per Rule 6 of Nidhi rules 2014, a Nidhi Company cannot perform the following activities:

  • Conduct the business of chit fund, leasing finance, and hire purchase. It cannot acquire securities issued by a body corporate.
  • Issue preference shares, debentures, or any debt instrument by any name or in any form whatsoever.
  • Open any current account with its members.
  • Make any acquisitions or arrangements or concessions until the same is adopted in the General Meeting by a special resolution and is approved by the Regional Director.
  • Perform any business other than borrowing/ lending in its own name.
  • Lend to or accept funds from anyone other than its members.
  • Lend to or accept funds from body corporate.
  • Enter into any partnership arrangement in their borrowing or lending operation.

 

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