Nidhi Company Registration

A Nidhi Company, is one that belongs to the non-banking Indian Finance sector with their core business being borrowing and lending money only between their members. Nidhi Company Registration is done by Ministry of Corporate Affairs.

Nidhi Company Registration are mainly for cultivating the habit of thrift and savings amongst its members. It is known by different names such as Nidhi, Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. A nidhi company can only be incorporated as a public company with a minimum paid up capital of 5 lacs. It is regulated by RBI and MCA.

“Nidhi” is a Hindi word, which means finance or fund, It is kind of local credit society in the form of a company, here both the lender and the borrower used to be from the same area. Hence, the background of the borrower was well known to the lender. Each loan granted was fully secured as it was backed by tangible asset, namely Gold Jewels or Immovable Property. Financial requirements for family functions, children’s Education,  Marriages, Medical Treatment and property Acquisition and the like could he easily met by the common man without hassles because of the presence of Nidhis

Requirements for Nidhi Company Registration

To start a Nidhi Company in India the first step is to incorporate a Limited Company which includes a minimum of;

  1. Seven Shareholders
  2. Three Directors
  3. 10 lacs of share capital.

During the process of incorporation of a Nidhi Company, it must be ensured that the object of the Limited Company mentioned in the Memorandum of Association must be of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

Within a period of one year from the commencement of the Nidhi Companies Rules 2014, every Nidhi shall ensure that it has:

  1. Not less than 200 members.
  2. Net owned funds of Rs. 10 lacs or more.
  3. Unencumbered term deposits of not less than 10 % of outstanding deposits.
  4. Ratio of Net Owned funds to Deposits of not more than 1:20.

Hence, to form and to run a Nidhi Company requires lots of compliance work. So, any person who is intending to form a Nidhi company must make sure that he/she has completely understood all the compliances which are to performed after the formation of a Nidhi Company.

Nidhis are more popular in South India and are highly localized single office institutions.They are mutual benefit societies, because their dealings are restricted only to the members, and membership is limited to individuals. The principal source of funds is the contribution from the members. The loans are given to the members at relatively reasonable rates for purposes such as house construction or repairs and are generally secured. The deposits mobilized by Nidhis are not much when compared to the organized banking sector.

General procedure for Registration of Nidhi Company:

  • The provision of companies Act says before incorporating a Nidhi company, public limited company is required to be formed and later proposal should be submitted with central government for declaring that company as NIDHI Company.
  • The proposal to apply the central government for declaring the company as Nidhi Company shall be decided by the board and a resolution should be passed in this regards.

General restrictions or prohibitions of Nidhi Company

No Nidhi shall-

(a) carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;

(b) issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;

(c) open any current account with its members;

(d) acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or 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 such Nidhi;