Nidhi Company Registration in India - Overview
Nidhi Company is somewhat similar to NBFCs but is different in the manner of how it operates. Nidhi companies borrows from and lends to its members only for mutual benefit. Nidhi Company Registration in India is done under the regulations and governance of Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.
The objective of forming a Nidhi Company is to encourage savings amongst its members or shareholders. The funds contributed to a Nidhi company come only from its members (shareholders) and are to be used only by the shareholders or members of the Nidhi Company. Nidhi company has a separate legal entity and thus ensures limited liability.
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Nidhi Company Registration Package
- What we provide
- Documents required
- Certificate of Incorporation (CIN)
- Permanent Account Number (PAN)
- Memorandum of Association (eMOA)
- Articles of Association (eAOA)
- Director’s Identification Number (DIN No)
- Digital Signature (DSC)
- Goods and Service Tax (GST) Registration
- Help to open Bank Account
- Provident Fund (PF)
- Employees State Insurance (ESIC)
- Required two names of the Company
- Object of the Company
- Address Proof of the Registered Office (Rent Agreement, Receipt, Electrical Bill, Owner Property tax)
- Director's Electrical Bill
- Director's Driving Licence or Passport (If any)
- Director's Last 6 months Bank statement
- Director's Email and Mobile
- Director's Photo
The process of Nidhi Company Registration in India is simple and easy. Here are the steps of Nidhi company registration process is described below-
Step 1: Apply forr DIN and DSC
First, the Directors of the Nidhi company are required to apply for DIN (Directors Identification Number) and DSC (Digital Signature Certificate). DIN is issued by the MCA and DSC is a digital signature used for all e-filings.
Step 2: Name Approval
Next, you need to choose and suggest 3 different and unique names to the MCA for your Company. Out of these 3 names, only one will be accepted by the MCA. The proposed names must be unique and must not resemble an existing name.
Step 3: MOA & AOA Drafting
MOA must mention the main objective of incorporating a Nidhi company and AOA lays down the guidelines the company will follow. The MOA and AOA are then to be filed to the ROC (Registrar of Companies) with the subscription statement.
Step 4: Issuance of Certificate of Incorporation (CIN)
It takes between 15-25 days to form a Nidhi company and receive the incorporation certificate. This certificate declares that the company has been formed and it also mentions the company identification number (CIN).
Step 5: PAN, TAN and Bank Account
The last step is to apply for PAN and TAN. PAN and TAN are usually received within 7 working days. Thereafter , you have to get a bank account opened by submitting the Certificate of Incorporation, MOA, AOA, and PAN to the bank.
Nidhi Companies play an important role in helping the middle and lower-middle classes by providing them with financial services with minimum documentation and formalities. For people with the low annual income, it is difficult to meet the minimum eligibility criteria of loans and access other financial services . With Nidhi Companies, it is now convenient for these low income groups to keep savings and benefit from the returns at fixed durations. Some of the advantages of Nidhi Company Registration are listed below:
- Easy Formation
The registration process of a Nidhi Company is relatively easy and simple in comparison to other NBFCs. To form a Nidhi company, only seven persons are required out of which three will be appointed as Director. Moreover, the registration process requires minimal documentation and paperwork, which makes it easier to register a Nidhi Company.
- Minimal risk of non-payment of Loans
Since Nidhi Companies accept deposits and offer loans to its members only, it reduces the risk of non-repayment of loans as compared to other businesses of the same nature.
- Limited RBI Regulations
Even though Nidhi Company comes under the category of NBFC, the approval of RBI is not required to start its operations. Nidhi Companies have to incorporate themselves as a Public Company with the Ministry of Corporate Affairs (MCA). Financial activities of Nidhi Companies fall under the regulations of Nidhi Rules, 2014, and Companies Act, 2013. The regulatory compliances of Nidhi Rules are less strict.
- Low Capital Requirement
The minimum requirement of capital is one of the vital advantages of Nidhi Company Registration. As per Nidhi rules 2014, the minimum capital required for registering a Nidhi Company is Rs 5 Lakh. And you have the opportunity to invest the capital within the two months after the registration.
- No external interference
The overall activities of a Nidhi Company are concerned with and to their members only. No external party can deposit money; also they can’t intervene in management-related operations of the Company.
- Perpetual Succession
Even after the death or retirement of any member of the Nidhi Company, its operations are not interrupted and will continue to operate irrespective of any such situation. Nidhi Companies follow a practice of perpetual succession which allows the Nidhi Company to continue its operations until it gets legally dissolved.
Following are some of the disadvantages of incorporating a Nidhi Company in India:
- 1. Since, Nidhi Companies don’t accept deposits from the outsiders other than its members, if the amount received by them from their members is less, it restricts the ability of the Company to lend money to its members. And if the lending capacity of a Nidhi Company is limited, the whole objective of the formation of the Nidhi Company goes in vain.
- 2. As per section 406 of the Companies Act 2013 and Nidhi rules 2014, A Nidhi Company has to ensure that by the end of 1st-year of incorporation, it holds minimum 200 members and the Net Owned funds should be Rs 10 lakh or more than 10 lakh rupees. It might be difficult for fulfilling this condition.
- 3. Unlike other financial institutions, Nidhi Companies are restricted from advertising their financial schemes. Nidhi Companies are allowed to advertise among its members only.
- 4. Nidhi Companies are restricted from running any other business other than lending and borrowing.
- 5. A Nidhi Company is not allowed to carry forward its deposit schemes any more than a period of 5 years.
Nidhi Company Registration documents are listed below-
- Passport Sized photographs of all the directors.
- Identity proof of all the designated directors and shareholders. (PAN card and Passport are valid).
- Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).
- Address Proof of the Company (not older than 2 months).
- Copy of the Property papers (if owned).
- NOC (No-Objection-Certificate) from the owner (if rented).
It takes about 20 to 30 days for Nidhi Company Registration and to receive the Certificate of incorporation. Timeline varies depending on the speed of application and approval of Government bodies.
Nidhi Company Registration cost ranges from Rs. 18,000 to Rs. 25,000 excluding GST.
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What is the limit on deposits in Nidhi Company?
A Nidhi company cannot accept deposits more than 20 times of its Net Owned Funds (NOF) as per it’s last audited financial statements.
What is the maximum limit of savings bank account?
The maximum balance in a savings account of a member of a Nidhi company should not be more than Rs.1 lakh. The maximum rate of interest payable on any deposits should not be more than 2% or above the rate of interest payable by nationalized banks, on such deposits.
How many Directors are required in a Nidhi Company?
Minimum 3 directors and a maximum of 15 Directors can be part of a Nidhi Company.
What are the Nidhi Rules?
Nidhi Companies are regulated by Nidhi Rules, 2014. These rules were laid down by the Central Government and contain regulatory policies for Nidhi company operations.
Who can become a member of Nidhi Company?
1. Any individual person and not a corporate body or trust, can become a member.
2. Should be above 18 years of age.
What restrictions are laid for Nidhi Company?
- A Nidhi Company is prohibited to carry out activities involving chit funds, insurance, leasing finance or acquisition of securities issued by any Body Corporate.
- A Nidhi Company cannot issue preference shares, debentures or any other securities.
- It cannot accept deposits or lend money, other than its members.
- It cannot pay any incentive for mobilizing deposits.
Are the deposits with the company safe and secured?
Yes, it is safe because Government of India/Ministry of Corporate Affairs/RBI has framed the laws and rules to ensure the security and safety of deposits and Nidhi companies must strictly abide by the rules and regulations framed by the Central Government.
What are the post-incorporation requirement of a Nidhi Company?
- A. Once the Nidhi Company is incorporated it must fulfil the following requirements:
- It must have at least 200 members/shareholders within 1 year of incorporation
- Minimum Net Owned Fund should be Rs. 10 Lakhs
- Unencumbered term deposit must be at least 10% of the term deposit.
- The ratio of Net Owned Fund and term deposit should not be less than 1:20.
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