NIDHI COMPANY

“Nidhi” is defined as a firm that has been constituted as a Nidhi Company with the following strategic objectives;

• To foster a sense of thrift and savings among its members.
• To exclusively accept deposits from and lend money to its members;
• Which adheres to the rules of Chapter XXVI of Companies Rules, 2014
• Complies with the regulations put forward by the Central Government for the regulation of such kinds of companies.

The Ministry of Corporate Affairs is responsible for the regulation of Nidhi Company. Reserved Bank of India has the authority to instruct them on their acceptance and deposit-related matters.

Nidhi Company is a kind of Non-Banking Financial Company (NBFC). These businesses primarily operate in the southern region of the country. Nidhi Company is easy to establish as they are not required to obtain a license from the Reserve Bank of India. It is registered as a public company and should contain “Nidhi Limited” at the end of its name.

Conformity with Nidhi Company Rules:

The Central Government published the Nidhi Rules 2014 to implement the powers granted by Sections 406 and 469 of the Companies Act of 2013 which took effect from April 1st, 2014. The applicability of these regulations is described below:

Advantages of Incorporating a Nidhi Company:

• Low Compliance
• Easy to incorporate
• Minimal RBI involvement
• Low Capital Needed
• Easy to Manage

ACTIVITIES PROHIBITED IN A NIDHI COMPANY:

The following are some limitations imposed by the 2014 Nidhi Rules on Nidhi Companies. According to Rule 6 of the 2014 Nidhi Rules, a Nidhi Company shall NOT:

• Engage in the chit fund business, hire buy finance, leasing finance, insurance business, or purchase of securities issued by any body corporate;
• Issue debt instruments such as debentures, preference shares, or any other type of debt instrument under any name or form whatsoever;
• Open any current account with its members, of any kind;
• Engaging in any activity other than borrowing or lending in its own name: Provided that Nidhis that have complied with all of the requirements of these regulations may offer locker facilities for rent to their members, subject to the rental income from such facilities not exceeding twenty percent of the Nidhi's gross income at any point during a financial year.
• Acquire another company through the purchase of securities, regulate 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 received the prior approval of the Regional Director having jurisdiction over such Nidhi.
• Accept money as a deposit or lend to anyone besides its members;
• Accept deposits from or make loans to any body corporate;
• Pledge any of the assets that its members have deposited as security;
• Engage in any partnership agreements when it comes to borrowing or lending;
• Pay any brokerage or reward for collecting deposits from its members, deploying funds, or approving loans.
• Cannot solicit a deposit to promote itself.

NUMBER OF MEMBERS REQUIRED TO FORM A NIDHI COMPANY:

A Nidhi Company must have a minimum of seven members, of whom three must serve as the company's directors.

SHARE CAPITAL AND OWNERS FUND:

Starting a Nidhi Company requires an equity share capital of at least 5 lakh rupees. Preference shares cannot be issued by Nidhi Company.

DOCUMENTS REQUIRED FOR REGISTRATION:

The following documents are required for a company to be registered as a Nidhi company:

• ID Proof: PAN card or Passport (Foreign nationals & NRI)
• Address Proof: Ration card/ Aadhar Card/ Driving License/Voter ID.
• Residence Proof: Bank statement/ telephone/ mobile bill/electricity/ gas bill of the premise. Make sure the residence proof is not older than 2 months.
• Passport-sized photograph & specimen signature (blank document with signature [directors only])
• NOC from the property owner
• A copy of the sale deed/property deed (for an owned property).
• Company's Digital Signature Certificate (DSC)
• Director Identification Numbers (DINs) of all the directors,
• Updated certified copy of the company’s Memorandum of Association (MoA)
• Updated certified copy of the company’s Articles of Association (AOA).

FORMS TO BE FILED FOR FOR REGISTERING A NIDHI COMPANY:

The following forms must be filed and submitted in order to register a company as a Nidhi Company:

1	INC 9	Needs to be filed by all the subscribers of the Memorandum of Association(MOA).
2	DIR 2	Must be filed by all the directors of the company. The declaration must be signed by each subscriber in accordance with rules 5 and 6 of the Nidhi rules 2014.

CONDITIONS TO BE FULFILLED FOR GETTING ‘NIDHI’ STATUS:

Within a period of one year from its incorporation, every Nidhi needs to ensure that it has:

• There should be a minimum of 200 members,
• Net owned funds should be at least Rs. 10,00,000 ( 10 Lakhs) or more, ‘Net owned funds’ means the total of paid-up equity share capital and free reserved as deducted by cumulative and intangible assets shown in the most recent audited balance statement.
• Unencumbered term deposits representing at least 10% of the total amount of outstanding deposits as defined by Rule 14;
• Net owned funds to deposits ratio shouldn't be more than 1:20.

If the Nidhi Company complies with the aforementioned requirements, it must submit Form NDH-1 within 90 days from the end of the first fiscal year following incorporation, along with the required costs. The form needs to be duly certified by an active CA, CS, or CWA.

An extension of another financial year may be obtained upon submission of form NDH-2 to the Regional Director within 30 days from the end of the first financial year.

If even after the end of the second financial year, it doesn’t comply well with the requirements, it cannot accept deposits till it follows the provisions, and also a penalty amount would be imposed for such non-compliance of the prescribed provisions.