Nidhi Companies in India
Are you willing to know more about Nidhi company? Then you should understand that Nidhi companies are unique in the Indian context when it comes to financial institutions. Nidhi companies are non-banking financial institutions whose primary goal is to instill the habit of thrift and savings in their members. They are mutual benefit societies that make loans and accept deposits from their members.
What is a Nidhi Company?
The Ministry of Corporate Affairs (MCA) regulates Nidhi companies under Section 406 of the Companies Act, 2013, and the Nidhi Rules, 2014. The name “Nidhi” means “treasure” in Sanskrit, and it represents the company’s goal of fostering financial stability and collective growth among its members. These businesses are organized as public limited companies and are governed by their respective Memorandums of Association (MOA) and Articles of Association (AOA).
Key Characteristics of Nidhi Companies
1. Membership: Nidhi companies operate exclusively for their members, who must be individuals and not corporates. Members contribute to the company’s funds and, in turn, have access to various financial services provided by the Nidhi company.
2. No External Funding: Nidhi companies cannot accept deposits or provide loans to non-members. They rely solely on the contributions and savings of their members for their financial operations.
3. Limited Operations: Nidhi companies cannot engage in activities such as chit-fund schemes, leasing, hire-purchase financing, insurance, or any other business that falls under the purview of a non-banking financial company (NBFC).
4. Minimum Requirements: To register as a Nidhi company, a minimum of 200 members is required within one year of incorporation. The net owned funds must be a minimum of INR 10 lakh, and the ratio of net owned funds to deposits must not exceed 1:20.
Registration Process for Nidhi Companies
1. Directors’ Identification Number (DIN): The proposed directors of the company need to obtain DINs from the MCA. DIN is a unique identification number required for all directors of Indian companies.
2. Digital Signature Certificate (DSC): Obtaining a DSC is essential for filing various online forms and documents during the registration process. It ensures the authenticity of the documents submitted electronically.
3. Name Approval: The next step is to choose a unique name for the Nidhi company and submit an application to the Registrar of Companies (ROC) for name availability. Once approved, the name remains valid for 60 days.
4. Memorandum and Articles of Association: Drafting the MOA and AOA is essential, as it defines the company’s objectives, rules, and regulations. These documents need to be prepared and filed with the ROC.
5. Incorporation and Registration: Once the necessary documents are prepared, the application for incorporation can be filed with the ROC. Along with the application, the prescribed fees and necessary attachments must be submitted.
6. Post-Incorporation Compliance: After the company is successfully registered, certain post-incorporation compliances need to be fulfilled. These include obtaining a Permanent Account Number (PAN), Goods and Services Tax (GST) registration (if applicable), and opening a bank account in the company’s name.
7. Commencement of Operations: A Nidhi company can commence its operations only when it has a minimum of 200 members. It must also fulfill the minimum net owned funds and other financial ratios specified by the Nidhi Rules.
Nidhi Institution plays an important role in promoting financial inclusion and encouraging individuals to save. These institutions contribute to the economic growth and stability of their members by providing access to financial services and fostering a culture of thrift. However, to successfully establish and operate a Nidhi company, the registration process and regulatory framework must be followed. A thorough understanding of the legal requirements and procedures can help these unique financial entities in India run smoothly.
