Are you gearing up to commence a finance business without investing too much capital? If your response is yes, then you must think of starting a Nidhi company.
Nidhi Company Registration – An Overview
Nidhi Company is the blessing in disguise for those people who are interested in beginning the loan/finance business in India as it ensures ease and affordability factor as well.
Nidhi Company Registration is a procedure through which the incorporation of type of NBFC called Nidhi can be made possible. Another name of this NBFC is the Mutual Benefit Finance Company. Furthermore, this incorporation takes place under the provisions of Companies Act, 2013.
The business of Nidhi Company is concerned with the acceptance of deposits and lending of money. As compared to the registration processes of other NBFCs, This registration process is an easy one. In respect of taxation and annual compliances, Nidhi companies enjoy the benefit of specific exemptions. Nidhi Company incorporation will invigorate the feeling of savings as well as smart spending in the mind of its members.
Widely known as Nidhi Bank, Nidhi companies endeavors to cultivate the values of thrift amongst their members. Rules related to Nidhi Company suggest that it can proceed further for the transactions within restricted boundaries of work and only with its registered members.
Moreover, it’s not wrong to say that these companies acquire from their members and confer to their members. Nidhi company activities come under the ambit of RBI. In this category of NBFC, Directors are free from the shackles of eligibility norms of least qualification. At the end of the name of all the Nidhi Companies, Nidhi Ltd. must be there at any cost.
Key Points Circumscribing Nidhi Company Registration
- All the provisions related to governance and establishment of Nidhi companies in the geographical boundaries of India come to light in Section 406 of the Companies Act 2013 and also in the Nidhi companies’ rules of 2014.
- As Nidhi Companies indulges in the trade of lending money and accepting of deposits by nobody else but by their members only, RBI has provided them with many exemptions.
- RBI is responsible for issuing the directives and guidelines for the Nidhi Companies. Primarily, these are concerned with investments and most of the financial activities by companies. (Also comprising the NBFCs)
- In the case of Nidhis, deposits earn shallow interest in comparison to deposits in the systematic sector of banking.
- As Nidhi Companies are helping all the members by doing their utmost for their mutual benefit along with their welfare, these companies have earned the tag of Mutual Benefit Societies. All the members of Nidhi Companies participate in all the lending and borrowing activities.
Benefits of Establishing a Nidhi Company
Many people in our country want to deal with financial services, but due to the scarcity of capital, they are unable to take further steps. The principal objective of forming a Nidhi Company is to nurture the belt-tightening habits amongest its members so that by prioritizing saving, they won’t face any difficulty in meeting their financial requirements that keep on arising from time to time. Apart from this, many unexplored benefits of establishing a Nidhi Company exists.
Reasons, why people prefer Nidhi Companies, are listed down as
- Easy Formation Without Any Complexity InvolvedThe registration process of Nidhi Company relishes freedom from all kinds of complexities. As less documentation process prevails from the beginning to end in Nidhi Company Registration, Initiating a Nidhi Company is an easy task. In addition to this, the registration process gets completed within one or two weeks.
- Limited LiabilityIn accordance with the Companies Act, 2013, directors and shareholders are having limited liability. In the game of business, either there will be profit or the company have to incur losses. While performing the business activities, if the company suffers from any loss or even goes through any financial trauma, creditors, banks, and the government have no power to seize the personal assets of any of the shareholders or even the directors.
- High Certainty ValueIn a developing nation like India, From 8 years old child to 60 Years older adult is interested in saving their money. Here, the habit of saving is going in the same line with the central goal of Nidhi Company. Inculcating the habit of saving amongst its members is one of the primary purposes of Nidhi Companies. As it is a going concern of establishment and is full of certainty, members would keep on sticking to the good habit of saving.
- Few GuidelinesBeing governed under the Nidhi Rules, 2014, Nidhi Companies have to follow fewer guidelines imposed by RBI. The monitoring and regulating hat remain in the hand of the Central Government. It empowers them to control the operating part along with all their activities. Even though Nidhi Company falls under the category of NBFC, it rarely follows RBI Regulations. You can definitely form your Nidhi Company in India as RBI is not going to create any trouble in your path. Go ahead without putting yourself in any rush-n-hush.
- Separate Legal EntityBeing a separate legal entity from its shareholders, directors as well as promoters, Nidhi Company can own property and incur debts on its name. It has got the power to sue anybody or be sued by others. If there will be a requirement for the fund in the company, the company cannot ask its members for any contribution.
- Easy Availability Of FundsNidhi Company is the most secure and most accessible way of accepting deposits from the end of the general public. Only the requirement is that they should be the registered members.
- Perpetual ExistenceDeath or departure of any member is not going to affect a Nidhi Company as it has perpetual existence. Perpetual succession allows the Nidhi Company to continue till the time it gets dissolved legally.
- Meeting The Requirements Of Lower And Middle ClassNidhi Companies play a crucial role in fulfilling the demands of people belonging to the category of lower and middle-income society by extending financial support to them without any further lengthy documentation involved.
- Ease Of ManagementIn Nidhi Company, bringing changes is not a matter of worry and concern, unlike other NBFCs.
Nidhi Company Registration Process
Even though the Nidhi Company Registration process is quite simple to follow, you must take help from the professionals which may make even the complex of things straightforward. The completion and filing of complex forms become comfortable with the help and advice of professionals. Also, it would be a time-saving exercise with their support. Sometimes, the government portal and a bit difficult language make things challenging. After gaining expertise in Nidhi Company Registration, we have successfully started many Nidhi Companies under our roof. The Nidhi Company incorporation procedure involves many items submission, which are as follows:-
Forms To Be Filled
INC 9 – To be filed by all the subscribers to MoA
DIR 2 – To be filed by all the directors of the company also to be signed by all the subscribers, deceleration as per rule 5 & 6 of Nidhi rules 2014.
- Directors And Members – Begin With KYC PartAll the shareholders and directors must undergo the KYC process. At least there should be three directors along with the seven members. An individual can be the director, as well as a member. Both can be the same.
- The Need For Digital Signature CertificateNidhi Company Registration Process gathers speed when there is a fulfillment of the primary requirement i.e., digital signature. Also, it’s mandatory to get all the submitted forms self-attested.
- Consent On NameNow, the first requirement is to select and suggest at least three names to proceed further in the Nidhi Company Registration Process. MCA is all set to reject two names and will give its nod to one name only. Another factor that requires consideration is the uniqueness of the proposed names. Also, they should not resemble the names of registered companies in the past. SPICE + web based form will help in reserving the name.
- Articles Of Association And Memorandum Of Association(Final Incorporation)After finishing up the process of name approval, Nidhi Company Registration Application gets submitted along with the Articles of Association and Memorandum of Association, respectively, of Nidhi’s company. Before COI issuance, an inspection of the application takes place in an orderly manner. And finally, COI is issued.
- PAN And TAN & Opening Of Your Bank AccountYou are likely to receive your PAN and TAN within a week. And hereafter, submits the Memorandum of Association, Articles of Association, Certificate of Incorporation, and PAN to the bank, and eventually, you will get your bank account opened.
- RBI Guidelines On Nidhi CompaniesThe RBI is authorized to issue directions since a Nidhi company falls under one class of Non-Banking Financial Companies in relation to deposit acceptance activities. Nonetheless, exemption has been provided by RBI from the grounded provisions of the RBI Act and other directions as are applicable to NBFCs since the Nidhi Company transacts with its shareholder-members only.
Requisites Prior to Nidhi Company Registration
- Minimum Directors- 3
- Minimum members- 7
- Minimum capital requirement- Rs 5 Lakh
- Not empowered to issue preference shares
- The goal of the company should be fostering the saving habit by receiving deposits from and lending to its members
- DIN for Directors
What are Nidhi Companies not entitled to do?
Nidhi Companies are not entitled to perform the following transactions
- Invite and accept deposits from their own members rather than other members.
- Engage in Chit funds business and leasing finance
- Going on for any business other than borrowing and lending to its members
- Opening the current account with its members
- Getting into a partnership arrangement to carry lending as well as borrowing activities
- Issuing debentures, preference shares, or some other debt instruments
- Accepting and lending of deposits from corporate
- For mobilization of deposits, pay fee, incentive, and commission
- Pay brokerage amount for granting loans to the members
- Hire-purchase finances
Mandatory Compliances for Nidhi Company
- NDH 1In this form, A Nidhi Company has to submit the list of Nidhi Company members within the time limit of 90 days at the closure of the financial year.
- NDH 2In this form, A Nidhi Company can make a request to MCA for an extension, in case it has been unable to add 200 members in its first financial year.
- NDH 3Besides the forms mentioned above, A Nidhi Company is also supposed to file a half-yearly return in NDH 3 Form.
- Annual Returns With ROCIt’s a compulsory thing that a Nidhi Company should file an annual return with the Ministry of Corporate Affairs through Form MGT-7.
- Profit, Loss And Balance SheetIn Form AOC-4, A Nidhi Company has to submit financial statements and other related documents.
- Income Tax ReturnsNidhi Company must file annual returns in the following financial year by September 30, like the rest of the companies.
Nidhi Company Registration – Required Documents
There are many documents mandatory to accomplish the Purpose of Nidhi Company Registration. The key Documents are given below, which are as follows:-
- Copy of Directors Pan card
- Identity proof of every shareholder and the director
- Passport size photos of all the directors
- Electricity bill or other utility bills for the address proof
- Aadhaar Card of Directors as well as of Shareholders
- Address proof of the directors and shareholders
- Rent agreement copy (In case if rented)
- No-Objection-Certificate (NOC) from the Landlord
- Property papers copy
Requisites after Nidhi Company Registration
- To comply with the statutory requirements, A Nidhi Company needs to have 200 members by the 1st year-end.
- The minimum New Owned Fund should be Rs 10 Lakh or more than 10 Lakh Rupees.
- The prescribed ratio of the Net Owned Fund to Deposits should not exceed more than 1:20.
- A Nidhi Company is not entitled to admit a minor, trust, or a body corporate as a member.
- There is a rule that unencumbered term deposits shall be more than 10% of outstanding deposits.
Factors to Consider Before Selecting Nidhi Company Name
It’s essential to follow the specified guidelines before selecting the name of Nidhi Company. While choosing a name, you need to consider these points
- Must Display Uniqueness The name should be only one of its kinds. It must carry a distinctive identity when compared to existing companies.
- Simple And Crisp It should be easy to keep in mind for a long time, and also it should be easily understandable by one and all.
- Must Meet Its Purpose It must meet its purpose of conveying the brand objective and information about the brand to the people through its name.
- The Suffix Portion Is Crucial Mutual benefit Nidhi Limited or Nidhi Limited’ should come as the suffix.
- Must Follow The Laws There are some provisions related to name in Emblems and Names (Prevention of Improper use) Act, 1950. Without violating laws, it should follow all these guidelines.
- Shouldn’t Be Offending Anyone It should not be offending any community of people, shouldn’t be hurting the sentiments of any religion, and also shouldn’t be undesirable to any culture.