ALL ABOUT INCORPOATION OF NIDHI COMPANY

BRIEF INTRODUCTION

Nidhi company is a company incorporated in India, with the objective, to inculcate the habit of saving among its members or shareholders. As per the Indian financial sector, it a society formed for the mutual benefit of their members, and is notified by the Central Government. Nidhi companies are confined to accepting deposit and lending loans to their members.

Nidhi company is regulated by RBI in respect of accepting the deposits. Even though Nidhi company is registered as an NBFC, they are exempted from the core provisions relating to NBFCs under the RBI Act, 2013, as they are working for the welfare of their members.

CONDITIONS FOR INCORPORATION OF NIDHI COMPANY

A company to be incorporated as a Nidhi company is required to comply with the following conditions -

1. The company must be initially formed as a public company, and then be incorporated as a Nidhi company.
2. The Nidhi company is required to have at least Rs 5 lakhs of paid-up equity share capital.
3. Such a company is restricted from issuing any type of preference shares. However, the company issues preference shares, before incorporating as a Nidhi company, such shares are required to be redeemed before applying for incorporation.
4. The company should have the objects, as prescribed under the act, i.e., to foster or inculcate the habit of savings among its members.
5. the company can accept deposits only from its members, and such deposits be utilized for providing loan to its members only.
6. The company undertaking the objects of a Nidhi company, is required to use the words ‘Nidhi Limited’ after the end of their company’s name.
7. Nidhi company is required to have at least 7 members and at least 3 directors for its incorporation.

POST REGISTRATION REQUIREMENTS OF NIDHI COMPANY

Nidhi company is required to comply with some post incorporation requirements. These are -

1. The company is required to have at least 200 members and net owned funds of at least Rs 10 lakhs, within 1 year from the date of its incorporation.
2. Its Unencumbered Term Deposit shall not exceed 10% of the total Outstanding Deposits.
3. The ratio of Net owned fund to deposits should be more than 2:1.
4. Where the above requirements are not fulfilled within 1 year from the date of incorporation, the said company is required to file an application, seeking an extension and the application be in the Form NDH-2 and made within 30 days from the end of the first financial year. 
5. The Regional Director, after successful receipt of application, shall pass an order, as it may feel appropriate within 30 days of receipt of Application for the extension.
6. Nidhi Company is required to file Form NDH-1, duly certified by any CA/CS/CMA, and the same be filed within 90 days of closure the first FY.
7. Where the Nidhi company fails to comply with any of the above requirement, and no extension has been granted by the RD, the Nidhi is not allowed to accept any further deposits from the starting of next FY, till they comply with them.
8. They are also required to file Form NDH-3 which relates to the half yearly return, duly certified by CA/CS/CMA, and the same be submitted within 30 days from the end of each half year.

DOCUMENTATION OF NIDHI COMPANY

The following documents are required to be filed by the applicant in self attested manner -

• IDENTITY PROOF OF MEMBER AND DIRECTOR

The applicant is required to provide the copy of PAN card in respect of Indian members and directors, while it will be attested copy of Passport for NRIS.

• RESIDENTIAL PROOF

The residential proof will include copy of Aadhar card, Bank statement, driving license, electricity bill, or Passport. Out of these documents, any two documents would suffice and the said documents should be of latest period.

• PROOF OF REGISTERED OFFICE

The applicant needs to provide a copy of Rental Agreement in case the property is taken lease, or Sales Deed where the property is purchased. The agreement be accompanied with the local municipal tax receipt, electricity bill, and a No Objection Certificate (NOC) received from the landlord, for utilizing the said premises as a registered office.

• INCORPORATION DOCUMENTS

The hard copy of the incorporation documents, involving the MOA, AOA and any registration certificate received, duly authorized using the official Digital Signature.

• PASSPORT SIZE PHOTOGRAPHS

The applicant is also required to submit at least 2 photographs for each of the members and directors.

PROCEDURE OF NIDHI COMPANY

As discussed above, every Nidhi company, is initially required to incorporate as a public company under the Companies Act 2013. Apart from this, they need to have at least 7 members and 3 directors to initiate the incorporation. Generally, the whole process of incorporation is completed within 45 days from the date of application.

STEPS FOR TO INCORPORATE OF NIDHI COMPANY

1. The first step of incorporation involves the application for issuance of DIN and DSC for the said company.
2. Once the DSC is allotted, the company is required to login into the MCA portal and create an account on the portal. Side by side, the directors are required to draft and finalize the MOA and AOA of the company.
3. After successful registration on MCA portal, the applicant is required to reserve the name of the Nidhi company on the SPICE platform.
4. The applicant should ensure that the name of the said company shall not identical or similar to the name of any existing incorporated company. Also, the name should not be disqualified by the Central Government.
5. Once the name is approved, the same is reserved for the period of 30 days.
6. After successful reservation of the name, the applicant is required to file the MOA and AOA of the company.
7. The MOA should contain the objects, as prescribed for a Nidhi company under the Act.
8. After successful uploading of documents, the applicant shall submit the application with the requisite fees.
9. Once the application is submitted, the same along with the documents, is scrutinized by the authority, and if found correct, the Incorporation Certificate is issued in the name of the said company.
10. After receiving the Certificate of Incorporation, the applicant is required to apply for PAN and TAN number to be issued in the name of the company.
11. Once the PAN is obtained, open a current account in any bank, operating in India.
12. The Nidhi company would also liable to take registration under GST, where the applicable threshold limit is breached.

ADVANTAGES OF NIDHI COMPANY REGISTRATION

The following advantages be reaped by a company formed as a Nidhi company.

• SEPARATE LEGAL ENTITY

Since, Nidhi company is incorporated as a public company, they are considered as a separate legal identity, independent from their directors and members. Thus, they can own property on their name.

• PERPETUAL SUCCESSION

Being a company, they have perpetual succession. It means that the working of the company will not be affected by the death, insolvency and retirement of anu member or director. It will continue to exist, till they are dissolved by the order of law.

• SWIFTNESS IN INTRODUCING CHANGES

As compared to other forms of business, Nidhi company can very easily inculcate changes in their business. Where any change is required to be incorporated in respect of the management, the same can be done, just filing and submitting some forms on the MCA portal.

• INCREASED CREDIBILITY

In terms of the credibility, Nidhi companies are considered to be most trusted one, as compared to some of the other forms of business entities working in the market. Such a credibility is noticed, as the registration and monitoring over the activities of Nidhi company is done by the Ministry of corporate affairs.

RESTRICTIONS ON NIDHI COMPANY

As per the provisions of Nidhi Rules 2014, the following activities are restricted to be performed by a Nidhi company –

IN RESPECT OF ACTIVITIES

• They cannot carry on the business related to any chit fund, hire purchase, leasing and insurance.
• They cannot issue any type of preference shares, debentures or any other debt instrument to any person.
• They ate restricted from opening a current account of its members, with them.
• They cannot acquire any stake in another company by subscribing to the securities or control the composition of Board of Directors of any company.
• They are not allowed to make any change in its management unless the same is approved by a Special Resolution in its general meeting and by the Regional Director.
• They shall not undertake any business other than taking deposit/lending in its own name.
• Where any locker facility is provided to the members, the rent received from such lockers, shall not exceeds 20% of the total income of the company at any point of time.
• They cannot accept deposits or lend money to a person, who are not the members of the company.
• They cannot pledge the assets submitted by the members as security, to any third person.
• They are restricted from entering into any partnership arrangement for lending business.
• They are also restricted from paying any type of brokerage or incentive in respect of mobilizing of deposits submitted by the members or also in respect of clearing of funds as loans.

IN RESPECT OF MEMBERSHIP

• The members of Nidhi company shall not include any body corporate or trust.
• Every Nidhi company shall have in minimum 200 members, within 1 year from the date of incorporation.
• Any person who is a minor shall not be admitted as a member.
• In case any deposit is made in respect of a minor, the same be accepted is made by the legal guardian of that minor.
• Minimum of 7 members and 3 directors are required to incorporate a Nidhi company.

FAQs ON NIDHI COMPANY

Q.: What are safety standards of deposits with Nidhi company?

The deposits made with Nidhi company is fully secured, as their working is monitored by MCA and the company works on the regulations framed by the Ministry of Corporate Affairs and Reserve Bank of India.

Q.: For what purpose does the deposits lying with the company used for?

The deposits made with the Nidhi Company, is used for providing loans to its members, which is generally at a very low interest rate.

Q.:Who is eligible to become the member of such company?

The person looking to become the member of the Nidhi company should be at least 18 years of age, and be a person of sound mind. Apart from this, they should have a valid ID Proof and Address Proof as well.

Q.: Is a minor eligible to become a member?

Since, a minor is a person who is below the age of 18 years, they cannot become the member of the company. However, deposits can be accepted on behalf of minor, provided the same is made by their legal guardian, who is the member of such company.

Q.: What all documents are required to form a Nidhi company?

The following documents are required to be filed by the applicant in self attested manner –

IDENTITY PROOF OF MEMBER AND DIRECTOR

The applicant is required to provide the copy of PAN card in respect of Indian members and directors, while it will be attested copy of Passport for NRIS.

RESIDENTIAL PROOF

The residential proof will include copy of Aadhar card, Bank statement, driving license, electricity bill, or Passport. Out of these documents, any two documents would suffice and the said documents should be of latest period.

PROOF OF REGISTERED OFFICE

The applicant needs to provide a copy of Rental Agreement in case the property is taken lease, or Sales Deed where the property is purchased. The agreement be accompanied with the local municipal tax receipt, electricity bill, and a No Objection Certificate (NOC) received from the landlord, for utilizing the said premises as a registered office.

INCORPORATION DOCUMENTS

The hard copy of the incorporation documents, involving the MOA, AOA and any registration certificate received, duly authorized using the official Digital Signature.

PASSPORT SIZE PHOTOGRAPHS

The applicant is also required to submit at least 2 photographs for each of the members and directors.

Q.: Does Nidhi company take any collateral for loan granted?

Yes, Nidhi provides loans only against a collateral that too in the form of gold, silver jewellery or any type of financial securities whose value is unlikely to change.

Q.: Are there any restrictions in relation to Nidhi company?

As per the provisions of Nidhi Rules 2014, the following activities are restricted to be performed by a Nidhi company –

IN RESPECT OF ACTIVITIES

• They cannot carry on the business related to any chit fund, hire purchase, leasing and insurance.
• They cannot issue any type of preference shares, debentures or any other debt instrument to any person.
• They ate restricted from opening a current account of its members, with them.
• They cannot acquire any stake in another company by subscribing to the securities or control the composition of Board of Directors of any company.
• They are not allowed to make any change in its management unless the same is approved by a Special Resolution in its general meeting and by the Regional Director.
• They shall not undertake any business other than taking deposit/lending in its own name.
• Where any locker facility is provided to the members, the rent received from such lockers, shall not exceeds 20% of the total income of the company at any point of time.
• They cannot accept deposits or lend money to a person, who are not the members of the company.
• They cannot pledge the assets submitted by the members as security, to any third person.
• They are restricted from entering into any partnership arrangement for lending business.
• They are also restricted from paying any type of brokerage or incentive in respect of mobilizing of deposits submitted by the members or also in respect of clearing of funds as loans.

IN RESPECT OF MEMBERSHIP

• The members of Nidhi company shall not include any body corporate or trust.
• Every Nidhi company shall have in minimum 200 members, within 1 year from the date of incorporation.
• Any person who is a minor shall not be admitted as a member.
• In case any deposit is made in respect of a minor, the same be accepted is made by the legal guardian of that minor.
• Minimum of 7 members and 3 directors are required to incorporate a Nidhi company.

Q.: What are the provisions related to number of members in Nidhi company?

It is to be noted that to incorporate a Nidhi company, only 7 members and 3 directors are required. However, the number of members should be at least 200 within 1 year from the date of incorporation.

Q.: Can a person be the director of the company, without being the member of the said company?

Under the Act, it is provided that the director of the Nidhi company, shall be its member as well. Thus, every director is liable to take up some number of shares in the company as a member.

Q.: What are the provisions related to the tenure and reappointment of directors?

The director can be appointed for a term of up to ten consecutive years. And the said director, after the completion of said period of 10 years, shall be eligible for reappointment, only after the expiry of 2 years from the end of their tenure.

Q.: What could be the minimum nominal number of shares?

The minimum amount that can be the nominal amount of the shares is Rs 10 per share.

Q.: Is there any minimum holding requirement of shares on the part of members?

Every member of a Nidhi company, is required to hold at least 10 shares or shares equivalent to Rs 100.

Q.: Is there anu cap on the amount of deposit to be accepted?

It is it be noted that a Nidhi cannot accept deposits exceeding 20 times of their Net Owned Funds, as determined according to their last audited financial statements.

Q.:What is the maximum rate of dividend that can be declared?

The members can receive a maximum of 25% dividend, and no higher amount be paid to any member. However, where any higher rate is required to be paid, the same be approved by the Regional Director first.