What is a Nidhi Company?
As the name ‘Nidhi’ denote ‘treasure’, the formation of a Nidhi company in such a vast financial market is indeed true to its name.
- Similar to a Non-Banking Financial Institution or NBFC, it is formed
- To accept and lend deposits though not
- To the public but amongst its shareholder members
How is Nidhi Company different from other companies?
A Nidhi company offers loan and accept deposits from its members only but does not require any license from the RBI.
What is the use of a Nidhi Company?
It tries to cultivate a
- Much-desired saving habit among the members of the company thereby
- Leading to the growth of a ‘treasure’ while mutually benefiting all its members.
What governs Nidhi Companies?
Nidhi companies are registered under section 406 of the Companies Act 2013 and governed by the Nidhi Rules 2014.
Pros
Convenient formation
- The formation of a Nidhi company requires only 7 members and,
- Need 3 directors and,
- Takes 10 to 15 days for the formation.
Less Capital Requirement
- The capital requirement of a Nidhi company is not high when compared to NBFCs.
- It has INR 5,00,000 as a capital requirement.
Less RBI compliances
- Though Nidhi companies are like NBFCs,
- They are not governed by stringent RBI regulations.
Low Risks
- There is a low level of risks regarding non-payment of loan amount since the interest rates are quite low and,
- The loan is given among the members of the company only and,
- Not to the outsiders.
Cons
- A Nidhi company cannot raise a deposit from the public.
- It can only accept and lend money between its shareholder members only
- It cannot issue any debentures or debt instruments or even preference shares
- A Nidhi company cannot buy any corporate share or resort to hire purchase financing or lease financing
- It should have a minimum of 200 members and,
- Net owned funds of equal to or greater than INR 10 lakhs within 1 year of the commencement of the company.
FAQs
Can loans be provided to non-members?
No, since a Nidhi company is formed for the mutual benefit of members only
How to register for a Nidhi Company?
Here is a guideline to register in a hassle-free manner
- Like any other company, get your name approved through ‘RUN’ facility on MCA portal
- Obtain DSC of the proposed directors
- After approval of name and obtaining DSC, fill up SPICE32 form along with drafting Memorandum and Articles of Association.
- Also NOC and other address related evidence of both the directors and the Registered office of the formed company along with consent and declaration by first directors in DIR 2 and,
- Self declaration from all the subscribers to the memorandum including the first directors in for INC 9
- It will take around 15 days to get Certificate of Incorporation after which a Nidhi company is successfully registered.
Can Trusts become a member of the Nidhi Company?
No, nobody except individuals can become members of the Nidhi Company
Is Nidhi Company a private or a public limited company?
A Nidhi company is always a public limited company
Can a person become a director of Nidhi Company without holding any share?
No, a director must also be a shareholder member of the company
Can a Nidhi company distribute dividend?
Yes, a Nidhi company can distribute dividend but it cannot exceed 25 percent of the paid-up capital
How long can a director holds office in a Nidhi company?
The tenure of the director of a Nidhi company shall be 10 years.
What is the maximum limit of deposits that a Nidhi company can accept?
A Nidhi company can accept up to twenty times of its Net Owned Funds or NOF per its last audited financial statements.
Can a Nidhi company issue preference shares?
No, it cannot issue any debt instruments or preference shares.
Does a Nidhi company have a different software?
Yes, it has different software called Nidhi company software to manage its workflow and processes.
