Nidhi company is a Non-Banking Finance Corporation (NBFC) which is more popular in the southern part of India. It is recognized under section 406 of the Companies Act, 2013 and is governed by the Companies Act, 2013 and Companies (Nidhi Companies) Rules, 2014. It falls under the purview of RBI.

As the name suggests, Nidhi means a company that has been incorporated with the prime objective of cultivating the habit of thrift and savings among its members. In the Indian language, Nidhi refers to treasure. In the Indian financial sector, Nidhi is a mutually beneficial society notified by the central government.

Nidhi companies are allowed to take a deposit from their members and lend to their members only. Therefore, the funds contributed to a Nidhi company are only from its members (shareholders) and used only by the shareholders of the Nidhi Company.

Basic Requirements to start a Nidhi Company:

1. A minimum paid up equity share capital of INR 5 lakhs.
2. It requires a minimum of 3 members.
3. Nidhi company cannot issue preference shares. In case, it has done it in the past, such preference shares shall be redeemed in accordance with the terms of the issue of such shares.
4. The words Nidhi limited shall be suffixed in its name.
5. The company shall work with the objective of cultivating the habit of savings among its members. Receiving and lending money shall be done only among the members.

Documents required for the Registration:

Scanned Copy of the Following Documents has to be Provided by the Promoters of the Company
➢ PAN card copy with Self-attestation.
➢ Latest passport size photo.
➢ Copy of No Objection Certificate(NOC) from the owner of the property.
➢ If owned property, a copy of Sale Deed and Electricity bill is sufficient.
➢ Voter Id copy or Passport copy or Aadhar card copy or Driving license copy with self-attestation.
➢ Copy of Electricity bill or Property Tax receipt or Water Tax receipt not older than two months.
➢ Utility bill has to be provided of the particular country where the NRI or Foreign national resides and it should be notarized.
➢ Latest Bank account statement or Mobile /Telephone bill or Electricity Bill (not older than two months)- no need for self-attestation.
➢ For the registered office proof of the company, if the property is rented/ leased, then copy or rental agreement or lease agreement.

In case of NRI or Foreign national, Passport copy has to be notarized at the Indian Embassy of the particular country

What is the procedure of starting a Nidhi Company in India?

In order to Start a Nidhi Company in India, it is important to incorporate a limited company under the Companies Act, 2013. For this purpose, a minimum of 3 members and 7 shareholders are required to begin the incorporation process. Usually, the process may take around 45 days.

1. OBTAINING DSC & DIN:

Digital Signature Certificate (DSC) and Director Identification Number (DIN) are required for the proposed Directors of the Nidhi Company. DIN and DSC can be obtained for the proposed Directors within 5 to 7 days from Ministry of Corporate Affairs office.

2. NAME APPROVAL & LICENSE:

Once DIN and DSC are available for at least three Directors, application for reservation of a name for Nidhi company can be made to the Ministry of Corporate Affairs. It is important that the name does not resemble the name of other companies nor should it be undesirable in the opinion of the Central Government. Also, the name of the company is preceded by suffix Nidhi Limited. Name approval can be obtained in 3 to 5 working days.

3. Once the name is approved by MOCA, the next step is to prepare for the Memorandum of Association (MOA) and Articles of Association (AOA). For this, the objective of the company must be kept in mind.

4. Then the registration documents can be submitted to the MCA along with an application for registration. MCA will usually approve the application for incorporation in 5 to 7 days, subject to their processing time.

5. GST registration: The GST Registration is a mandatory process that needs to be followed for all those persons or business entities in India which exceed the threshold limit of profits or turnover. Failure to do so for the purpose of tax evasion is a criminal offence that is subjected to penalties, prosecution and jail term.

6. The opening of a current bank account.

Requirements post incorporation includes:

➢ A minimum number of members to be 200.

➢ Net owned funds or the aggregate paid-up equity share capital reduced by the accumulated and intangible assets appearing in the last audited balance sheet shall be INR 10 lakhs or more.

➢ The ratio of net owned funds to the deposits shall not be more than 1:20.

➢ Also, the unencumbered term deposits shall not exceed 10% of the outstanding deposits.

Restrictions on Nidhi Companies:

According to the Nidhi Rules, 2014, a Nidhi Limited Company shall not carry on business activity related to chit fund, hire or purchase finance, leasing finance, insurance, and acquisition of securities issued by the corporate bodies. However, locker facilities can be provided on rent to its members. This rental income should exceed 20% of the gross income of the Nidhi at any point in time. A Nidhi company is restricted from paying any brokerage or incentive for mobilizing deposits to its members for the purpose of deployment of funds or granting loans

The Ministry of Corporate Affairs has issued an integrated incorporation form. This form is available online. Further, the ministry has simplified the process by providing Simplified Proforma for Incorporating Company Electronically, also known as SPICE.