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A NIDHI Company is recognised under Section 406 of the 2013 Companies Act and typically operates in the Non-Banking Financing Sector of India. Other names for it include Mutual Benefit Company, Benefits Fund, Permanent Fund, and Mutual Benefit Funds. The NIDHI Rules 2014, which were published by the Ministry of Corporate Affairs, govern these companies. It cannot take part in businesses related to chit funds, lease financing, hire purchase or insurance rates.
A NIDHI is formed as a Public Limited Entity established with the goal of instilling a culture of financial responsibility among its participants and accepting deposits from and lending to them for their mutual gain. The rigorous membership structure of NIDHI Companies makes them regarded as a safe way to invest. In addition, compared to other types of NBFCs, the registration process for NIDHI Company is straightforward and necessitates fewer paperwork.
Salient Features OF NIDHI Company
The restriction of a NIDHI company's services to its members alone is one of its distinguishing characteristics. As the Company only lends to its members and takes deposits, this lowers the risk of loans not being repaid. Further, following listed are a few of its important features:
provide a steady flow for profitable investments at reduced credit rates.
Prohibited Undertakings for NIDHI Company in India as per By-Laws
In India, NIDHI businesses face a slew of legal ramifications that restrict them from completing the following tasks:
No RBI Clearance And Limited Regulations
NIDHI Company does not need RBI clearance to begin operations, despite the fact that it falls within the NBFC category. NIDHI Companies must register with the Ministry of Corporate Affairs as a Public Limited Company (MCA). The NIDHI Rules of 2014 and the Companies Act of 2013 apply to the financial activities of NIDHI Companies. In comparison to the RBI, the NIDHI Rules have less strict regulatory compliance requirements. As a result, it is now simpler to establish a NIDHI Company in India thanks to the RBI's exemption from strict compliance requirements.
Lesser Capital Requirement
A NIDHI Company may be registered for a very affordable amount. It is very cost-efficient to form a NIDHI Company when compared to a NBFC. Minimum Capital requirement to register a NIDHI is Rs. 10, 00,000 lakhs.
Separate Legal Entity
As a juristic legal person, both the company and its members have separate legal identity that is distinct from each other.
A company’s existence is uninterrupted, even the death or insolvency of its shareholder(s)/directors does not affect the continuity of business of the company.
Limited Liability of Members
The liability of members of a NIDHI Company is limited to the amount of share capital remaining unpaid on the shares held by them.
Lower Risk of Loan Non-Repaymant and Outside Interference
In comparison to other companies operating under the Non Banking Finance Sector, the risk of loan non-repayment is lower at NIDHI Companies since it only offers loans to its members and accepts deposits from them. The possibility of interference from outside variables in the firm's operation decreases since all financial transactions in a NIDHI corporation are limited to its members exclusively.
The proposed name selected by you should be unique and should not resemble to the name of an existing company or Limited Liability Partnership. Every "NIDHI" must have the words "NIDHI Limited" at the end of its name. Minors, corporations, and trusts are not allowed to join NIDHI as members.
Share capital of a company is divided into four parts:
Director is a person appointed to the Board of a company. Board of Directors of a company are entitled to exercise all such powers and to do all such acts and things as the company is authorized to exercise and do except those which are specifically required to be exercised by a company in general meeting. Since NIDHI is formed as a Public Limited Company, its Board of Directors shall comprise of minimum three directors out of which at least one must be resident in India.
Subscriber means a person who has agreed to subscribe to the share capital of the company and on its registration, whose name is entered as a member in the Register of Members. Minimum seven subscribers are required to incorporate a NIDHI Company. Subscribers of a company can be resident in or outside India. There is no restriction on a subscriber (being an individual) of a public limited company to be a director of the same company or vice versa.
It is mandatory for every company to have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it. Registered office of the company must be situated in India.
All financial transactions in a NIDHI corporation are limited to its members exclusively. It is mandatory for every NIDHI to increase its members upto 200 within a period of one hundred twenty days of its incorporation.
Net Owned Funds
Entities wanting to act as a NIDHI company must have net-owned funds (NOFs) equivalent to or more than Rs 20 lacs, and entities intending to serve as a NIDHI company must have unencumbered deposits equal to or greater than 10% of existing deposits. The NOF-to-deposit ratio should not be more than 1:20
Restrictions on NIDHI as per New Rules of NIDHI Company Amendment, 2022
The Central Government has made amendment to the NIDHI Rules, 2014. These rules may be called the NIDHI (Amendment) Rules, 2022 and the NIDHI company existing on the date of enforcement of NIDHI Company New Rules shall comply with all the requirements within a period of 18 months from the date of such enforcement.
In the new rules, it has been stated that the NIDHI Company shall not raise loans from the banks or any financial institutions or any other source to advance the loans of its members.
After examining the application, the central government conveys its decision within 45 days to the Company, and if it fails to do so within 45 days, it will be deemed to be approved.
However, the Company shall commence its business only if the central government approves its application.
Note 1: In case of foreign directors/subscribers, all the aforesaid documents should be notarized and apostilled or consularized. In case documents are not in english, translated copy in english should be notarized and apostiled or consularized. please read the attestation requirements of documents below in FAQs
Note 2: *Draft will be provided by our team
At Companies Next, we have a dedicated team of professionals for providing quality services with accuracy and within given timelines. We provide a complete transparent and online platform for registration of your NIDHI company. Our professional Services for registration of NIDHI company include:
Nidhi Companies aren't allowed to carry on the business of:
No, a Nidhi Company cannot issue preference shares.
A minor shall not be admitted as a member of Nidhi, provided the said deposits has been accepted in the name of a minor, and the same is made by the legal heir or the guardian of the said minor.
In case of Nidhi Company, money can be lend only to members and never to non-members.
Every Nidhi shall issue equity shares of the face value of not less than ten rupees each.
A Nidhi can accept deposits up to a maximum of 20 times of its Net Owned Funds (NOF) as per its last audited financial statements.