A “Nidhi company” is a firm that can manage “deposits from and loans to” its members (shareholders) exclusively and works to the mutual benefit of its members. In this regard, exemptions were granted to a “Nidhi Company”, regarding annual compliance and tax assessments. Today we will get to know about everything related to Nidhi registration fees, documentation, benefits, and many more.
Nidhi Companies In India are incorporated, administered, and managed by Section 406 under the newly-enacted “Companies Act, 2013” The Companies (Nidhi Companies) Rules of 2014, and Chapter XXXVI of the Companies Rules 2014.
The purpose of the incorporation of a Nidhi Company is to encourage savings among its members. Nidhi companies can make a “deposit from and lend to” its members only. In the final analysis, all assets that are added to the Nidhi company are derived from the members of its membership and can be used only by the shareholders in their Nidhi Company.
The term “Nidhi” in Nidhi Company means “treasure” and it has its roots in the Hindi vocabulary.
Nidhi Company is a specific type of NBFC. Although they are not directly controlled by the RBI, the RBI can issue guidelines on their deposit acceptance practices. Furthermore, since these “Nidhi companies” deal with their members (shareholders) only and not shareholders, they are exempted from the main rules in the RBI Act and other directions that apply to NBFCs. In this way, a Nidhi Company is indeed a perfect legal element to accept the form of a “deposit from and loan to” an exclusive group of members.
Nidhi Company Registration
Section 406 in the “Companies Act, 2013” and the Companies (Nidhi Companies) Rules of 2014, set out all the rules and regulations for the joining and management of the administration of a Nidhi Company in India.
The rules and guidelines regarding Nidhi Companies are also provided by the RBI. Nidhi Companies are likewise given by the RBI. These are typically associated with financial transactions and investments from NBFCs and other companies.
The interest rate charged on loans issued by a Nidhi Company is very sensible. The advances are granted against security, as it were. The deposits made under Nidhi are not earning the same amount of interest as deposits in the well-organized sector of banking.
All borrowing and lending of Nidhi Companies. All lending and borrowing of Nidhi Companies are done by its members, only. Therefore, these organizations also refer to Mutual Benefit Societies.
If you’re looking to launch your own business that involves finance or advance in India then a Nidhi Company is the best option for you.
Documents Required
- Passport-sized photos of all directors.
- Identification proof for all named Directors and Shareholders. (PAN Card as well as Passport can be used as proof of ID).
- Address proof of all the directors and members (Ration Card, Aadhaar Card, Passport, Voter ID, and Utility Bill – electricity/water/mobile).
- Address Proof of the Company. Be sure the proof of address isn’t more than two months old.
- Copy of the Property documents (if the property is owned by a person).
- NOC (No-Objection-Certificate) from the owner (if the property is rented).
Benefits of Starting a Nidhi Company
The principal reason behind setting up the Nidhi Company is to urge its members to save up so that they can pay for their financial needs that arise periodically. By being thrifty, they can be independent and will cover any future expenses. The benefit of having an organization registered as Nidhi does not end there.
There are numerous benefits to the formation of the Nidhi Company. The following are some of them:
- Liability is limited: The liability of investors and Directors of the Nidhi Company is limited. The individual assets of any Director or members aren’t at risk of being confiscated by creditors, banks, or the government.
- There are fewer regulations: Nidhi organizations are administered by the Nidhi Rules 2014. Nidhi Rules, 2014. Central Government is the directing authority, and it is the only one who determines how it is exercised and operates. There aren’t many rules implemented in the RBI on a Nidhi company.
- More credibility: Nidhi companies offer better credibility in comparison to other associations based on membership, such as “Trusts, Cooperative Societies, or NGOs.”
- A Better Choice for Savings: The principal purpose of the incorporation of a Nidhi company is to promote the habit of saving among the shareholders (shareholders) in the Company. This is the way it can achieve the second goal of being mutually beneficial to all. Nidhi Companies Nidhi Companies can lend and borrow funds from its members (shareholders) but only.
- Simple Access to Public Funds: The loans offered by Nidhi Company comes at a cheaper rate as compared to advances offered by banks or other NBFCs.
- Micro-Banking: Nidhi businesses offer banking services to a rural and remote population of India that are located in remote regions.
- Better Credit Co-operative Society: A Nidhi Company is a nearby alternative to a credit cooperative society. Additionally, it is becoming preferred by small-scale finance professionals. Once a Nidhi company is enrolled and members can benefit from the many benefits of a credit cooperative society.
- Simple Processing: Getting loans and borrowing from people who are known is significantly more straightforward than dealing with banks, as the process is general and established.
- Simple Registration Procedure: The process to register a Nidhi Company with LegalRaasta is extremely simple and clear. It is not necessary to get any permissions from RBI. It is enough to register your business in the form of an open-constrained following the MCA.
- One Regulatory Authority: Following the Amendment to the Companies Act 2013 Nidhi Companies are supervised by the Nidhi Company Rules 2014.
- Minimum Capital Requirement: Ministry of Corporate Affairs (MCA) stipulates that the base capital requirement be Rs.5 lakhs for the Nidhi company. In the next year, the capital must be increased to at minimum Rs.10 lakhs. Its “Fees, DIN, DSC & Other Expenses” are roughly Rs.25-30,000. These are Government fees that differ from state to State. One has to bear the Nidhi company registration fees for the sake of registering it.
- Serving the needs of people with lower and middle incomes: Nidhi Companies assume a major role in catering to the needs of low and middle-income people by providing these groups with financial assistance, with no complicated formalities or documentation.
- Easy to qualify: People earning minimum wage and who belong to lower income brackets are generally not able to get credit from traditional banks due to their strict eligibility requirements. In these cases the case, the Nidhi Company is a good alternative to get finance due to the lower requirements.
- There is no external involvement: Nidhi Companies take assets from their members and then grant credit to its members. This way there are no external factors in the way of working for the organizations. The financial members themselves are in charge of the activities of the organization.
- Separate Entity: A Nidhi Company is an entity with a distinct legal status that can purchase assets and make loans under its name.
Key Features
Some details about the work of Nidhi Companies in India, according to Rule 6 in the Nidhi Rules of 2014, are crucial to be aware of:
- It isn’t able to transfer all of the kinds of exchanges like “chit fund, leasing finance, insurance, or acquisition of securities” issued by any organization.
- It’s not able to acknowledge deposits, nor provide advances to anyone outside the business.
- The Nidhi Company isn’t engaged to offer ‘inclination offers, debentures, or any other obligations instruments” in any form.
- Companies Act, 2013 and Nidhi Rules, 2014 are the governing bodies. They solely oversee the activities of the Nidhi Company in India.
- The Nidhi Company doesn’t go under the authority of RBI.
- It’s not specifically designed to perform microfinance and vehicle fund enterprise in India.
- Within the year following enrollment at the time of enrollment, the membership should be at a minimum of 200.
- A maximum rate of 20 percent p.a. (calculated using the method of reducing balance) is allowed to be charged.
- The maximum interest rate that is allowed on a savings account must not exceed 2% over the rate offered by Nationalised Banks.
- The Nidhi Company can acknowledge FD, RD, and reserve funds. The company can also earn an interest rate of 12.5 percent as of today.
- The interest rate that is provided on Recurring and Fixed Deposits should not exceed the maximum interest rate which is established by RBI for the NBFCs that can offer on deposits. The maximum rate of interest for NBFCs is also applicable to Nidhi companies.
- The activities are limited to a specific region for the first 3 years. After 3 years of successful completion, three workplaces may be established within the same location. To develop outside of the area, prior approval by the Regulator Director is required.
- It can only make loans against securities. These could include “Gold, Property, Fixed Deposits, Government Securities, or Life Insurance Certificates.”
- Unencumbered deposits (Deposits that aren’t offered as securities for any reason) shouldn’t be less than 10% of the total deposits.
- The filing of “Audit, Tax Returns, and Annual Accounts” in the most effective configuration is vital.
