What is Nidhi Company?
A nidhi company is a type of company in the Indian non-banking finance (NBFC) sector, recognized under section 406 of the Companies Act, 2013.
Their core business is borrowing and lending money between their members.
It inculcates the habit of saving among its members and works on the principle of mutual benefit.
Requirements For Formation Of Nidhi Company
- Nidhi Companies are incorporated as Public Limited Company.
- Having at least 7 members out of which 3 must be directors of the company.
- Minimum Paid Up Capital required is Rs.5,00,000.
- Cannot issue preference shares during its life.If preference shares had already been issued by a Nidhi Company before commencement of this Act, such preference shares are to be redeemed in accordance with the terms of issue of such shares.
- The Company should have use “Nidhi Limited” as its suffix forming part of its name.
- The object of the company shall be cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits.
Requirements of Nidhi Company after incorporation
Every Nidhi Company shall, within a period of one year from Incorporation, ensure that it has—
- Minimum number of members should be 200.
- Net owned funds shall be Rs.10,00,000/- or more (‘Net owned funds’ means the aggregate of paid up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet).
- Ratio of net owned funds to deposit shall be not more than 1:20.
- Unencumbered term deposits of not less than 10% of the outstanding deposits as specified in Rule 14.
- Proof of the registered place of business (Ownership documents/ rent or lease agreement).
- No Objection Certificate (signed by the owner/ landlord).
- Identity proofs.
- Address proofs of the members.
- Photos of the members.
- PAN card copies of the members.
- Digital Signature (DSC).
- Director Identification Number (DIN) of the directors.
- Memorandum of Association of the company (MoA).
- Articles of Association of the company (AoA).
Only one object will be mentioned in MoA of the company: “cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit..”
Loan & Deposit under Nidhi Company
Loan under Nidhi Company
- Nidhi can lend three types of loans; gold loan property loan, others (LIC, FD etc.).
- Nidhi cannot engage micro finance business but can lend secured loan @20% interest.
- Nidhi can take legal action if any member failed to repay any sum of money.
Deposits under Nidhi Company
- Nidhi can accept three types of deposits; Fixed deposit (FD), recurring deposit (RD) & Savings.
- Nidhi can pay interest up to 12.5% on FD & RD and 6% on savings accounts.
- Nidhi can take deposits up to 20 times the funds invested. Invest 5 lakh and accept 1 Cr.
Limited RBI Regulations
Though Nidhi Company falls under the category of NBFC as it is a finance Company but does not require approval of RBI and is exempted from the main provisions as applicable to other NBFC’s in India and further involves less intervention of RBI.
Exemptions and privileges under the Companies Act, 2013:
- Accordingly, certain provisions of the Companies Act, 2013 shall not apply to the Nidhi Company and Nidhi would be exempted from certain provisions of the same.
- Service of documents to Nidhi members may be done by sending it to him by post or by registered post or by speed post or by courier or by delivering the same at his office or by such electronic or other mode as may be prescribed.
- A Nidhi Company is free to make a private placement to any number of persons and it shall not be deemed to be an offer to the public.
Rule 6 provides general restrictions. According to this Rule no Nidhi shall-
- Carry on the business of Chit Fund,Hire Purchase Finance,Leasing Finance, Insurance or Acquisition of Securities issued by anybody corporate.
- Issue Preference Shares, Debentures or any Other Debt Instrument by any name or in any form whatsoever.
- Open any Current Account with its members.
- Acquire another company by Purchase of securities or Control the composition of the Board of Directors of any other company in any manner whatsoever or
- Enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over Nidhi.
- Carry on any business other than the business of borrowing or lending in its own name.
- Accept Deposits from or lend to any person, other than its members.
- Pledge any of the assets lodged by its members as security.
- Take Deposits from or lend money to anybody corporate.
- Enter into any Partnership Arrangement in its borrowing or lending activities.
- Issue or cause to be issued any advertisement in any form for soliciting deposit.
- Pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or the granting loans.