Nidhi company is a type of NBFC, Incorporated as a Public Limited Company and should have NIDHI LIMITED as a suffix of the Name. Nidhi Companies are different from NBFC and Public Limited Company incorporated with a sole object of borrowing and lending money to its members for mutual benefits.
Nidhi Company does require the license from Reserve Bank of India (RBI) to operate; and not regulated by RBI as compared to NBFC but need to follow some guidelines issued by RBI time to time for accepting deposits.
Generally group of person operate a Nidhi Company to promote the habit of saving and helping the group member.
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Documents Required for Section 8 Company Registration
- PAN Card and AADHAR Card of all the proposed Members and Directors. Passport in case Foreign Citizen.
- Bank Statement of Proposed Members and Directors not older than 2 months
- Latest Passport Size Photographs of Members and Directors
- Contact details of all the proposed Members and Directors
- Proposed Name for Company
- Business Object
- Education Qualification of Proposed Directors and Members
- Occupation of Proposed Directors and Members
- Shareholding Ratio
- Address details of registered place of business (Electricity Bill / Rent deed / Copy of registry / Consent and NOC of Owner)
Benefits of NIDHI COMPANY
Ease of incorporation:- It is easier to commence business in the NBFC sector as a Nidhi Company. A Nidhi company requires a paid-up equity share capital of 5 lakhs to begin with while an NBFC requires a net worth of 2 crores. Therefore it is easy to set up a Nidhi Company.
Ease of doing business:- A Nidhi Company elects 3 out of the minimum seven members as directors. Due to the small size of such companies and also their management is fairly easy.
Easier to obtain loans:- The members can get loans at lower rates as compared to the market and at the same time involve themselves with less formalities. The members can get higher returns on their savings as well.
Less paperwork and compliance:- The RBI gives exemptions to them on matters relating to yearly compliance and tax assessments. It gets registered in a short span of time ranging from a few days to a maximum of a few weeks. It is the only form of a loan company that does not require a license from the RBI.
Basic Preliminary formalities:- It can be started with a minimum of 7 members and a minimum paid up share capital of Rs. 5 lakh which needs to be extended to Minimum of 200 members and capital of Rs. 10 lakh within 1 year of incorporation. Further, the capital can be invested within six months of registration. It also does not require a license from the RBI as mentioned above and also there is no maximum cap limit on number of members.
No outsider interference:- When compared with other financial institutions or other companies of similar nature, Nidhi companies fare better. These companies are both owned as well as managed by their members. Hence, these are effectively managed. They have little to no interference from the RBI and absolutely no intervention from outsiders.
Community growth:- Since the lending and borrowing occurs within the members of the company, this promotes the community by adding to the wealth of its members as well as funding their business development, personal needs etc.
Low risk of non-payment of loans:- Since these societies function on trust, the risk of defaulting by the members is very low. Additionally, there is a collateral attached to the loaned amount hence the loans are secured. A member can take loans on the basis of the amount deposited in the company. This is the concept of Net owned funds and we discuss this point below as well as under the Guidelines – After incorporation.
Difference between NBFC and Nidhi Company
|S. No.||Basis||NBFC||Nidhi Company|
|1.||Governance||Governed by Indian Banking Regulation Act, 1934||Governed by Companies Act, 2013|
|2.||Capital requirement||Rs. 2,00,00,000 /- Minimum||Rs. 5,00,000/- Minimum|
|3.||Compliances||Compliance issued By RBI to be followed||Less Compliances in comparison to NBFC|
|4.||Restrictions||No Such Restrictions||Nidhi Company cannot do business of chit funds, hire purchase finance, lease finance, insurance or acquisition of securities issued by the Body Corporate.|
|5.||Dealing||Can deal with general public||Can only deal with its Members|
Frequently Asked Questions
What is Nidhi Company?
What provisions are applicable to Nidhi Companies?
- As they are incorporated into the nature of Public Company so rules and regulations ofCompanies Act, 2013are applicable.
- RBI provisions related to Interest rate payable on deposit are applicable to Nidhi Companies. But the core provisions of RBI are not applicable to Nidhi Companies as RBI has exempted the Nidhi Companies from the same.
- Nidhi Rules, 2014.
are the requirements for registration of Nidhi Company in India?
- It should have at least 3 Directors.
- It should have at least 7 Members.
- The main objective to be written in the MOA should be to cultivate the habit of thrift and savings among its members. And it can accept deposits and lend money only to its members and shall work for the mutual benefit of its members.
What are post incorporation requirement of a Nidhi Company?
- It must have at least 200 members/shareholders.
- Minimum Net Owned Fund should be Rs. 10 Lakhs.
- Unencumbered term deposit must be at least 10% of the term deposit.
- The ratio of Net Owned Fund to term deposit should not be less than 1:20.
What are the advantages offered by Nidhi Company?
- It is a single office institution governed exclusively by its members with no involvement of the third party.
- Provide loans at minimal interest rates and minimum documentation.
- Secured investments are guaranteed by such companies.
Are the Deposits with Nidhi Company safe and secured?
How the Nidhi Company utilizes the Funds procured by it?
Who can become the shareholder/member of Nidhi Company?
Can a Minor be a Member of Nidhi Company?
What are the Documents required to form a Nidhi Companies?
- Digital Signature Certificate of all the Directors.
- Directors Identification of all the Directors.
- Copy of a PAN Card.
- Copy of Identity Proof (i.e. Voters ID Card, Driving License, Aadhar Card).
- 2 Passport size photograph.
- Registered Office Address Proof (Electricity Bill, Telephone Bill).
- If the registered address is a rented premise then rent agreement with rent receipt.
On what condition Nidhi Company can provide a loan to its members?
What are the Restrictions on Nidhi Company?
- They are not allowed to start the business of chit funds, Insurance, Hire Purchase Finance, Leasing Finance and acquisition of shares issued by companies.
- Nidhi Company cannot issue securities such as preference shares, debentures etc.
- They are prohibited from opening any current account with its members.
- It cannot enter into partnership for doing lending and borrowing business.
- It is not allowed to acquire any other company.