A non-banking financial entity recognised under Section 406 of the 2013 Companies Act is The Nidhi Company. Money lending and borrowing among its members is its main operation. They are also referred to as mutual funds, mutual benefit fund companies, fixed funds, advantage funds, and mutual funds. These organisations are governed in India by the Ministry of Corporate Affairs, which has the authority to provide instructions governing deposit acceptance procedures.
These organisations’ main objective is to teach its customers the importance of being frugal and saving money. In the southern region of India, the Nidhi Company concept is particularly well-liked.
What is a Nidhi Company?
A financial organisation that is not a bank is called The Nidhi Company. It was founded with the purpose of lending and borrowing money to its members. It runs on the premise of mutual benefit and instils the habit of saving among its members. Nidhi Company can start up quickly because it doesn’t require an RBI (Reserve Bank of India) licence. Its name has the last term “Nidhi Limited,” designating it as a public
business.
Statutory Meaning of Nidhi Company
Chapter 26 of the 2013 Companies Act contains the Nidhi Company provisions. Section 406 of the Companies Act of 2013 contains a definition of a Nidhi corporation. An alternative name for this kind of organisation is a Mutual Benefit Society. If an entity receives a specific notification, it may be classified as a mutual benefit society under Section 406(1).
Any business that wants to be classified as a Nidhi business must be incorporated in compliance with the NBFC regulations. Any person forming this kind of organisation must go by the rules set forth in the Companies Act of 2013 in order to be in compliance.
Any person who joins this organisation would gain access to numerous sources of financing & mutual benefits. This corporation was established primarily to provide loans and other benefits to its members, or investors. As a result, many people decide to launch this kind of business.
When an NBFC is founded, the Reserve Bank of India controls its operations (RBI). This kind of business will take deposits. However, several requirements under the RBI Act of 1934 do not apply to this type of organisation. As a result, many people
Characteristics Features of Nidhi Company
• The RBI does not have any control over the “Nidhi Company.” As a result, an RBI licence is not required to start a lending company.
• More than 200 members are required within a year of registration.
• A maximum annual interest rate of 20% is allowed (estimated using the declining balance technique).
• The greatest rate of interest on a savings deposit account cannot be more than 2% higher than the rate provided by nationalised banks.
• Nidhi Company provides interest at a current rate of 12.5% and accepts Rd, Fd, and savings accounts.
• The greatest rate of interest that NBFCs may give on deposits is set by the RBI to be the rate that may be provided on Fixed & Recurring Deposits. Nidhi businesses are governed by the same maximum
Advantages of Nidhi Company Registration
Simple Lending
According to Section 406 of the 2013 Companies Act, this kind of organisation is incorporated as a mutual benefit society. As a result, the benefits primarily benefit the shareholders and members of the company. In addition, this kind of business can easily loan money to the general population.
Management is Simple to Form
A candidate may select a team of individuals to carry out the establishment of a Nidhi corporation. After this company is established, no outside management is hired.
Reduced Capital Needs
The formation of this entity just needs a small quantity of funds. The need for a small sum of money is the main justification for this sort of registration.
Raising of funds
The main objective of this kind of business is to solicit public donations. The Nidhi company is organised as an NBFC in addition to that. This kind of NBFC carries out activities like accepting public deposits. As a result, this kind of business makes it simple to raise capital.
Adherence Compliance
Even if this company was set up in line with the 2013 Companies Act, there is still less compliance than in other kinds of organisations. This corporation is exempt from several types of compliances even under the RBI Act of 1934.
Benefits of Company Status
The advantages of the 2013 Companies Act would be applicable to this kind of firm. Like any other organisation, this kind would be given limited liability status. Aside from that, the members and directors have no bearing on the status of this kind of company.
Less involvement of the RBI
These organisations have to abide by the NBFC’s rules. As a result, the Nidhi firm is required to continue complying with the RBI’s regulations. However, several provisions of the RBI Act of 1934 do not apply to these entities.
There are certain things that one should keep in mind during a Nidhi Company Registration process:
Process of Nidhi Company Registration
The Nidhi Company Registration process involves the following steps:
Acquiring the Director Identification Number & Digital Signature Certificate
In the second step of the Nidhi company registration procedure, the candidate must first apply for a digital signature certificate. The DSC can be used to submit digital signatures. The candidate must apply for the Director Identification Number after receiving the DSC.
Approval of a Name
Prior to requesting name approval, the applicant must file an application to the MCA. During this stage, the applicant must provide three unique names for the Nidhi firm. The names given must be original and must not contravene any Indian laws governing intellectual property rights.
Creating the Articles of Association and the Memorandum of Association
The applicant must submit the necessary papers to the registrar of businesses after completing the aforementioned stages. Form-INC 32 must be used to submit these papers. The MOA and AOA must also be submitted. The applicant must state the main objectives for establishing this firm in the application.
Certificate of Incorporation
After examining the aforementioned paperwork, the Company will receive its certificate of incorporation. The company’s establishment process is attested to by this certificate of incorporation. This will typically be sent by the registrar within sixteen to twenty business days.
Obtaining a PAN and TAN
The Nidhi corporation must submit an application for a PAN and TAN after receiving the certificate of formation. The relevant Income Tax Department is where you can get the TAN.
Creating a Bank Account
The company’s formation is now complete. It is essential to open a business bank account before engaging in any transactions.
Rules for Nidhi Company Registration Process
The following regulations or compliances must be adhered to in order to register a Nidhi company:
- NDH-2 – A request for an extension is being made in order to reach the target of 200 members.
- Members’ list on Form NDH-1 must be submitted within 90 days of establishment. Every requirement must be met.
- NDH-3 Half Form Annual requirements must be filed with Form NDH-1.
- Annual Returns must be produced in compliance with the requirements of the Registrar of Companies.
- Statement of Profit and Loss and Balance Sheet Standards – These documents need to be filed yearly in accordance with the company’s specifications. For this, you must utilise Form AOC-4.
- Income Tax Returns – Every Nidhi Company must file income tax returns in accordance with the Income Tax Act.
- A Nidhi Company must have a Net Owned Fund that is greater than Rs 10 lakhs. The rate of return on the Net Owned Fund’s return ratio must be between 1:10 and 1:2.
- Unencumbered Deposits: All unencumbered deposits must be more than the minimum number of outstanding deposits.
Activities Restricted in a Nidhi Company
• Chit funds, hire-purchase financing, leasing finance, insurance, and securities are not Nidhi Company’s areas of expertise.
• It is categorically prohibited to accept deposits from or lend money to anyone besides members.
• It cannot advertise itself to attract deposits.
Documents Required for Nidhi Company Registration Process
Rules & Regulations of Nidhi Company Registration Process
Failure to follow the Nidhi Company Registration procedure carries consequences. The corporation and all of its executive’s risk fines of up to Rs. 5,000 if they disobey the Nidhi Rules of 2014 and the Companies Act of 2013. Furthermore, the business will be punished if its violations persist. As a result, during the duration of the violation, the defaulter would be required to pay rupees 500 each day.
The extensive body of guidelines established by the Nidhi Organization is outlined in the Nidhi Rules of 2013, and all organisations must abide by the Nidhi Amendment Rules of 2019. Additionally, the Company Act of 2013 must be abided by.
Conclusion
A Nidhi Company is a non-banking financial institution recognised by the Companies Act of 2013 under Section 406. Its main purpose is to facilitate lending and borrowing among its members. Advantage Funds, Permanent Funds, and Mutual Benefit Funds firms are the names given to them. The MCA (Ministry of Corporate Affairs), which has the authority to issue directives regarding deposit acceptance operations, oversees these businesses in India. The main goal of the Nidhi Company Registration procedure is to encourage employees to practise frugal living.