There are certain important basics in starting a Nidhi company. Business owners can decide to start a Nidhi company based on the benefits that you can enjoy. There are certain restrictions and deposit conditions when starting a Nidhi company. You need to get a clear idea of the meaning of Nidhi company when you’re new to the business.
What is Nidhi Company?
Nidhi Company is a business structure incorporated under Section 20A of the Companies Act, 1956 and is governed by the Ministry of Corporate Affairs (MCA), and there are certain Nidhi company rules to be followed in India. Nidhi Company is mainly formed for developing the habit of savings among its members only for their mutual benefit. The major source of funding for the Nidhi Company is the contribution from the members. In order to deliver benefits of membership, the loans are granted at relatively realistic rates for purposes such as constructions or repairs and are generally secured. As the concept of Nidhi Company is quite different from many other companies, there are some important points that should be followed before becoming its member.
Advantages of a Nidhi Company
As compared to other NBFC and Banking organization structure, a Nidhi Company is much easier to form and as well as run its operations successfully with normal investors. The major advantages of a Nidhi Company are:
Limited RBI Regulatory Compliance: Nidhi Company is a Public Limited Company deals in Financial services, it is not needed to acquire an RBI License to operate. It is a kind of NBFC which do not require RBI approval. Nidhi Company has been exempted by Reserve bank of India to take NBFC registration. So, there is no requirement of keeping the minimum capital of Rs 2 Crore to start a Nidhi Company in India.
Limited Capital Requirement: As per amendments made on 2022 under Nidhi Roles 2014, the minimum capital requirement to register a Nidhi Company is Rs 10 Lakhs only.
Less Risky: It’s a less risky business in financial services as it provides loans and accepts deposits with its members only. Also, a Nidhi Company can only provide wide range of secured loans.
Simple Registration Process: Unlike other RBI registered formations, incorporation of a Nidhi Company is much simpler. All one need are seven members and few documents to incorporate a Nidhi Company and its ready for operations to start.
An Alternative to banking services: A Nidhi Company is a complete alternative of banking services whereas it protects its members in much better way. A Nidhi Company encourages savings by its members with a higher rate of interest than banks. A member can enjoy a large number of financial services like savings accounts, fixed deposits, recurring deposits, mortgage loans, gold loans etc.
Key Features of a Nidhi Company
Less Costly Affair: It is a less costly affair to incorporate a Nidhi Company in India. The minimum capital requirement for Nidhi Company Registration in India is rupees 10 Lakhs only which one can invest within 2 months of Nidhi Company Registration.
Cheaper borrowing: As compared to banks, one member can borrow money from a Nidhi Company at a cheaper rate. This is very beneficial to every members as well as soceity
Loan Interest: Upto 20% interest can be earned by a Nidhi Company on disbursed loans on reducing balance method.
Loan against Security: As per Nidhi Roles, Nidhi Company can lend only against gold, property, FD, Government securities etc. A Nidhi Company can take legal action if any member failed to repay the loans.
Branches: A Nidhi Company can open 3 branches after 3 years within the district. To open branches outside the district, a Nidhi Company requires RD approval, but it cannot expand its business outside the state. To work in another state a new Nidhi Company should be formed.
Business Restrictions: Nidhi Company can deal with its members only. A Nidhi company has to make minimum 200 members within 4 months of its incorporation.
Deposits: A Nidhi Company can accept 3 types pf deposits – Fixed Deposits (FD), Recurring Deposits (RD) and Savings. Company can pay up to 12.5% on FD and RD and up to 6% on savings.
No Microfinance: Nidhi Company is restricted to do any microfinance business and vehicle finance business.
Necessity to File NDH-4: It is compulsory to file NDH-4 form within 120 days of incorporation of a Nidhi Company. It is a declaration by a company to work as a Nidhi company by making net owned fund to 20 Lakh and minimum 200 members in the company. A Nidhi Company can take up to 20 times of its invested funds.
About Nidhi Rules 2014 and Nidhi (Amendments) Rules 2022
As Nidhi Companies are not governed by RBI, Government of India formulated some rules to be followed by a Nidhi Companies as Nidhi Rules 2014. It laid down the complete set of codes and rules according to which every Nidhi Company should work. A Nidhi Company need not require any separate approval from respective state governments to work in a particular state. Nidhi Company Rules 2014 contains almost 24 rules describing the loans, deposits, compliance, branches etc.
Nidhi Company New Rules as stated in Amendment 2022
Nidhi Company Rules 2014 has been amended in 2022 as Nidhi (Amendment) Rules 2022 through the notification of Ministry of Corporate Affairs on 19th April 2022. Major changes made under Nidhi (Amendment) Rules 2022 are:
- Unlike Nidhi Company Rules 2014, as per amendment made in 2022, the public companies which want to work as Nidhi Company need to obtain a prior declaration by the government of India (Form NDH-4) before accepting deposits. These changes are done to ensure the protection and safety of investors or borrowers.
- Form NDH-4 should be filed within 120 days of the incorporation of the Nidhi Company along with the condition that the Nidhi Company should have minimum 200 members at that time and should have Net Owned funds of Rs 20 Lakhs or more. The Central Government will consider the approval within 45 days of the filing of NDH-4, and if it fails to do so within 45 days, it will be deemed as approved.
- The Company should also attach a declaration with regard to the fulfillment of fit and proper person by all its directors and promoters with the Form NDH-4.
- Minimum paid up capital has been increased from 5 Lakh to 10 Lakh
- Net owned funds have been changed from 10 Lakhs to 20 lakhs.
- Existing Nidhi Companies incorporated prior to the enforcement of New Nidhi Rules 2022 shall comply with all the requirements within a period of 18 months from the enforcement of the new rules.
- Requirement of filing of application in Form NDH 1 within 90 days of incorporation of the Nidhi Company shall not be applicable to the Companies incorporated on or after the enforcement of New Nidhi Company Rules 2022.
- A Nidhi Company shall not raise loans from banks or any financial institutions or any other source to advance the loans of its members.
- Nidhi Company wants to open more than 3 branches or branches outside the district need to apply with Form NDH 2 along with applicable fees.
- A Nidhi Company shall not declare dividends exceeding 25% in a financial year.
- In the amendments of 2022, some changes are made to existing Forms earlier used for filings. Changes are made to Form NDH 2, Form NDH 3 and Form NDH 4. Another new Form NDH 5 has been included.
Documents Required to form a Nidhi company
Documents requirements for Nidhi Company Formation in India is very simple and only scan copies of the documents required by the authorities.
Documents of the Directors of the proposed Company
- Photographs of all the Directors
- PAN Card, Aadhar Card and Voter ID
- Address Proof: Updated Bank statement/Electricity Bill/Telephone Bill/Mobile Bill(not older than 30 days) – any one
- Identity Proof: Voter ID Card/Passport/Driving License (any one)
- Consent of Director (Format will be provided)
Documents for Registered Office Address
- Latest Electricity Bill/Any Other Utility Bill in the name of the owner
- Rent Agreement between owner and proposed Company promoter.
- NOC from the owner (Format will be provided)
- Rent Agreement
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