Background:
Nidhi Company is a special type of Non-Banking Financial Company (NBFC), but not actually a NBFC and is not governed by RBI. It is registered as a public company and should have “Nidhi Limited” in its name.
Primary objectives of a Nidhi Company can be the following:-
1. To enable, encourage members to save money, by cultivating the habit of thrift and provide facilities for this purpose.
2. To receive money by way of Fixed, Recurring and saving Deposits from members of the Company only as are allowed by Law and the company will carry out the businesses as per the rules prescribed for Nidhi /Mutual Benefit Company. However, the Company shall not operate any current account and shall not do banking business, as defined in Banking Regulation Act, 1949, and shall not do any Chit Fund Business, insurance business, hire purchase finance business and business of trading in share and securities.
3. To lend, grant loans only to the shareholders or members as against securities of immovable properties and/ or on the security of deposits, movable such as gold, silver, jewellery, Kisan Vikas Patra, National Saving Certificates Scheme, insurance policies and other Government securities on such terms and condition as
may from time to time prescribed in law for Nidhi or Mutual Benefits Companies.
4. To restrict the business specifically to its members only and to have transaction only with the members.
5. The aforesaid activities covered at (1) to (4) above shall be carried out subject to the provisions of Section 406 of the Companies Act, 2013 and Rules made thereunder and Regulations of RBI Act and/or any other authorities.
Activities Prohibited in a Nidhi Company:
Certain activities are restricted to be carried out by a Nidhi Company. These are enlisted below:
1. That the company will not carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any Body corporate;
2. That the company will not issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;
3. That the company will not open any current account with its members;
4. That the company will not 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 such Nidhi;
5. That the company will not carry on any business other than the business of borrowing or lending in its own name:
6. That the company will not accept deposits from or lend to any person, other than its members;
7. That the company will not pledge any of the assets lodged by its members as security;
8. That the company will not enter into any partnership arrangement in its borrowing or lending activities;
9. That the company will not issue or cause to be issued any advertisement in any form for soliciting deposit:
10. That the company will not pay any brokerage or incentive for mobilizing deposits from members or for deployment of funds or for granting loans.
Conditions to be fulfilled for getting ‘Nidhi’ status:
Every company incorporated as a Nidhi company, with in a period of one year from the date of incorporation, needs to ensure that it has:-
a) Not less than two hundred members;
b) Net owned funds of ten lakh rupees or more;
c) Unencumbered term deposits of not less than ten per cent. of the outstanding deposits as specified in rule 14; and
d) Ratio of Net Owned Funds to deposits of not more than 1:20.
The above timeline can be extended by making an application to the Regional Director withing 30 days from the close of the first financial year, by providing valid reasons in the prescribed format.
Incorporation Requirements:
A minimum of three Directors and seven members are required to start a Nidhi Company wherein 3 directors needs to be a member as well.
Information & Documents Required:
A. For Nidhi Company Incorporation (Documents required for all the directors and members)
1. Identity Proof:- Either of Voter ID / Driving License / Passport
2. Address Proof:- Either of Bank Statement/ Telephone or Mobile Bill (not older than 2 months)
3. Registered Office Address Proof:- Either of Utility Bill i.e. electricity/gas/telephone bill
4. Proposed Company Name
5. Shareholding and share capital of the company.
6. Email id and phone number of the proposed company if any.
B. Other Information of all the director and member
1. Occupation and Educational qualification.
2. Place of birth with state
3. Duration of stay at the address mentioned in the residence proof
4. Permanent address
C. The documents to be enclosed with the application include:
i. MOA & AOA of the company
ii. DIR 2
iii. INC 9
iv. Declarations