Nidhi company is a kind of NBFC(Non-Banking Financial Company), which is formed to lend and borrow money from its members. It works on the belief of mutual benefit. Nidhi company is easy to assemble as it does not require to receive a license from Reserve Bank of India.
Nidhi company registration is a lengthy process and requires specific eligibility criteria.
What is Nidhi Company?
The incorporation of a Nidhi Company is done based on the rules of the Companies Act 2013. Nidhi company requires a minimum of three directors and seven shareholders. The objectives, as well as functions of a Nidhi Company Registration, are to encourage the habit of saving among its members. It receives deposits from the members and lends the money only to its members. All these have to be mentioned in the Memorandum of Association at the time of incorporation.
What are the features of Nidhi Company Registration?
The features of Nidhi company are-
Minimum documentation and formalities;
Secured investment;
Not governed by any committee or trust;
Easy and flexible loans as compared to traditional banks;
Provides financial growth of the middle and lower-middle-income group of people.
What are the advantages of Nidhi company registration?
The advantages of Nidhi company registration are-
Fulfil the Needs of middle and Low-Income Groups
Loans with Minimum Eligibility Criteria
No External Involvement
Limited Liability
Perpetual Succession
Better Credibility
Separate Entity
Describe the Compliances of a Nidhi Company Registration in India?
Nidhi Company compliances are divided into three parts:
Pre-Incorporation Compliances,
Post-Incorporation Compliances,
Event-based Compliances.
What are the Pre-Incorporation compliances for Nidhi Company Registration?
Nidhi Company has to follow some compulsory compliance to get Nidhi Company Registration.
The essential agreements are mentioned below:-
Minimum seven members is required, out of which three members must be the Directors of the Company.
Minimum paid-up equity share capital of INR 5 lakh is essential to incorporate a Nidhi Company.
Preference shares should not be issued, and if it is released, the same is to be redeemed as per the terms.
“Nidhi Limited” must be part of the given name.
Minor should not be a member of a Nidhi Company.
A trust cannot be a member of Nidhi Company.
Net owned funds cannot be more than 20%.
Nidhi Company cannot open branches.
The rate of interest on the loan should not be more than 7.5%.
What is the Post-Incorporation Compliances of Nidhi Company?
Post Incorporation compliance of Nidhi Company is divided into two parts:
What are the General Compliances of a Nidhi Company?
The following compliances should be followed within a year of Nidhi Company incorporation:
members should be at least 200 within one year of its establishment.
INR 10 lakh should be the Net owned fund.
The proportion of Net-owned Funds to the deposits must not be more than 1:20;
As agreed in Rule 14 of the Nidhi Rules, 2014, the deposits should not be less than 10% of the outstanding deposits.
Maintain the Books of Accounts.
Maintain the legal Registers.
Assemble Statutory Meetings.
What is the Annual Compliance?
Annual compliance is monitored to keep the Government updated on the activities and functional divisions of the Nidhi company.
Nidhi Companies must follow annual compliances stated below:-
Describe the punishment for Non-Compliance of Nidhi Company?
Filing of compliances is compulsory for every Nidhi company. The penalties for Non-Compliances of Nidhi Company are as follows-
The organization and the concerned officers will be fined an amount up to Rs. 5,000.
In the case of the continuation of infringement, the Company will be charged a further fine of Rs.500 per day.
Event-Based Compliances of a Nidhi Company
Usually, event-based compliances are essential to file only once through the company registration process. Also, the agreements must be followed when there is any change in the Company’s structure, which is non-periodical.
Below is the list of event-based compliances:
Any change in the Company’s name.
Change in Registered office address.
Appointment or Resignation or Removal of Director.
Appointment or Resignation or Removal of Auditor.
Any amendment to the Company’s objective.
Transfer of shares.
Rise in the authorized capital of the Company.
Appointment of the Key Managerial Personnel.
Any other changes that are event-based
Which activities are prohibited by Nidhi Company?
The activities that are not permitted by the Nidhi Company Registration are-
Advertisement for funds
Lottery
Chit funds
Insurance
Leasing
Accepting deposits or lending funds to outsiders
Entering into partnership
Sell assets of its member for providing loans
What are the kinds of Deposits for Nidhi Company Registration in India?
According to Rule 13, there are three types of deposits under Nidhi Company Registration-
Fixed Deposit
Recurring Deposit
Saving Deposit Account
What is the Maximum Deposit Limit in Nidhi Company Registration in India?
Nidhi Company will not accept deposits that are beyond 20 times its NET OWNED FUNDS (NOF) as per the last audited financial statement of the Company.
What is the Duration of Deposit in Nidhi Company Registration in India?
The deposits shall be accepted for a minimum period of 6 months and a maximum period of 5 years.
The Company can accept deposits like Banks/NBFCs, of which the maximum period of deposit is five years. Still, a company can renew the same for the next five years based on the choice of the investor.
Recurring Deposits will be accepted for a minimum period of 12 months and a maximum period of5 years.
Recurring deposit is a perfect tool that is mostly used by the Nidhi Companies to increase the deposit amount and funds, and hence the same as fixed deposits, and its maturity time is five years. When the Recurring deposit is mature or closed, the money of that deposit is automatically moved to the regular savings account. The Company can again offer the recurring account facility to the same member, and the amount collected of recurring deposits will be capitalized in fixed deposit as bulk money on the customers choice. Therefore, it is a sales promotion idea for the Nidhi company.
What is the Rate of Interest on Fixed Deposits and Recurring Deposit?
The Rate of Interest that can be offered on Fixed and Recurring Deposit should not surpass the maximum rate of interest arranged by RBI, which the NBFC offer on the deposits.
The Maximum interest rate offered on Fixed Deposits and the Recurring deposit will continuously be fluctuating, and it is at all times essential to look at the RBI policies for the Interest rate.
Whatsoever RBI decides for NBFC about the rate of interest. The same will be applied directly to the Nidhi companies.
Conclusion
Nidhi Companies are easy to function as there is less involvement of RBI. Yet, they have to follow the compliances set up for them by the Companies Act, 2013, and the Nidhi Rules, 2014. It works on the belief of mutual benefit. Nidhi company is easy to assemble