Nidhi Company

Nidhi Company belongs to Non-Banking Financial Companies, or NBFCs, free from RBI licencing requirements. The Nidhi Company operates through its employees, and only its members are allowed to get loans from it and deposit money.

Nidhi is a safe and cost-effective method of obtaining contributions from the general population by enrolling them as members. Permanent Funds, Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Companies are other terms for Nidhi Companies.

Nidhi is a business established to encourage members to cultivate financial responsibility and save money. It also collects members' deposits and makes loans for their mutual benefit. Nidhi Company may be formed with a minimum of seven members, three of whom must serve as the company's directors.

Meaning of the Term "Nidhi"

According to rule 3 of the Nidhi Rules, 2014, a business that has been created as a Nidhi with the purpose of "cultivating thrift and saving habits among the members, collecting deposits from and lending to the members for their mutual benefit, and fully complies with the rules formed by the Central Government" is considered a Nidhi.

Nidhi's Key Characteristics

1. Requirements for Incorporation [Rule 4]

A Nidhi should be a "public corporation,".
INR 5 Lakhs should be the minimum paid-up ordinary shares capital required.
Nidhi shall not issue preferential shares upon incorporation.
If the preferred shares have already been issued, they must be returned in line with the original share issuance conditions if published before incorporation.
Nidhi's goal should be to encourage its members to practise thrift and saving and to accept deposits from and lend money to them for their mutual advantage.

2. The Nidhi must fulfil specific requirements after incorporation [Rule 5]

According to this rule, a minimum of 200 members of the Nidhi Company must be present within a year of the company's creation.
The Nidhi Company's Net Owned Funds must be at least INR 10 lakhs.
New term deposits equal at least 10% of the total amount of deposits.
The net owned funds to deposits ratio shouldn't be more significant than 1:20.

3. Limitations / Prohibitions [Rule 6]

Following are some fundamental limitations or bans for Nidhi:

Can't operate a chit fund, finance a hire-purchase, finance a leasing transaction, conduct on an insurance company, or buy body corporate securities. Cannot issue any financial instrument, including debentures or preference shares. It cannot establish a current account with any of its members.
Cannot take deposits from or lend money to anybody besides members.
It cannot request a deposit to promote itself.

Fundamentals of Nidhi Company

You should be familiar with the fundamentals of Nidhi Company before we discuss the registration process:
Mutual Benefit Company is another name for Nidhi Company. It encourages its members to learn how to save money and use it properly.
Anyone may register a Nidhi Company in India because there are minimal requirements and formalities to complete.
A Nidhi Company is limited to conducting business with its members and no one else.
A corporation must have seven members to be incorporated, and the minimum capital required is five lacs.

Regulations for the Nidhi Company

Companies registered under the Companies Act are referred to as Nidhi companies. The Nidhi corporations are governed by the Ministry of Corporate Affairs, or MCA, and are documented and acknowledged under section 406 of the Companies Act, 2013, passed in 2013. Nidhi Rules, 2014, govern Nidhi businesses.

Due to its incorporation as a public limited company, they are subject to two sets of regulations: the Nidhi Regulations of 2014 and the Companies Act of 2013, both of which apply to public limited companies. Since the RBI has exempted this kind of NBFC in India, there is no need to obtain clearance from the RBI to register the business.