Nidhi Company Registration – A Complete guide

 

Starting a finance business or want to legalize your existing finance business, then you are at the right door as Nidhi Company is the only available option to start a finance business legally that too without the Reserve Bank approval.

As said, Nidhi Company is now gaining importance day by day however, information about the Nidhi Company registration and compliance is limited and scattered and hence, we are writing this guide to provide a complete set of information and one stop solution for Nidhi Companies in India.

Nidhi Company registration – at a glance

Nidhi Company offers various advantages over various other forms of finance business including NBFC registered with RBI because it allows you to accept deposits that to 20 times the net owned fund (Capital invested).

For e.g. if you have started a Nidhi Company with Rs.10 lakh, then you will be able to accept deposits of Rs.2 crore (i.e. twenty times). Let us read some basics about the Nidhi Company registration in India:

• Person Required: Minimum seven people (also known as members) are required to register a Nidhi company in India. Further, out of the seven people, three would be elected as directors of the company.
   
• Minimum capital requirement: Nidhi Company registration will require atleast 5 lakh capital in the beginning. This 5 lakh capital must be deposited into company’s bank account after the registration by the seven initial members in the proportion of their ownership (shares).
   
• The time required for Nidhi Company registration: If all the documentation is completed at your end, then it will require atleast 10 to 12 days to complete all the required formalities.
   
• Total Cost: The total cost for Nidhi Company registration including professional fees and GST comes around to 50 to 55 thousand approx.
   
• Documents: There is an easy list of documentation for Nidhi Company registration which has been described in detail below.
   
• Time to deposit capital: The capital amount of Rs.5 lakh can be invested within 2 months after the Nidhi Company registration as per Companies Act, 2013.
   
• RBI approval/License: Nidhi Company has been exempted by the Reserve Bank of India (RBI) from its core provisions and hence, you can take a deep breath as RBI will not bother you if you chose to start a Nidhi Company in India.
   
• Branches: A Nidhi Company can open up to three branches after 3 years of the successful runner-up. Further, Nidhi Company cannot open a branch outside the state.
   
• Advertisement by Nidhi Company: A Nidhi Company is not allowed to advertise regarding the deposits however, there are no such restrictions regarding the loan. Hence, Nidhi Company can advertise to provide loans.

Further, it can also advertise any new deposit schemes but within its members only. After getting a glance at the Nidhi Company in India, let us move forward and understand all the related laws, terms in detail.

Documents required for Nidhi Company Registration

There is a very easy list for getting the Nidhi Company incorporated. The documents will be required for each of the 7 initial members.

Documents list for members

• PAN Card
• Photo
• ID Proof (Voter ID, DL, Passport, Aadhar) – Anyone
• Address proof (bank statement, Mobile bill, electricity bill, landline bill) – Anyone

 

Documents list for registered office

Documents for registered office depend upon the ownership of the premises. Hence, two categories can be formed for this structure:

• If premises are owned: If premises are owned, then two documents shall be required:
  • Electricity bill (latest)
  • Copy of No Objection Certificate (NOC)
• If premises are on rent: If premises are on rent, then three documents shall be required:
  • Copy of rent agreement
  • Electricity bill (latest)
  • Copy of No Objection Certificate (NOC)

Once all the documents collection is over, try to take the scan copy of the documents, because all the documents are submitted online.

Nidhi Company registration procedure

The Company registration procedure in India is witnessing a complete change after many complaints have been received. Further, it is expected that the new company registration procedure will revolutionaries the way Companies or business are registered in India.

The brief about the new procedure is explained below:

• Digital Signatures and DIN: Like existing process, digital signature and Din are the most important preliminary requirements without which, a company registration procedure cannot start. Digital signatures are the pen drive based software which is used to sign on computers.
  Using digital signatures, DIN generated online by filing the form DIR 3 on Ministry of Corporate Affairs (MCA). DIN is numbers allotted to every director in the country.
   

• Name Approval Process: The name approval process is going to change completely and it is been expected that it will go to be very simple.Further, make sure that you check the following parameters of name to avoid rejection:
   
  • Company search: You must search your name availability with the existing Company database from this link. This will help you to get a unique name.
     
  • Check Trademark Search: The next thing you must do is to check whether your proposed name is already taken trademarked or not. You must check this from the trademark search under class 36.
     

• No general names: Names should not be too general like Finance Nidhi Limited, Money Nidhi Limited etc.
   

• Incorporation, PAN, TAN for Nidhi Company: Once the name is approved by the MCA, the next step is to file for the Nidhi Company incorporation.The incorporation will be filed in SPICE FORM along with other documents like Memorandum of Association (MOA), Articles of Association (AOA) etc. Once the company is approved, a certificate of incorporation is generated along with Pan and Tan number.

At this stage, a Nidhi Company registration procedure gets over and compliance procedure starts. Here is the flow chart representation of Nidhi Company registration procedure.

Open bank account and mark for compliances

Once the Nidhi Company is registered, the next thing you do is to open the bank account with any scheduled bank and mark for initial compliance. Here is some initial compliance which you must do as per Nidhi rules and Companies Act:

• Deposit Capital amount: Once the bank account is opened, deposit the capital amount within 2 months from the date of incorporation.
   

• Raise capital to 10 lakh: If you have already registered your company with 10 lakh capitals, then kindly ignore otherwise, you need to raise capital to atleast Rs.10 lakhs before your first balance sheet filing.
   

• Make minimum 200 members: By the first balance sheet filing, make sure you add atleast 200 members with your Nidhi Company to avoid non compliance with the Nidhi Rules, 2014.
   

• Maintain 10% unencumbered deposit with schedule bank: If you are accepting deposits, then make sure you keep 10% of the deposits in fixed deposit with any scheduled bank.
   

We have discussed some major compliance of Nidhi Rules, apart from the above; there is some minor compliance as well as a board meeting, auditor appointment etc.

How to make members of Nidhi Company

This is perhaps the most important question about the Nidhi Company because 90% of the Nidhi Company does not wrongly. Also, if members are not added to the company legally, then transactions done with them will be regarded as void.

There are basically two ways by which you can add members in the Nidhi Company:

• Allotting new shares
• By Share transfer

Out of the above two, the second method is the quickest, cheapest and the best way to add members in Nidhi Company because allotment happens hand to hand with no separate filing to the Ministry of Corporate Affairs (MCA) each month.

Further, every member is given 1 share (10 shares in case of fixed deposit) of Nidhi to complete membership procedure.

Read the complete procedure to add new members to Nidhi Company.

Membership form, Loan form and other documentation

Nidhi Company is a finance company and runs mostly like a bank when it comes to documentation and hence, proper documentation is all that one needs. Please refer here for membership form documentation and for other documentation, please email us at info@hubco.in.

Loan by Nidhi Company

The only business a Nidhi Company can do is to give a loan to its members and earn. Apart from giving a loan, a Nidhi Company cannot do any other business. Further, since Nidhi Company uses public funds to lend loan, it is not allowed to lend unsecured loans.

In other words, a Nidhi Company can only lend secured loans that too against the following securities:

• Gold Loan: It is the most famous type of loan a Nidhi Company can give to its members. Anybody who needs loan must visit the Nidhi Company and request for a loan. If your documents are ok, then Nidhi will give you a gold loan in 30minutes. Hence, Nidhi company owners advertise that Nidhi is giving gold loan and earn 20% interest on the same legally.
   

• Loan against property: Another type of loan a Nidhi Company can give is the loan against the property. The maximum tenure of this loan can be 5 years.
   
• Loan against FD, government bonds etc: A Nidhi Company can also lend loan against its own deposits and govt bonds etc.

Know more about the loan by Nidhi Company.

Deposits under Nidhi Company

This is perhaps the most important feature of Nidhi Company that keeps its difference from the other type of finance companies. A Nidhi Company is allowed to accept deposits and that too twenty times the net owned fund.

E.g. If you have invested Rs.10 lakh into the company, then you could accept deposits up to a Rs.2 crore. Here are following the type of deposits which can be accepted by Nidhi Company:

• Fixed Deposits (FD): This is one of the best ways to raise the fund under Nidhi Company in India. Nidhi Company can accept deposits from members only and there is no upper limit on a single deposit. Further, a Nidhi company can offer interest up to 12.50% on FD per annum. The maximum tenure up to which a Nidhi Company can accept FD is 5 years.
   
• Recurring Deposits (RD): Recurring deposits can also be accepted by the Nidhi Company and it can offer 12.50% on the same. RD can be accepted for a minimum period of 6 months and for a maximum period of 5 years.
   
• Saving account: A Nidhi Company can also open a saving account and can offer interest up to 6% on saving the account. However, a maximum balance cannot be more than Rs.1 lakh any point in time.
   
• Current account: A Nidhi Company cannot open a current account for any of its members.

Please refer here for more on deposits under Nidhi Company.

Micro finance under Nidhi Company

This question is the most widely asked question about whether a Nidhi Company can do microfinance in India. The answer is no. A Nidhi Company can only do secured loan and cannot lend unsecured loan to any client, hence, it is not possible for a Nidhi Company to do a micro finance business.

Read more about micro finance by Nidhi Company

Compliance with Nidhi Company

Nidhi Company is a special company and hence, it is natural that more compliance would be added to its portfolio. Other than the normal compliances which every company needs to file, there are two additional compliances which Nidhi Company has to comply as per the Nidhi rules, 2018.

Here is the brief about the Nidhi Company compliances in India:

• NDH 1 filing: NDH 1 is filed within 90 days of the closing of the year, i.e. 90 days from 31^st March. NDH 1 is the return which is a kind of declaration regarding the compliance of Nidhi Rules, 2014. If you are not ready with the NDH 1 filing, then you must apply for an extension by filing the NDH 2.
   

• NDH 3 filing: NDH 3 is filed at the end of each half year i.e. by the end of 30 September and 31^st March. NDH 3 is the return which is being filed with the MCA regarding all the details of deposits, members, loans etc.

Can a Nidhi Company issue debit cards

No, a Nidhi Company cannot issue a debit card, since its software is not linked to CBS software of bank. Further, it is not possible to link both the software and hence, any withdrawal process has to be processed manually.

Nidhi Company software

A calculation under a finance company is a tedious task and almost impossible to handle it manually and hence, Nidhi Company software is being used by the companies to handle everything from loan calculation to saving account balance.

Know more about the Nidhi Company software

 

Conclusions

In these 2000 words Nidhi Company guide, we have tried to explain every bit and pieces about the Nidhi Company registration and it’s working. In case we have left anything, or you have any doubt, please email us at info@hubco.in.

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