Nidhi Company is a form of Non-Banking Financial Company (NBFC). It is made to borrow as well as for lending money to its members. It instructs the habit of saving amongst its members and acts on the principle of mutual benefit. Nidhi Company is not required to obtain the license from Reserve Bank of India (RBI), and thus it is easy to be formed. It is registered as a public company and must have “Nidhi Limited” as the last words of its name.
Nidhi Company in India
According to section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 states all the provisions relating to the incorporation and governance of the Nidhi Companies in India. The rules and directives regarding the Nidhi Companies are also been issued by the Reserve Bank of India. These are mostly related to financial actions and investments by corporations which includes the NBFCs. Because of the reason that the Nidhi Companies are involved in the business of deposits as well as loans through its members only, few exemptions were provided to these corporations, by the RBI.
The interest that is charged at the loans under a Nidhi Company is reasonable. The purposes the loans are sought are, generally for manufacturing/renovation of houses or child’s education, etc. The loans are given against security only. The deposit under Nidhi companies does not earn much interest as when compared to deposits in the organized banking sector.
The lending and borrowing of the Nidhi Companies are carried out by its members, only. Thus, such corporations are also referred to as Mutual Benefit Societies, because they work for the mutual benefit and welfare of every member.
Documents required for Nidhi Company registration
The proof of the registered place of business (Ownership documents/ rent or lease agreement).
No Objection Certificate (signed by the proprietor/ landlord).
Identity proofs.
Address proofs of the members.
Photographs of the members.
PAN card copies of the members.
Digital Signature (DSC).
Director Identification Number (DIN) of the directors.
Memorandum of Association of the corporation (MoA).
Articles of Association of the corporation (AoA).
Forms to be filed
There are two forms that must be filed.
INC 9- this is required to be filed by all the subscribers to the MoA.
DIR 2- this is required to be filed by all the directors of the corporation, Declaration according to Rule 5 and 6 of Nidhi rules 2014- that is signed by every one of the subscribers.
Compliances for Nidhi Company
NDH-1 Form: A Nidhi Company must submit the list of members in 90 days from the end of every fiscal year, in this Form.
NDH-2 Form: It could request MCA towards an extension in this Form if it has not been able to add 200 members in its first fiscal year.
NDH-3 Form: Also a half-yearly return must be filed in NDH-3 Form.
Annual Returns with ROC: The Nidhi Company must also file its Annual Returns with MCA through Form MGT-7.
Profit and Loss Statement and Balance sheet: The financial statements, as well as other related documents, must be submitted, annually, in Form AOC-4.
Income Tax Returns: Nidhi Company must also file its Annual Income Tax Returns by 30th September of the following fiscal year.
Conditions to be fulfilled for getting Nidhi status
In one year of its registration
Nidhi Company must have a minimum 200 members within 1 year from the beginning.
The net owned funds must be 10 lakh rupees or above.
Unencumbered term deposits are required to be 10% or higher of the outstanding deposits.
The ratio of net owned funds towards deposits should not be above 1:20.
In case the Nidhi Company fulfills all the above conditions, it must file NDH-1 along with set fees within 90 days from the end of the first fiscal year after incorporation. The form should be duly certified through practicing CA/ CS/ CWA.
Extension of another fiscal year could be availed upon submission of NDH-2 towards the Regional Director in 30 days from the end of the first fiscal year.
However, after the second fiscal year, even it does not fulfill the requirements, it cannot accept deposits till it fulfills the provisions, and also fine shall be imposed.
Nidhi Company registration process
Applying for DIN and DSC
The Directors of the Nidhi Company must apply for DIN (Director s Identification Number) and DSC (Digital Signature Certificate). The Ministry of Corporate Affairs issues the DIN and DSC is a digital signature utilized for all e-filing procedures. This step could be avoided for the Director already has DIN and DSC.
Approval of the Name
The director is required to select and propose 3 different names to the Ministry of Corporate Affairs for their Nidhi Company. Out of the suggested 3 names, only one shall be accepted for the Corporation through MCA. The suggested names should be unique and must not match to the names of other already registered corporations, according to Rule 8 of the Company Act. The approved name would remain valid for 20 days only.
MoA and AoA
The MoA and AoA must be filed to the ROC (Registrar of Companies) with the subscription statement.
Certificate of Incorporation (CIN)
After fulling all the conditions the Register issues the incorporation certificate which declares that a corporation was formed and it mentions the company identification number (CIN) also.
PAN, TAN and Bank Account
The directors are required to apply for PAN and TAN. The PAN and TAN are received within 7 working days. Also, the directors must get a bank account opened by means of submitting the Certificate of Incorporation, MoA, AoA, and PAN to the bank.
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