Nidhi Company Registration
Nidhi company is a non-banking financial (NBFC) type of company. It is defined and provided under section 406 of Companies act. Its core business is collecting money in the form of deposits and further lending it to its members in the form of loans. The borrowing of money is also done through its members only. Nidhi company is also called Mutual benefit company, Permanent fund and benefit funds company. The word Nidhi in Hindi means treasure. The purpose of such companies is to help small households, who find it hard to invest their money and get loans from banks and other financial institutions. Nidhi company creates a sense of assurance to them that they are members of that company and only members can avail loans and their deposits are in safe hands.
Nidhi company is governed by the Nidhi rules, 2014 which are regulated by the Ministry of corporate affairs. Nidhi company does not require any license or permission from Reserve Bank of India (RBI). It is a company that works through its members and for them only. It is the cheapest and the easiest way to raise fund from the general public, the only precondition before taking deposit from a person is that the person must be made a member. Though a Nidhi company does not require permission from Reserve Bank of India, but RBI has the power to issue directions to such companies in matters appertain to acceptance of deposit from its members.
Nidhi companies were in existence before the enactment Companies act, 2013 but were regulated after Nidhi rules were formed. The basic concept of the company is the principle of mutual benefit of its members. These companies are not popular in the northern part of India, but these are very popular in South India and 80 percent of these companies are functioning in Tamil Nadu.
It is easy to form a Nidhi company as the process of registration is easier and less complex as compared to other companies. Minimum no. of members required to form a Nidhi company is 7 and out of these 7 members 3 must be appointed as directors of the company. It takes 35 to 45 days for registering a Nidhi company.
Though Nidhi company is Non-Banking Finance company, but it is exempted by RBI from taking permission from it before establishing itself. The overall compliance is also less, and it is only governed by Nidhi rules, 2014. Banks and other NBFC’s are required to adhere to stringent rules and regulation of Reserve bank of India. The no. of documents and other formalities is also less in Nidhi company.
Nidhi company is a localized form of repository of money. In India financial literacy is very low, and people generally tend to stay away from banks. But a Nidhi company is formed for a local area mostly a single district. All members are local people in the company, people tend to have trust in their own people, and thus they have an assurance that the company works for their benefit.
Nidhi company has certain restriction on the amount of loan it can extend to a single member, thus the risk of default gets lower as no member can take a large loan, as we are witnessing nowadays that big companies or individuals take large loan and then default. To avoid this and safeguard the interest of all members, a single member can take a limited amount of loan. And if he defaults in repayment then he is barred from taking loan again.
This is an added advantage to its members; members can keep their valuables in lockers. And Nidhi can earn income from providing this facility.
Nidhi company cannot advertise about its business activity, but Nidhi company works in a local area and members are mostly from one district therefore members of Nidhi are its advertising agents in disguise. People tend to trust their own people more. Thus, Nidhi can become very successful if its operations are clean and accountable.
Nidhi company cannot extend loans to trust, companies or other institution. These entities are powerful and have a wider influence as compared to an individual member. Thus, Nidhi rules do not permit it to extend loans to such entities.
Nidhi is a legal entity and also a juristic person. Thus, Nidhi company can sue and can be sued. Nidhi company has its own identity different from its members.
Nidhi company is incorporated as Public limited company. Therefore, its liability is limited. Members are not responsible personally for liabilities of the company.
Nidhi company has uninterrupted existence and perpetual succession. Its is not affected by any single member whether that member dies or quits his membership. It can only end if it is legally dissolved.
Nidhi company offers attractive 7.5 percent rate of interest to its members, and it can charge up to 20 percent interest while extending loans to its members. The rate of interest is also same to one class of loans and cannot change as per members, it must be same for all members.
The incorporation of such entities is in the form of Public Limited Company; therefore, they have to comply with provisions of Companies act and another set of rules that are Nidhi rules, 2014. There is no need to take approval or any type of license from Reserve bank of India. This category of NBFC has been exempted by RBI and thus compliance is simpler for this type of NBFC compared to other NBFC’s. Nidhi rules have provided detailed process of compliances such as registration requirements of the company, general restriction and prohibition, method of taking deposits, method of extending loans, rate of interest to be charged etc.
•Chit fund
•Insurance
•Acquiring securities
•Leasing finance
•Hire purchase finance
•Asset financing
It takes somewhere around 35 to 45 days to register the company provided all documents and requirements are fulfilled and are correct.
Yes, some other company can hold shares of Nidhi company.
After getting the company incorporated with the registrar of companies (ROC), the company remains active till it meets all its compliances and follows rules and regulations. If the company fails to meet compliances, the company becomes a dormant company and it can be struck off by the registrar of companies. Company which has been struck off can be made active again within 20 years.
Office space does not mean that the companies registered address should be a commercial one. A Nidhi company can be registered at a residential address also.
No, the rules of Nidhi company do not permit the company to indulge into business of asset financing.
A Nidhi company can provide locker facility to its members provided the company has adhered to all the rules, but the total income from locker facility cannot exceed more than twenty five percent of the gross income of the company at any time.
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