Nidhi Company Registration
Nidhi company refers to a group of people who work closely to fulfill their financial ambitions. Unlike an unorganized group voluntarily formed by people with common financial goals, Nidhi company is more legally tenable and financially stable. It is worth noting that Nidhi company is akin to NBFC with the only difference being that financial transactions (lending and borrowing) occur within the group.
Such entities advocate saving and mutual empowerment among members. Despite being a financial institution, Nidhi Company is not required to secure approval from the Reserve Bank of India. However, they are required to be constituted as a public company.
Forbidden Undertakings for Nidhi Company Registration
Although Nidhi Companies are liberal and get several exemptions to thrive, they cannot get involved with the following businesses since it is a legal mandate:
- Chit funds
- Hire-purchase finance
- Leasing of finance
- Insurance
- Securities
- Deposit acceptance from third-party
- Rendering finance to any third-party
Why opt for a Nidhi Company?
Although there is no compulsion to opt for this legal structure, going otherwise can lend the following benefits to the members:
Legal existence:
Registering as a Nidhi company shall provide a group with an independent legal structure. This could translate to benefits such as ease of buying and selling assets in the company’s name, limited liabilities for members, etc.
Limited liability:
Nidhi company limits the members’ liabilities to the extent of their contribution. Nidhi company draws a line of distinction between the members’ assets and the company’s liabilities.
Availability of funds:
Nidhi company usually fosters ample availability of funds (contributed by its members) for seamless mutual borrowing and lending. Members who need finances can borrow such funds at lower interest rates.
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Underlining the establishment requirements for the Nidhi Company
To set up a legally viable Nidhi company, one must fulfill the given conditions:
- Incorporation as a Public limited company
- A minimum of 7 shareholders
- A minimum of 3 directors
- Equity capital equivalent to Rs 5 lakh
- A minimum of 200 members
- A net owned funds ≥ Rs.10 lakh
- The term ‘Nidhi Limited’ must be used in the company’s name.
- The objective of the proposed firm should revolve around lending and borrowing funds
- The unencumbered term deposits equivalent to 10% or more of the outstanding deposits
- The ratio of Net Owned Funds to deposits equivalent to 1:20 or less
- All directors must have a Director Identification Number (DIN).
Nidhi Company Registration: Paperwork required
The following documents must be submitted to get a company registered as a Nidhi Company:
- Address proofs for all company members.
- Digital Signature Certificate (DSC) for the company.
- A No Objection Certificate (NOC) signed by the landlord or owner of the business premises.
- Certified copies of the updated Articles of Association (AoA) of the company.
- Director Identification Numbers (DIN) for all directors.
- Valid identity proofs.
- Copies of PAN cards for all members.
- Documents confirming ownership or a rent/lease agreement indicating the address of the registered business location.
- Photographs of all company members.
- Certified copies of the updated Memorandum of Association (MoA) of the company.
List of mandatory forms for Nidhi company incorporation
You will need to fill out the following forms while going for the Nidhi company incorporation:
INC 9: The INC 9 form is meant for the MoA’s subscribers. It is a kind of declaration reinforcing the subscribers’ identity.
DIR 2: The DIR 2 form is a mandatory form that helps validate the directors’ identity.
Declaration as per rule 5 and 6 of Nidhi rules 2014: It seeks the signature of all the subscribers.
Nidhi company registration process: 4-Steps Guide
The Nidhi company registration process typically entails the 4 steps as discussed below:
Step 1: Secure DIN and DSC:
The first step involves securing the DIN and DSC. The DIN i.e. Director Identification Number helps validate the director’s identity, meanwhile, the DSC i.e. Digital signature certificate helps authenticate the delicate paperwork electronically via an encrypted e-signature.
Step 2: Name approval:
The next step requires you to proceed with name approval formalities, which include securing permission from the competent authority to use the name. For this purpose, you must perform a database search and file a form. Please refer to the given checklist for an ideal name selection.
- The name must be in line with the object of the company, if possible
- Opt for a concise and logical name.
- Go for the distinctive name from a trademark standpoint
- Scout all the directions cited in the Emblems and Names Act, 1950
- Avoid using illegal or offensive terminology in the name
- Avoid using the term ‘British India’.
Step 3: Filing COI:
In this step, the applicant must file the Conflict of Interest (COI) with the competent authority via forms INC- 7, INC- 22, and DIR- 12.
Step 4: Sharing members’ details:
This step involves furnishing details of the members with the Nidhi board under MCA/ROC. It is worth noting that the authority will not proceed with the verification process unless the number of members is at least 200.
Is it legally viable to open a Nidhi company’s branches?
Yes, one can open branches of a Nidhi company by following the given norms:
- The Nidhi Company should remain profitable for the last 3 years.
- The branches cannot reside outside the district where the Nidhi company is operational.
- A company can open 3 branches at max. If the company chooses to open more branches, the approval of the regional director becomes mandatory. There is no location restriction on the additional branches.
- An intimation to the Registrar is mandatory after opening the branch of the Nidhi company. The formality should be completed within 30 days of opening the branch.
Conclusion
Incorporating a Nidhi company is a bold step towards mutual empowerment and societal upliftment. Such entities can overcome financial woes through a sustainable pool of funds, helping members cope with unexpected expenses and obligations.
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