FAQs – Nidhi Company and its Operations
What is Nidhi Company?
A Nidhi Company is a Company which carries on the business of accepting deposits and lending the same on demand. Nidhi Company is similar to NBFC but the only basic difference between the two is that Nidhi Companies accept deposits only from its members. The main aim of these companies is to work for the mutual benefit of its members. These companies are not entitled to carry on the business of Hire Purchase Financing, Insurance, Chit Funds and Acquisition of securities or Issue of any Debt Instruments.
What provisions are applicable to Nidhi Companies?
Following provisions are applicable to Nidhi Companies.
- As they are incorporated into the nature of Public Company so rules and regulations of Companies Act, 2013 are applicable.
- RBI provisions related to Interest rate payable on deposit are applicable to Nidhi Companies. But the core provisions of RBI are not applicable to Nidhi Companies as RBI has exempted the Nidhi Companies from the same.
- Nidhi Rules, 2014.
What are the requirements for registration of Nidhi Company in India?
As to incorporate a Nidhi Company it is to be registered as a Public Limited Company. So, to incorporate a Nidhi Company it is necessary to fulfil following criteria:
- It should have at least 3 Directors.
- It should have at least 7 Members.
- The main objective to be written in the MOA should be to cultivate the habit of thrift and savings among its members. And it can accept deposits and lend money only to its members and shall work for the mutual benefit of its members.
What are post incorporation requirement of a Nidhi Company?
Once the Nidhi Company is incorporated it must fulfill the following requirements:
- It must have at least 200 members/shareholders.
- Minimum Net Owned Fund should be Rs. 10 Lakhs.
- Unencumbered term deposit must be at least 10% of the term deposit.
- The ratio of Net Owned Fund to term deposit should not be less than 1:20.
What are the advantages offered by Nidhi Company?
The exclusive advantage which is offered by Nidhi Companies are:
- It is a single office institution governed exclusively by its members with no involvement of the third party.
- Provide loans at minimal interest rates and minimum documentation.
- Secured investments are guaranteed by such companies.
Are the Deposits with Nidhi Company safe and secured?
Yes, the Deposits with such companies are safe and secure because the Ministry of Corporate Affairs and Reserve Bank of India has framed rules and regulations to ensure the safety and security of Deposits. And the Nidhi Company compulsorily abide by the rules of Central Government.
How the Nidhi Company utilizes the Funds procured by it?
The Nidhi Company uses the funds in lending to shareholders as per Nidhi Rules. It lends such money in the form of small loan for business and finance.
Who can become the shareholder/member of Nidhi Company?
Any person who is above 18 years of age as per the standard age proof can become a member of the Nidhi Companies. The person desirous of becoming a member should have valid ID Proof and Address Proof.
Can a Minor be a Member of Nidhi Company?
A minor shall not be admitted as a member in a Nidhi company, but deposits may be accepted in the name of minor, if they are made by natural or legal guardian who is a member of the respective Nidhi.
What are the Documents required to form a Nidhi Companies?
Following are the documents required for Nidhi Company Registration:
- Digital Signature Certificate of all the Directors.
- Directors Identification of all the Directors.
- Copy of a PAN Card.
- Copy of Identity Proof (i.e. Voters ID Card, Driving License, Aadhar Card).
- 2 Passport size photographs.
- Registered Office Address Proof (Electricity Bill, Telephone Bill).
- If the registered address is a rented premise then rent agreement with rent receipt.
On what condition Nidhi Company can provide a loan to its members?
Nidhi can provide loans to its members only after the members have given/ provided some securities like gold, silver jewelry or any type of financial securities against the loan.
What are the Restrictions on Nidhi Company?
Nidhi Companies are not allowed to do the following business:
- They are not allowed to start the business of chit funds, Insurance, Hire Purchase Finance, Leasing Finance and acquisition of shares issued by companies.
- Nidhi Company cannot issue securities such as preference shares, debentures etc.
- They are prohibited from opening any current account with its members.
- It cannot enter into partnership for doing lending and borrowing business.
- It is not allowed to acquire any other company.
Whether Loan can be providing to non-members.
The principle of mutual benefit has been to pool the savings from members and lend only to members and never have dealing with Nonmembers.
Whether Nidhi can engage itself in business other than mentioned above like (Chit Fund, Hire Purchase, Insurance, investing etc.)?
Nidhi are not expected to engage themselves in the business of Chit Fund, hire purchase, insurance or in any other business including investments in shares or debentures.
Whether Nidhi Company can issue Preference Share?
Nidhi shall not issue preference shares.
What is requirement of minimum number of Members in Nidhi Company?
Every Nidhi shall, within a period of one year from the commencement of these rules, ensure that it has not less than two hundred members;
Whether a person can be director of NIDHI Company without holding any share capital?
The Director shall be a member of Nidhi. Therefore, it is mandatory for director of Nidhi Company to hold shares.
What shall be maximum tenure of director in Nidhi Company?
The Director of a Nidhi shall hold office for a term up to ten consecutive years on the Board of Nidhi. The Director shall be eligible for re-appointment only after the expiration of two years of ceasing to be a Director.
What is minimum nominal value of shares for Nidhi Company?
Every Nidhi shall issue equity shares of the nominal value of not less than ten rupees each.
What is requirement of minimum shareholding for deposit holder?
Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or shares equivalent to one hundred rupees.
What is the maximum limit upto which Nidhi can accept deposits?
A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements.
What is maximum limit upto which a Nidhi can declare dividend?
a Nidhi shall not declare dividend exceeding twenty-five per cent or such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing.