Nidhi Company Registration Process and its Important Features

India’s financial sector offers different types of organizations to encourage savings and financial growth. One such option is a Nidhi Company, a special type of Non-Banking Financial Company (NBFC) that helps its members build good saving habits. If you are an entrepreneur wanting to enter the finance sector with fewer regulatory hurdles, starting a Nidhi Company can be a smart and simple way to achieve your business goals.

In this blog, you will learn about the Nidhi Company registration process and its important features.

What is a Nidhi Company?

A Nidhi Company is a special type of Non-Banking Financial Company (NBFC) that enjoys exemption from many strict RBI rules. Its main aim is to encourage its members to save money, build financial discipline, and support each other. A Nidhi Company only accepts deposits from its members and provides loans to them. It does not deal with the general public which makes it a community-driven financial organization.

Important Features of a Nidhi Company

There are serveral important features of a Nidhi Company. Here as follows:

1. Public Company Status

Nidhi's company must be registered as a public limited company and record "Nidhi Limited" in its name. According to Rule 3(1) of the Nidhi Rules, 2014, private companies are not allowed to operate as Nidhis.

2. Exclusive Member Transactions

Nidhis can only engage in financial activities with their own members, such as accepting deposits and offering loans. Transactions with third parties are not allowed. It promotes a closed and member-focused financial system.

3. Membership Requirements

Nidhi companies must have at least 200 members within 120 days of their inception. If it fails to meet this requirement, it may lose its Nidhi status unless it gets extra time from the Regional Director.

4. Minimum Capital and Net Owned Funds (NOF)

At the time of incorporation, a Nidhi Company must have at least Rs. 10 lakh as paid-up equity share capital. As per the 2022 Amendment, it must also maintain Net Owned Funds (NOF) of Rs. 20 lakh or more.

5. Restrictions on Business Activities

Nidhi companies cannot operate companies such as chit funds, leases, insurance, or transactions with securities. They also cannot open current accounts for members or advertise for deposits. Their main focus is purely on member-based savings and lending.

6. Loan and Deposit Limits

The loan amount a member can get from a Nidhi Company depends on their total deposits. If deposits are less than Rs. 2 crore, the loan limit is Rs. 2 lakh. For deposits between Rs. 2 crore and Rs. 20 crore, the limit is Rs. 7.5 lakh. If deposits are above Rs. 20 crore, the loan limit is Rs. 12 lakh. Additionally, deposits greater than 20 times a Nidhi Company's Net Owned Funds (NOF) are not permitted.

7. Branch Expansion Policy

A Nidhi company can open up to three branches in the same district without obtaining permission when it has made net profits for three years in a row. However, to open more than three branches or expand outside the district, it must get prior approval from the Regional Director.

8. Filing and Reporting Compliance

A Nidhi Company must file certain forms with the authorities. It must submit NDH-1 (annual return of members) and NDH-3 (half-yearly return on deposits). NDH-4 must be filed within 60 days after registration to get Central Government approval. All annual returns and financial statements should be filed through the MCA21 V3 portal.

9. Membership Qualification for Directors

Members of the Nidhi Company are required to serve as directors. They cannot serve for more than 10 consecutive years. They should also meet the "fit and proper person" criteria as per the latest rules.

10. Recent Regulatory Additions (as of 2022 Amendment)

A company seeking to register as a Nidhi must obtain approval from the Central Government by filing NDH-4. Promoters and directors should have a clean record with no convictions or regulatory issues in the last five years. Failure to comply with approval or reporting norms can lead to penalties of up to Rs. 5 lakh.

Documents Required for Nidhi Company Registration in India

Here is the list of required documents required for Nidhi Company registration in India:

• Identity Proof of Directors and Members: Aadhaar Card, Voter ID, Passport, or Driver's License
• Address Proof of Directors and Members: Bank Statement, Utility Bill not older than 2 months, or Rent Agreement
• Photographs: Passport-sized photographs of all directors and members
• PAN Card: Self-attested copies of PAN cards for all directors and members
• Registered Office Proof: Ownership documents or a Rent/Lease Agreement, No Objection Certificate (NOC) from the property owner, and Utility Bill (not older than 2 months).
• Digital Signature Certificate (DSC): Required for all proposed directors for electronic filing
• Director Identification Number (DIN): Mandatory for all proposed directors
• Memorandum of Association (MoA): Drafted as per the Nidhi Rules, 2014
• Articles of Association (AoA): To define the company's internal rules and regulations
• Form DIR-2: Consent to act as a director
• Form INC-9: Affidavit by subscribers to the MoA

Nidhi Company Registration Procedure in India

Here is the step-by-step Nidhi Company registration process in India:

Step 1: Obtain a Digital Signature Certificate (DSC)

All proposed directors should obtain a Digital Signature Certificate (DSC) to sign electronic documents during the registration process.

Step 2: Apply for Director Identification Number (DIN)

A Director Identification Number (DIN) is required for each director. This can be easily obtained by submitting Form DIR-3 through the Ministry of Corporate Affairs (MCA) portal during the registration process.

Step 3: Name Reservation

You must submit the SPICe+ Part A form in order to reserve the name of your business. Make sure "Nidhi Limited" is included in the selected name in accordance with the naming criteria.

Step 4: Draft Memorandum and Articles of Association (MoA & AoA)

Draft the Memorandum of Association (MoA) and Articles of Association (AoA), clearly mentioning your company’s goals and how it will operate.

Step 5: File Incorporation Forms

You should fill out and complete the SPICe+ Part B form and attach the necessary linked forms. AGILE-PRO-S helps you apply for GSTIN, EPFO, ESIC, and open a bank account. eMoA and eAoA are used to submit your MoA and AoA online. Submit these forms through the MCA portal.

Step 6: Obtain a Certificate of Incorporation (CoI)

Once all documents are verified, the Registrar of Companies (RoC) will issue the Certificate of Incorporation (CoI). Along with it, you will also receive the company's PAN (Permanent Account Number) and TAN (Tax Deduction Account Number).

Step 7: Post-Incorporation Compliance

• Have at least 200 members

A Nidhi Company must enroll a minimum of 200 members within one year of incorporation to remain compliant with Nidhi Rules.

• Net Owned Funds (NOF) of ?10 lakhs

The company must maintain a minimum Net Owned Fund (capital minus outside liabilities) of ?10 lakhs to operate as a Nidhi.

• Maintain tangential term deposits of at least 10% of outstanding deposits

To ensure liquidity and financial health, the company must hold unencumbered term deposits equal to at least 10% of the total deposits received from members.

8. Post-Registration Compliance

1. Filing Annual Returns (AOC-4, MGT-7)
   Companies must file financial statements (AOC-4) and annual returns (MGT-7) with the ROC annually to disclose their financial and shareholder details.
2. NDH-1: Return of statutory compliances within 90 days of FY
   NDH-1 is a mandatory return submitted within 90 days from the end of the financial year, confirming compliance with Nidhi rules.
3. NDH-2: Request for extension if conditions not met in time
   If a Nidhi Company fails to meet conditions like having 200 members or required Net Owned Funds, it must file NDH-2 seeking an extension.
4. NDH-3: Half-yearly return
   NDH-3 is filed twice a year detailing the number of members, deposits, loans, and compliance status of the Nidhi Company.
5. Maintenance of Registers and Minutes
   Companies must maintain statutory registers (members, loans, deposits) and record minutes of board/general meetings for legal transparency.

Benefits of Nidhi Company Registration

Here is the list of benefits of Nidhi Company Registration:

1. Encouragement of Savings Among Members

Nidhi Companies are formed to encourage members to save money regularly. This shared effort builds good financial habits, strengthens trust, and creates a safe environment. It also helps to create a supportive environment for everyone’s financial growth.

2. Simplified Registration Process

The incorporation of a Nidhi Company is streamlined under the Companies Act, 2013. The SPICe+ form has made starting a company much simpler and quicker. It combines multiple steps into one easy process, saving time, reducing confusion, and making registration more convenient for everyone.

3. Limited Regulatory Compliance

Nidhi Companies have much simpler rules to follow compared to other NBFCs (Non-Banking Financial Companies). They mainly follow the Nidhi Rules, 2014, which makes their paperwork easier and their daily operations less stressful for members and directors.

4. No External Involvement

Nidhi Companies work only for their members and do not deal with outsiders. This keeps all financial activities within a trusted circle. It also makes it safer and more reliable for everyone involved.

5. Cost-Effective Operations

The operational costs of running a Nidhi Company are relatively low. Since they deal exclusively with their members and expenses related to marketing and outreach are minimized.

6. Ease of Fund Management

Members can both deposit and borrow funds. Nidhi Company facilitates smooth financial transactions within the group. This internal circulation of funds promotes mutual support and financial stability.

7. Legal Recognition and Protection

By registering under the Companies Act, 2013, Nidhi Companies receive legal recognition and stability. This boosts credibility and safeguards their operations under Indian law, which gives members greater confidence and long-term security.

8. No Requirement for RBI Approval

In contrast to NBFCS, Nidhi companies do not require approval from the Reserve Bank of India (RBI) to launch their business. This exemption simplifies the startup process and reduces regulatory hurdles.

1. Limited Liability for Members

In a Nidhi Company, members have limited liability. This means they only risk the money they invest. Their personal belongings stay safe, even if the company faces losses, and this gives them greater peace of mind and security.

10. Facilitation of Financial Inclusion

Nidhi Companies help bring financial services to rural and semi-urban areas where banks may not reach. By offering simple ways to save and borrow, they empower people, strengthen communities, and contribute to the area's economic growth and development.

Conclusion

A Nidhi Company provides a secure, low-risk way for small communities and groups to save and lend money within themselves. In a country like India, where financial inclusion is vital, Nidhi Companies are growing in popularity due to their easy registration, fewer regulations than NBFCs, and a strong focus on encouraging savings. If you have any queries regarding Nidhi Company registration, contact Online Legal India. They have experts to guide you.

FAQs

Q1: Can a Nidhi Company lend to non-members?

No, Nidhi Companies can lend and accept deposits only from their registered members.

Q2: What is the minimum capital required for Nidhi Company registration?

A minimum paid-up capital of ?10 lakhs is required at the time of incorporation.

Q3: How many members are required in a Nidhi Company?

A minimum of 7 members at incorporation, which must increase to 200 members within one year.

Q4: Is RBI approval required for Nidhi Company registration?

No, Nidhi Companies are exempt from RBI registration and regulations for core NBFC functions.

Q5: Can Nidhi Companies open branches?

Yes, but only after earning profit continuously for 3 financial years and complying with NDH rules.