A company recognised under Section 406 of the Companies Act of 2013 read with the Nidhi Rules of 2014 is referred to as a Nidhi firm. Their primary duties, which fall under the non-banking Indian finance sector, are money borrowing and lending among their members. It is a business that was set up specifically to instil the value of being frugal and prudent among its members. They go by a variety of names, including Mutual Benefit Funds, Benefit Funds, Permanent Funds, and Mutual Benefit Companies.

Prerequisites For Forming a Nidhi Company

The following requirements must be fulfilled in order to create a Nidhi Company:

• The name of the business must end with "Nidhi Limited."
   
• The business needs to be publicly traded.
   
• A Trust, a Body Corporate, and a Minor are not permitted to join Nidhi as members.
   
• The paid-up share capital must be a minimum of Rs. 5 lakh.
   
• Preference shares that have already been issued by the company before the Act's start date must be redeemed. The corporation is not permitted to issue preference shares.
   
• The company's main goal must be to instil in its members a habit of conserving money.

Post-Incorporation Requirements of a Nidhi Company:
 

Immediately after incorporation, a Nidhi firm must fulfil the requirements listed below:

• 200 members must be the bare minimum.

• There must be Rs. 10 lakhs in Net Owned Funds. (Net owned funds are paid-up capital plus free reserves added together, and then the cumulative and intangible assets as shown on the most recent balance sheet are subtracted.)
   
• The ratio of nett-owned funds to deposits must not be more than one to twenty, or 1:20 for nett-owned funds to deposits.
   
• In accordance with Rule 14 of the 2014 Nidhi Rules, unencumbered term deposits must represent at least 10% of the total amount of outstanding deposits.

Registration Process of a Nidhi Company
 

The Company must have a minimum of 7 members and 3 directors for Nidhi registration application. The Nidhi Company may proceed in the manner described below after fulfilling this requirement:

• Get a Director Identification Number (DIN) and a digital signature certificate by applying.
   
• Utilize MCA's Reserve Unique Name (RUN) Service to apply for name approval.
   
• Create the Memorandum of Association and Articles of Association in accordance with the company's objectives and all other documents.
   
• Submit the SPICe+ Incorporation Form.
   
• Request a PAN and TAN.

For obtaining incorporation the following documents will be required:
 

Copies of the shareholders' and directors' PAN cards.

Directors and shareholders must provide identity verification, such as a voter ID, passport, or driver's licence.

Director and shareholder address documentation, such as utility and bank statements.

Passport-size images.

Proof of a registered office's property. a) Utility Bill + Ownership document + NOC, if the property is owned. c) If the home is rented out, the utility bill, the rental agreement, and the NOC.

Restrictions on Nidhi Companies
 

The following actions are prohibited for Nidhi Companies under Rule 6 of the Nidhi Rules 2014:

Conduct lease financing, hire purchase, and chit-fund business. It is not permitted to purchase securities made by a body corporate.

Issue preference shares, debentures, or any other type of debt instrument under any name or format.

Any current account with its participants.

Make no purchases, agreements, or concessions before the Regional Director and the General Meeting have approved them in a special resolution.

Carry on any activity outside borrowing or lending under its own name.

Accept or lend money to anyone but its members.

Receive or lend money from the body corporate.

Engage in any partnership agreements related to their borrowing or lending business.

Publicity stunt for any type of deposit request.

whatever assets that its members have pledged as security.

Pay any brokerage or incentive for allocating funds, making loans, or attracting deposits from members.

Filing Compliance With ROC As Per Nidhi Rules 2014
 

Forms NDH -1 and NDH -3 must be properly submitted along with the required fees and a professional's certification.

Loans Under Rule 15 of Nidhi Rules 2014

The loan amount is limited by the following conditions:
 

A Nidhi company that has not generated profits consistently for the previous three fiscal years is not permitted to make any new loans that surpass 50% of the maximum loan amounts listed above. If a member has missed a previous loan payment, he will not be eligible for any loans going forwards.

The following security is the only one that can be used to secure loans
 

• Gold/Jewellery

• Property
• Fixed Deposit
• Insurance Policy

Conclusion

Personal loans, auto loans, hire-purchase loans, and microloans are not permissible from Nidhi Companies. The Firms Act governs Nidhi companies, which are created with the intention of instilling the habit of saving among their members. Despite being non-banking finance firms, Nidhi companies are exempt from the RBI Act's fundamental rules and other NBFC-specific directives.