The Nidhi company is a kind of Non-banking financial corporation recognised per Sec 406 of the Companies Act, 2013. Its principal activity is borrowing and lending money among its members. They are also known as advantage funds, fixed funds, mutual funds, & mutual benefit fund businesses. In India, these entities are governed by the Ministry of Corporate Affairs, which reserves the power to provide directives regarding deposit acceptance operations. 
 

The primary goal of these companies is to instil in their members the value of saving money and being thrifty. The Nidhi Company idea is quite popular in India's southern area.

What is a Nidhi Company?

The Nidhi Company is a financial company that is not a bank. It was established with the intention of borrowing & lending money to its members. It imbues the habit of saving in its members & functions on the basis of mutual benefit. Nidhi Company does not need an RBI (Reserve Bank of India) licence, making it simple to start. It is a public company with the last word "Nidhi Limited" in its name.

Statutory Meaning of Nidhi Company

The Nidhi Company provisions are found in Chapter 26 of the Companies Act of 2013. The definition of a Nidhi corporation may be found in Section 406 of the Companies Act, 2013. A Mutual Benefit Society is another name for this type of organisation. Section 406(1) allows an entity to be classed as a mutual benefit society provided it receives a particular notification.
 

Any sort of company that is regarded as a Nidhi company must be incorporated in accordance with the NBFC rules. For compliance purposes, any individual incorporating this sort of organisation must adhere to the regulations of the Companies Act of 2013.
 

Any applicant who forms this organisation will benefit from various forms of mutual benefits & financing. The main purpose of founding this corporation is to give loans and mutual advantages to the members, i.e. the company's stockholders.
 

When establishing an NBFC, the Reserve Bank of India regulates the operations of a typical NBFC (RBI). This type of entity takes deposits. However, there are particular rules in the RBI Act of 1934 that do not apply to this type of organisation. As a result, many people opt to start this type of company.

Characteristics Features of Nidhi Company

• The "Nidhi Company" is not subject to the authority of the RBI. As a result, establishing a lending company does not need an RBI licence.
• Within 12 months after registration, the number of members must exceed 200.
• A maximum interest rate of 20% p.a. is permissible (estimated using the declining balance technique).
• A savings deposit account's highest rate of interest cannot be more than 2% greater than the rate given by Nationalized Banks.
• Nidhi Company accepts Rd, Fd, & savings accounts and currently pays a 12.5 per cent interest rate.
• The RBI establishes the highest rate of interest that may be provided on Fixed & Recurring Deposits as the highest rate of interest that NBFCs can offer on deposits. Nidhi enterprises are subject to the same maximum interest rate as NBFCs.

Advantages of Nidhi Company Registration

Simple Lending

This type of entity is incorporated as a mutual benefit society under Section 406 of the Companies Act of 2013. As a result, the advantages are mostly for the entity's members and stockholders. Aside from that, this type of company may readily issue loans to the public.

Management is Simple to Form

An applicant who wishes to establish a Nidhi corporation may choose a group of people to carry out this operation. There is no engagement of external management after this business is constituted.

Reduced Capital Needs

This entity requires only a little amount of capital to be formed. The key rationale for this type of registration is the demand for a little amount of money.

Raising of funds

The major goal of this type of company is to raise donations from the general population. Aside from that, the Nidhi company is structured as an NBFC. This sort of NBFC engages in operations such as receiving public deposits. As a result, raising cash through this type of business is straightforward.

Adherence Compliance

Even if this business was formed in accordance with the Companies Act of 2013, there is still less compliance as compared to other types of organisations. Even under the RBI Act of 1934, this corporation is free from many types of compliances.

Benefits of Company Status  

The benefits of the Companies Act of 2013 would apply to this type of business. This type of organisation, like any other, would be granted limited liability status. Aside from that, the status of this type of entity is unrelated to the members & directors.

Less involvement of the RBI

These types of entities must adhere to the NBFC's standards. As a result, the Nidhi company must maintain compliance in accordance with the RBI's rules. These corporations, however, are immune from some terms of the RBI Act of 1934.

Savings & Mutual Benefits Choices

A Nidhi company is founded specifically to boost the members' savings. Furthermore, these firms are recognised as mutual benefits corporations as per Section 406 of the Companies Act of 2013.

Compared to a credit society 

The requirements of the Societies Registration Act govern credit societies. When organising a credit society, there are extra compliance obligations. As a result, people choose Nidhi companies since there is less compliance to follow.

Lower Risk

When compared to a regular NBFC or any other firm involved in financial operations, a Nidhi company bears less risk. The members of these companies are safeguarded by the status of limited liability as per the provisions of the Companies Act, 2013.

Things to Keep in Mind for Nidhi Company Registration

There are certain things that one should keep in mind during a Nidhi Company Registration process:
 

• Nidhi Company requires a minimum of seven shareholders.
• A Nidhi Company Registration process requires a minimum of three directors.
• Preference shares will not be granted by Nidhi Company.
• Before the conclusion of the first year, the Nidhi Company must possess at least two hundred members or shareholders.
• The company's purpose is to establish in its members the habit of saving by "receiving deposits" from and "loaning" them only for their mutual advantage.

Process of Nidhi Company Registration

The Nidhi Company Registration process involves the following steps:

Acquiring the Director Identification Number & Digital Signature Certificate

The candidate must first apply for a digital signature certificate in the second step of the Nidhi company registration process. Signatures in digital format can be submitted using the DSC. Following the acquisition of the DSC, the candidate must apply for the Director Identification Number.

• Approval of a Name

The applicant must first submit an application to the MCA for name approval. The applicant must give three distinct names for the Nidhi company during this phase. The names submitted must be unique and must not violate any intellectual property rights rules in India.

• Creating the Articles of Association and the Memorandum of Association

Following the completion of the preceding steps, the applicant must submit the required papers to the registrar of companies. These papers must be submitted using Form-INC 32. In addition, the MOA & AOA must be filed. When submitting paperwork, the applicant must specify the primary goals for founding this business.

• Certificate of Incorporation

The Company will get the certificate of incorporation after analysing the papers listed above. This certificate of incorporation serves as proof of the company's formation procedure. The registrar will normally issue this within sixteen to twenty business days.

• Obtaining a PAN and TAN

Following the receipt of the certificate of formation, the Nidhi company must apply for a PAN and TAN. The TAN can be obtained from the appropriate Income Tax Department.

• Creating a Bank Account

This is the final chapter in forming the company. For any transactions, it is critical to creating a bank account on behalf of the company.

Rules for Nidhi Company Registration Process

The below-mentioned compliances or rules are required to be followed for a Nidhi Company Registration process:

• NDH-2 - Requesting an Extension in order to fulfil the objective of 200 members.
• Form NDH-1- Members' list must be presented within ninety days of establishment. All conditions must be followed.
• NDH-3 Form - Half Along with Form NDH-1, annual requirements must be filed.
• Annual Returns- Annual Returns must be produced in accordance with the Registrar of Companies' standards.
• Statement of Profit & Loss & Balance Sheet Standards- These papers must be filed annually in accordance with the company's requirements. Form AOC-4 must be used for this.
• Income Tax Returns- According to the Income Tax Act, every Nidhi Company is obliged to file income tax returns.
• Net Owned Fund- A Nidhi Company must possess a Net Owned Fund in excess of Rs 10 lakhs. The return ratio for the Net Owned Fund must fall within the 1:20 range.
• Unencumbered Deposits- Any type of unencumbered deposit must surpass the outstanding deposit minimum.

Activities Restricted in a Nidhi Company

• Nidhi Company is not in the business of chit funds, hire-purchase financing, leasing finance, insurance, or securities. 
• It is definitely forbidden to take deposits from or lend monies to anybody other than members. 
• It also cannot market itself in order to solicit deposits.

Documents Required for Nidhi Company Registration Process

• DIN stands for Directors Identification Number.
• The suggested directors' and members' PAN numbers
• Proof of residence and address for the proposed members and directors
• Photographs of the prospective board members and directors
• Aadhaar card and other forms of identification
• Registered business location evidence such as a lease or rent agreement
• Proof of ownership of the business location if the premises are owned
• If a NOC is necessary,
• MOA stands for Memorandum of Association.
• AOA stands for Articles of Association.

Rules & Regulations of Nidhi Company Registration Process

There are penalties for non-compliance with a Nidhi Company Registration process. If the company and all of its executives fail to obey the Nidhi Rules of 2014 & also the Companies Act of 2013, they may be penalised up to Rs. 5,000. Furthermore, if the company's infringement continues, it will be fined. As a result, the defaulter would have to pay rupees five hundred per day for the length of the violation.

The Nidhi Organisation's vast collection of rules and regulations is spelt forth in the Nidhi Rules of 2013, & every organisation is required to obey the Nidhi Amendment Rules of 2019. The Company Act of 2013 must also be followed.

Conclusion

A Nidhi Company is a non-banking financial body that is recognised under Section 406 of the Companies Act of 2013. Its primary function is to lend and borrow money among its members. They are referred to as advantage funds, permanent funds, & Mutual Benefit Funds firms. In India, these enterprises are regulated by the MCA (Ministry of Corporate Affairs), which retains the right to give instructions governing deposit acceptance operations. The major purpose of the Nidhi Company Registration process is to promote a sense of thrift and savings among their staff.