What is a Nidhi Company in India?

A Nidhi Company in India belongs to the category of non-banking business entities and is recognized under Section 406 of the Companies Act, 2013. Governed by the central government, its primary business is to facilitate lending money between its core members. Examples of Nidhi companies include permanent funds, mutual benefit funds, mutual benefit company, and benefit funds. The fundamental concept behind establishing a Nidhi Company is to raise deposits or contribute to them for the mutual benefit of both parties. All lending and borrowing activities must comply with the provisions stated in Section XXIV of Company Rules, 2014.

Pre-registration requirements of a Nidhi Company:

  1. Minimum 7 members
  2. Minimum 3 directors
  3. No minimum capital requirements
  4. Preference shares are not allowed to be issued
  5. The objective of the company is to receive deposits and lend advances to its own members

Post-registration requirements of Nidhi Company:

  1. Minimum 200 members within 12 months of registration
  2. Minimum net-owned funds of Rs. 10 lakh
  3. Unencumbered term deposits of not less than 10% of the outstanding deposits.
  4. Members shall not include a trust or a body corporate or a minor
  5. Net-owned funds to deposits should be 1:20

Process of Nidhi Registration:

  1. Name approval in RUN facility:
    • Every company wishing to be incorporated as a Nidhi Company shall file name availability in the RUN facility of the MCA portal and include the word “Nidhi Limited” as part of its name.
  2. Obtaining Digital Signature Certificate:
    • The proposed directors of the Nidhi Company have to obtain Class 2 DSC.
  3. File Form SPICe 32:
    • After the name has been approved, the required documents shall be filed with Form SPICe32, including Memorandum of Association, Articles of Association, PAN Card of subscribers, ID proofs of first directors, Address proof of first directors, Address proof of Registered Office, Latest utility bill of Registered Office, NOC of owner of Registered office, Consent and Declaration from the first Director in Form DIR 2, and Self-declaration from subscribers and first directors in Form INC 9.
  4. Certificate of Incorporation:
    • Once all the documents are filed, and registration fee and stamp duty are paid, the Certificate of Incorporation shall be issued.
  5. Transactions which Nidhi Company cannot enter:
    • Continuing the business of chit fund, leasing finance, insurance, hire purchase, or acquisition of securities issued by any corporate body.
    • Business other than borrowing and lending in its own name.
    • Accept deposits from anyone else other than its members.
    • Pledge any of the assets lodged by its members as security.