Comprehensive Guide to NIDHI Company: Benefits and More

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Comprehensive Guide to NIDHI Company: Benefits and More

A Nidhi Company is a business entity under Section 406 of the Companies Act 2013. The Nidhi Rules 2014 control its operations, and the Ministry of Corporate Affairs regulates it. Although classified as a Non-Banking Financial Company (NBFC), a Nidhi does not require prior approval from the Reserve Bank of India (RBI), unlike most NBFCs.

If you want to understand what a Nidhi company is, the benefits of registering it, and the legal requirements for registering a Nidhi company in India, this article will serve as a comprehensive guide for you.

What is Nidhi Company?

The word "nidhi" (निधि) is the Sanskrit word for "wealth". A Nidhi Company is a type of business entity operating in the Non-Banking Finance Sector. It is established under Section 406 of the Companies Act 2013. A Nidhi Company encourages thrifting among its members by only accepting deposits from and providing loans to those members. It operates on the principle of mutual benefit. 

It imposes restrictions on who can access its services. Only registered members of a Nidhi Company can access its services. Non-members, general public or corporate entities cannot deposit money or take loans from the Nidhi Company. A Nidhi Company basically functions as a self-contained financial cooperative exclusively meant for its shareholders. 

Every Nidhi Company in India has to ensure compliance with the Nidhi Rules 2014. These rules are basically a set of guidelines that govern how the Nidhi companies must function and include requirements for share capital and branch openings. 

Benefits of Registering a Nidhi Company

There are many reasons why entrepreneurs secure Nidhi Company Registration for their business. Let’s take a look at the key benefits of registering a Nidhi Company in India:

• A Nidhi company does not have to obtain clearance or approval from the Central Bank to commence operations despite the fact that it falls within the NBFC Category. Instead, the Nidhi Companies must simply register with the Registrar of Companies (ROC) of the Ministry of Corporate Affairs as a Public Limited Company (MCA). 

• The Nidhi companies conduct financial activities according to Nidhi Rules 2014. These rules have less stringent requirements as compared to RBI rules. Thus, it is easier to establish a Nidhi Company in India compared to other types of NBFCs because of RBI’s exemption from strict compliance requirements.

• As a separate legal entity from its members, a Nidhi company can own property, incur debts, and initiate or face legal action in its own name.

• It has perpetual succession. This means, in case of death or insolvency of any of Nidhi’s shareholders, the company’s existence and continuity remains uninterrupted unlike in case of a sole proprietorship.

• You can register a Nidhi company at a very affordable rate. When compared to an NBFC, a Nidhi company is cost-efficient. The minimum capital requirement for Nidhi Company Registration is Rs. 5 lakhs. On the other hand, the minimum capital requirement for NBFC Registration is Rs. 2 crore. 

• In a Nidhi business, members' liability is limited to the unpaid amount of share capital on the shares they hold. This means their responsibility extends only to what they still owe on their shares within the Nidhi company.

• Since Nidhi Companies only provide loans to its members and take deposits from them, the risk of loan non-repayment is lower than at other businesses in the Non Banking Finance Sector. 

• Since all financial transactions in a Nidhi Corporation are limited to its members, the risk of external interference in the firm's operations is significantly less.

Unique Features of a Nidhi Company

Here are some unique features of a Nidhi Company:

• Every Nidhi company is a public company.

• All the Nidhi companies contain the suffix ‘Nidhi Limited’ in their name.

• Only Nidhi members can deposit or borrow money. Non-members, general public or corporate entities cannot deposit money in or borrow money from a Nidhi business.

• Although a Nidhi Company is an NBFC, it does not require an NBFC license from the Reserve Bank of India (RBI).

• Nidhi companies cannot provide unsecured loans. They can only provide loans against gold, property, fixed deposits and other permissible assets. 

• The Ministry of Corporate Affairs (MCA) is responsible for governing the Nidhi Companies in accordance with the Nidhi Rules 2014. 

• A Nidhi company cannot borrow money from external sources.

Restrictions Imposed on Nidhi Company

Like any business in India, a Nidhi Company also has certain restrictions. The Nidhi Rules 2014 state these restrictions. Some of them are as follows:

• A Nidhi company cannot engage in the chit fund business, lease finance, hire purchase and acquire corporate securities.

• Nidhi companies cannot pledge any of the securities lodged by their members for obtaining loans.

• They cannot open current accounts with their members.

• Nidhi companies cannot lend or borrow funds from body corporates. These companies can only lend or borrow funds from their members.

• Nidhi companies cannot lend or borrow funds from body corporates. These companies can only lend or borrow funds from their members.

• A Nidhi company cannot enter partnership arrangements for lending or borrowing. It cannot conduct any business in its name other than lending or borrowing. Additionally, it cannot use marketing or publicity to solicit deposits from individuals.

• A Nidhi Company cannot issue preferential shares, debentures, or any other type of financial instrument under any name.

• No Nidhi company may make any concessions, acquisitions, or agreements until the Regional Director adopts them based on a special resolution in a public meeting. 

To Summarize…

A Nidhi Company is a type of NBFC in India. It is registered under Section 406 of the Companies Act 2013. A Nidhi company encourages its members to save money and provides easy access to loans. It operates on the basic concept of “Principle of Mutuality”. All the Nidhi companies are public companies in India. The Ministry of Corporate Affairs governs them in accordance with Nidhi Rules 2014. The objective of a Nidhi company is to encourage savings and provide financial stability to its members.

If you want to start a Nidhi Company in India, connect with Registrationwala’s Nidhi Registration experts.

Also Read: Top 10 Nidhi Companies in India

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