Nidhi Companies: The advantages, disadvantages and Other Options to Consider

A Nidhi company is a type of non-banking financial company (NBFC) that is registered under the Nidhi Rules, 2014 and governed by the Ministry of Corporate Affairs. The main purpose of Nidhi companies is to provide loans and accept deposits from their members.

To incorporate a Nidhi company, the following steps should be taken:

1. Obtain Director Identification Numbers (DINs) and Digital Signatures (DSCs) for the proposed directors of the company.

2. Obtain a name approval for the company by applying to the Registrar of Companies (ROC) through the SPICe (INC-32) e-form.

3. File the incorporation documents, including the Memorandum of Association (MOA) and the Articles of Association (AOA), with the ROC through the SPICe (INC-32) e-form.

4. Obtain a certificate of incorporation from the ROC.

5. Obtain PAN and TAN for the company.

6. Register for GST and obtain GST number.

The process of incorporating a Nidhi company typically takes around 15-20 days, provided all the necessary documents and information are in order.

The requirement for incorporating Nidhi company are:

1. Minimum of three directors are required to incorporate a Nidhi company.

2. Minimum of seven members are required to incorporate a Nidhi company.

3. Minimum paid-up capital is Rs. 5 Lakhs, and the minimum net-worth of the company should be Rs. 10 Lakhs.

4. Nidhi company should have a common seal with the name of the company engraved on it.

5. Nidhi company should have a registered office, and all the communication should be made to that address only.

6. Nidhi company should have a current account in a scheduled bank.

It's important to note that compliance with the rules and regulations set by the Ministry of Corporate Affairs and the Reserve Bank of India is mandatory for Nidhi companies. It's recommended to consult a legal and financial expert for more detailed information and guidance.

Advantages of Nidhi Limited Company:

• Nidhi companies are registered under the Nidhi Rules, 2014 and are governed by the Ministry of Corporate Affairs.
• Nidhi companies are required to maintain a high net-worth, which results in better financial stability.
• Nidhi companies can raise funds from their members through the issue of shares and debentures.
• Nidhi companies are required to invest a certain percentage of their net-profit in government securities, which results in better risk management.
• Nidhi companies are required to file annual returns with the Registrar of Companies, which results in better transparency and accountability.

Disadvantages of Nidhi Limited Company:

• Nidhi companies are restricted from accepting deposits from non-members and can only accept deposits from their members.
• Nidhi companies are required to maintain a high net-worth, which can be difficult for small companies to achieve.
• Nidhi companies are required to invest a certain percentage of their net-profit in government securities, which can limit their investment options.
• Nidhi companies are required to file annual returns with the Registrar of Companies, which can be time-consuming and costly.

There are several alternatives to Nidhi companies, some of which include:

1. Microfinance Institutions (MFIs): MFIs provide small loans to individuals and groups who lack access to traditional banking services.

2. Non-Banking Financial Companies (NBFCs): NBFCs provide a wide range of financial services, including lending, insurance, and asset management.

3. Credit Cooperative Societies: Credit Cooperative Societies are formed by a group of individuals with a common bond of occupation or residence, and provide loans to their members.

4. Regional Rural Banks (RRBs): RRBs are established with the objective of providing credit and other facilities, especially to the rural and agricultural sectors.

5. Cooperative Banks: Cooperative Banks are owned and controlled by their members and provide a wide range of banking services, including deposits and loans.

6. Community Development Financial Institution (CDFI) : CDFI are mission-driven financial institutions dedicated to providing credit and other financial services to underserved communities.

It's important to note that each alternative has its own set of rules, regulations and requirements to follow. It's recommended to consult a legal and financial expert before making a decision.