Nidhi Company: An Overview

Nidhi Companies in India are created to cultivate the habit of thrift and savings amongst its members. Nidhi companies are allowed to borrow from their members and lend to their members. Therefore, the funds contributed to a Nidhi company are only from its members (shareholders). Nidhi companies are minute when compared to the banking sector and are mainly used to cultivate a saving amongst a group of people.

A Nidhi company refers to a type of entity in the non-banking finance sector, recognized under Section 406 of the Companies Act, 2013. Their primary business is borrowing as well as lending funds between their members. They are also regarded as Benefit funds, permanent funds, Mutual benefits and Mutual Benefit Funds companies. The Ministry of Corporate Affairs governs these entities in India and reserves the right to issue directions related to deposit acceptance activities. The core object of these entities is to foster the habit of thrift and reserve funds amongst its serving members. The concept of Nidhi Company is quite popular in the southern region of India.

Important Facts of Nidhi Companies  
 

- No RBI consent is required to form the Nidhi company in India. Therefore, it can be incorporated very easily.   
- Nidhi Companies are incorporated as Public Companies.  
- They must affix "Nidhi Limited" at the end of their name.  
- Nidhi Companies' undertakings are quite similar to NBFCs, and so they fall under the ambit of the Reserve Bank of India.  
- The core objective of Nidhi Company essentially revolves around in-house lending and borrowing activities with no third-party intervention whatsoever.  
- Nidhi Rules, 2014 permits Nidhi to facilitate locker facilities to its members on rent. The rental income should not surpass 20% of the Company's overall income at any instance during the financial year.

Conditions for Incorporating Nidhi Companies in India  
 

The Governing Authority sets the following Conditions for Incorporating Nidhi Company in India:

- Minimum number of members: 7 (3 members should be the designated directors)  
- minimum equity share capital: Rs. 5 lakhs  
- Must have limited company status under Company Act, 2013  
- Mandatory inclusion of the Company's object in MOA reflects its intention to foster the habit of thrift and savings among the members.

Benefits of Incorporating Nidhi Companies in India  
 

The followings are the major benefits of the Nidhi Company Registration in India:

- Easy Formation  
The formation of a Nidhi Company is done through a very simple process. For the formation of Nidhi Company, there are certain requirements such as a minimum of seven members, out of which three will be appointed as directors and an easy and hassle-free documentation process.

- Non-Compliance With the Reserve Bank Of India  
A Nidhi Company does not require to comply with any of the Reserve Bank of India guidelines. So, the Nidhi Company is free to inculcate its own rules.

- Less Risk  
The lending, borrowing or depositing of transactions are done by the members only, decreasing the risk of any financial issues in the Nidhi Company.

- Economical Registration  
The registration of a Nidhi Company is not heavy on the Director's pocket as it is very simple than other NBFCs' registration process, so it does not affect the Director's finances. It also helps the Nidhi Company in getting business loans whenever required for the growth of the Company.

- Certainty Of Savings  
The concept and objective of a Nidhi Company are to promote saving among Indian people.

- Net-Owned Funding System   
A Nidhi Company follows the Net owned funding system, which means the transaction where an invests an amount in the business to raise funds for the same. This feature makes Nidhi Company cost-effective for owners and helps in the growth of the business.

Documents for Nidhi Company registration   
 

Following is the List of Documents required for registering a Nidhi Company in India:

- Directors Identification Number, i.e., DIN  
- PAN number of the proposed directors and members  
- Residential proof and address proof of the proposed directors and members  
- Photographs of the proposed directors and members  
- Identification Documents like Aadhar card  
- Registered business place proof such as lease or rent agreement  
- Ownership proof of the business place in case the premises are owned  
- NOC if required  
- MOA i.e., Memorandum of Association  
- AOA, i.e., Article of Association