What is Nidhi Company?

A Nidhi Company is a part of a Non-Banking Financial Company (NBFC), incorporated with the sole objective of accepting deposits and giving loans to its members.

How does a Nidhi Company function?

A Nidhi Company accepts deposits from its members and uses these deposits to lend money to its other members. The basic idea is to save the members from the exploitation of the money lenders who charge unreasonably high rates of interest.

What are the benefits of incorporating a Nidhi Company?

• Limited Guidelines
• Ease in formation
• Low rates of interest
• No outsider intervention
• Proper channel for small savings of the lower and middle sections of society

What are the minimum requirements to incorporate a Nidhi Company?

• Minimum of 7 shareholders
• Minimum of 3 directors
• There is no minimum capital requirement (Earlier it was INR 5,00,000)
• The objective of the company must be to develop the habit of thrift saving among its members.

What are the post-incorporation requirements for a Nidhi Company?

The following conditions must be satisfied within a period of 1 year from the commencement:

• Net owned fund of INR 10 lakhs or more. Net owned funds mean the money owned by the business.
• A Nidhi Company must add at least 200 members within its first year, if the company is not able to meet this condition, Form NDH-2 must be filed with the Regional Director.
• A trust or corporate body cannot be a member of a Nidhi Company.
• The total deposit accepted should be at a 20:1 ratio to the net owned funds. Meaning the total deposits cannot be over 20 times the net owned funds.
• Minimum encumbered deposits must be 10% of the outstanding deposits.

What are the eligibility criteria to become a shareholder or director in Nidhi Company?

There are no such criteria specified in the Companies Act to become a shareholder or director in a Nidhi Company.

What is the difference between Nidhi Company and NBFC?

The differences:

• A Nidhi company is a company incorporated for the mutual benefit of the members. However, an NBFC is a financial institution that operates similar to a bank, but without a banking license.
• A Nidhi company does not engage in the business of chit fund, hire purchase finance, leasing, insurance or acquisition of securities. On the other hand, an NBFC can engage in all banking businesses like loans and advances, acquisition of shares, leasing, hire purchase, chit fund business, and insurance businesses.

Is it necessary to have the word ‘Nidhi’ or ‘Limited’ at the end of the name of the Nidhi Company?

It is not required to end the name of the Nidhi Company with suffix ‘Nidhi’ or ‘Limited’.

Are there any legal restrictions for a Nidhi Company in India?

• A Nidhi Company is prohibited from carrying businesses involving chit fund, leasing finance, insurance or acquisition of securities issued by any corporate body.
• Restricted from the issue preference shares, debentures or any other financial/debt instruments.
• Cannot accept deposits or lend money to non-members.
• Cannot pay any incentive or brokerage for mobilizing deposits.

How are Public companies and Nidhi Companies similar?

• Minimum number of shareholders is seven
• Minimum number of directors is three
• Moderate tax advantages

In what manner should the returns of Nidhi Companies be filed?

Return of statutory compliance: Form NDH-1 is to be filed within a period of 90 days from the end of the financial year in which the company was incorporated.

Application to regional director: Form NDH-2 is to be filed in case NDH-1 was not filed within the specified time limits. This might also involve paying late fees for the extension of the said NDH-1 time limits.

Half-yearly Returns: NDH-3 is to be filed with the registrar, along with the necessary fees, within a period of 30 days from the end of the half-year in a particular fiscal period.

How is a Nidhi Company registration done?

The Nidhi company incorporation process is done online through the MCA’s portal using scanned copies of all the required incorporation documents. The form is filled and signed digitally.

Can a Nidhi Company open the branches?

Nidhi Companies are governed under the Companies Act, 2013 and Companies (Nidhi Companies) Rules, 2014. Under the governing laws, a Nidhi Company can open branches if it meets the mandatory compliances with the Registrar. Additionally, the company must meet the following requirements:

• Track Record of Profit: Must make a profit (after tax) for three consecutive financial years.
• Maximum Branches Allowed: Three branches can be opened within the district. If a Nidhi company wants to open more than three branches within the district or any new branch outside the district, it shall obtain the prior permission of the Regional Director.
• Branches Outside the State: No branch can be opened outside the state in which its registered office is situated.

What are the conditions to be followed by a Nidhi Company for giving loans to its members?

• Maximum loan to a member cannot exceed 1% of the total deposits of the company
• Unsecured loans and microfinance loans cannot be given
• Gold loan can be given for a maximum of 1 year
• Loan repayment schedule cannot exceed 7 years
• Gold loan cannot exceed 80% of the value of the asset.
• Loan against property cannot exceed 50% of the property value