Nidhi Company

A Nidhi company is a type of non-banking financial company (NBFC) that is recognized under section 406 of the Companies Act, 2013 and is regulated by the Ministry of Corporate Affairs, Government of India. Nidhi companies are essentially mutual benefit societies that operate as savings and lending institutions within a limited membership.

The primary objective of a Nidhi company is to promote the habit of thrift and savings among its members and to lend funds to its members for their mutual benefit. They can accept deposits and provide loans to their members only, and not to the general public.

Nidhi companies are required to maintain a minimum net owned fund (NOF) of Rs. 10 lakhs and are not permitted to engage in any other business activities apart from borrowing and lending to their members. They are also required to maintain certain ratios such as the net owned fund to deposit ratio and the loan to deposit ratio.

Nidhi companies are a popular form of microfinance institutions in India, particularly in rural and semi-urban areas, and provide an avenue for small-scale savings and credit operations.

Some of the key Features of a Nidhi Company are:

  1. Mutual Benefit: The main objective of a Nidhi Company is to promote the habit of savings and thrift among its members by accepting deposits and providing loans to its members.
  2. Limited Activities: A Nidhi Company can only undertake a limited number of activities, which include accepting deposits, lending to its members, and investing in government securities.
  3. Membership: A Nidhi Company can only accept members who are individuals and not corporate bodies. Members can also become shareholders of the company.
  4. No External Funding: Nidhi Companies are not allowed to accept deposits from anyone other than their members. They cannot raise funds from external sources like the public or financial institutions.
  5. Minimum Net Owned Funds: A Nidhi Company is required to have a minimum net owned fund of Rs. 10 lakhs.
  6. Prohibition on Branches: A Nidhi Company cannot open branches outside the state where its registered office is located.
  7. Statutory Compliances: Nidhi Companies are required to comply with various statutory requirements such as maintaining a minimum deposit reserve, conducting annual audits, and filing regular returns with the Registrar of Companies (ROC).

Here are some benefits of Nidhi Companies:

  1. Easy to Form: The process of forming a Nidhi Company is simple and less time-consuming as compared to other types of NBFCs.
  2. Limited Liability: The liability of members in a Nidhi Company is limited to the extent of their shareholdings.
  3. Lower Cost of Borrowing: Nidhi Companies can borrow from their members at a lower rate of interest, making it an attractive option for those who are looking for small loans.
  4. No External Shareholding: Nidhi Companies do not have any external shareholding, which means that the control of the company remains in the hands of its members.
  5. No RBI Approval Required: Nidhi Companies do not require any approval from the Reserve Bank of India (RBI) to start operations.
  6. Tax Benefits: Nidhi Companies are eligible for tax benefits under Section 80C of the Income Tax Act, which allows members to claim deductions on the amount invested in the company.
  7. Safe Investment: Investing in a Nidhi Company is considered safe as the funds are used for the benefit of its members only.

Overall, Nidhi Companies are an excellent option for those who want to promote the habit of saving among their members while also providing them with financial assistance at a lower rate of interest.

Here are the Steps Involved in Incorporating a Nidhi Company in India:

  1. Minimum Requirements: The company should have at least 7 shareholders (members) and 3 directors. All the directors should have a valid Director Identification Number (DIN) and Digital Signature Certificate (DSC).
  2. Name Reservation: The first step is to select a unique name for the company and apply for name reservation with the Registrar of Companies (ROC). The name should end with the words “Nidhi Limited.”
  3. Memorandum and Articles of Association: The Memorandum of Association (MOA) and Articles of Association (AOA) need to be drafted and filed with the ROC. These documents contain the objectives, rules, and regulations of the company.
  4. Incorporation: After the MOA and AOA are approved, the company needs to be incorporated by filing the incorporation documents (Form SPICe-32) with the ROC. Along with the documents, the company needs to submit proof of registered office address, affidavits, and declarations by the directors.
  5. PAN and TAN: Once the company is incorporated, it needs to obtain a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.
  6. Bank Account: The company needs to open a bank account in its name and deposit the minimum capital required as per the RBI guidelines.
  7. Commencement of Business: After the company is incorporated, it has to commence its business operations within 1 year of incorporation.


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A: Any individual or group of individuals can start a Nidhi company in India. However, it should be noted that Nidhi companies cannot be incorporated as a partnership firm or a limited liability partnership (LLP). Only registered companies can become a Nidhi company.

A: The minimum capital required to start a Nidhi company is Rs. 5 lakhs. However, it is important to note that the capital requirement may vary depending on the state in which the company is registered.

A: The requirements for becoming a member of a Nidhi company are as follows:
The person should be an Indian citizen,
The person should be above the age of 18 years,
The person should be able to provide the necessary KYC documents.

A: The maximum interest rate that a Nidhi company can charge on loans is 7.5% above the base rate of the Reserve Bank of India (RBI).

A: No, a Nidhi company cannot accept deposits from non-members. It can only accept deposits from its members.

A: The penalty for non-compliance with the Nidhi Company Rules can range from a fine to imprisonment, depending on the severity of the violation.

A: The registration process for a Nidhi company can take anywhere between 30 to 45 days, depending on the speed at which the required documents are submitted and the approval process is completed.

A: Yes, a Nidhi company can be converted into a public limited company. However, it is important to note that the conversion process must comply with the provisions of the Companies Act, 2013 and the rules and regulations of the Ministry of Corporate Affairs.

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