The term “Nidhi” translates to “funds” and accordingly, a Nidhi Company is a non-banking financial entity registered under the Companies Act 2013 (the Act) with the predominant objective of pursuing prudence and savings amongst its members, receiving deposits from and lending money to its members for their mutual benefit. Section 406 of the Act and the Companies Rules 2014 provide for Nidhi Company and other ancillary matters related to such Companies. In order to be qualified as a Nidhi Company, an entity has to be notified as a “mutual benefit society” by the Central Government. They are so notified because their transactions are strictly limited to their shareholders and members. Their principal source of funds is the contribution received from such members as deposits and their principal source of earning is from the interest received upon the structured lending of such funds to its members explained by Edge Legal.
Nidhi Companies being a category of a non-banking financial company (NBFC) comes under the ambit of the Reserve Bank of India (the RBI) that holds the authority to issue directions to such Companies. Considering the fact that the scope of every Nidhi Company is limited to its shareholders and members, the RBI has exempt Nidhi Companies from the core provisions of the RBI Act and other directives and compliance requisites applicable to NBFCs. In addition, the Central Government has enacted and notified the Companies (Nidhi Company) Rules 2014 to exhaustively provide for the law and procedure applicable to such Companies.
Prerequisites for Nidhi Company Registration :
Every Nidhi Company shall be a Public Company bearing “Nidhi Limited” in its name and shall be incorporated with a minimum equity share capital of Rs. 5,00,000 (Rupees Five Lakhs Only). Every Nidhi Company shall comprise of 7 members and 3 Directors. Nidhi Companies are barred from issuing Preference Shares, Debentures or any other debt instruments and from admitting any body corporate, trust or minor as its member.
Registration Process for a Nidhi Company Registration:
The first step in the process of registering a Nidhi Company is to file an application in the RUN facility of the Ministry of Corporate Affair’s (MCA) Portal in order to check for availability of name, followed by obtaining the Class 2 Digital Signature Certificate (DSC) of all the proposed Directors.
After successfully completing both the above-mentioned steps, the applicant has to duly fill and submit, in the prescribed form and manner. Such form has to be annexed with the Memorandum of Association (MOA), Articles of Association (AOA), PAN Card, ID Proof and Address Proof of the First Directors, Consent of the proposed Directors to act as Directors and Self Declaration in form DIR-2 and INC-9 respectively, Address Proof of the Company’s Registered Office along with the NOC from the Owner of the Premises as applicable, latest Utility Bills of the Registered Office.
Upon filing the specified Form in the prescribed form and manner, with the prescribed registration fees and stamp duty, the MCA issues the Incorporation Certificate within 15-20 days and such Incorporation Certification shall be conclusive evidence that all formalities have been duly complied with.
Post-registration, a Nidhi Company ought to secure a minimum membership of 200 members within the first year of its operation in order to avoid the “default” status. However, in the event a Nidhi Company is unable to secure membership of 200 members, the Company shall apply to the Regional Director, MCA, for additional time within 30 days of closure of the financial year in the prescribed NDH-2 Form.
Further, upon registration, every Nidhi Company ought to maintain a Minimum Net Owned Fund of Rs. 10 lakhs or more and shall maintain the net owned fund to deposit ratio at 1:20. By net owned fund to deposit ratio is meant if the Nidhi Company has Rs. 20 lakhs as its net owned funds, then the deposit limit for such Nidhi Company shall be Rs. 4 crores.
Annual Statutory Compliance
Every Nidhi Company ought to comply with the applicable provisions of the law except those that are expressly exempt. Every Nidhi Company, apart from the income tax returns, ought to annually file the Auditors Certificate, NDH-1 and NDH-3 Forms instead of the regular AOC-4 and MGT-7 that are filed by other companies incorporated under the Companies Act.
The auditor’s certificate is required to declare that the Nidhi Company has complied with all the provisions of the law and the applicable Act.
Form NDH-1 certifies that the Nidhi Company has duly complied with the above-mentioned post-registration requirement. Such form has to be certified by a practising Company Secretary or Chartered Accountant or Cost Accountant and ought to be filed within 90 days of the closure of the financial year. In. the event a Nidhi Company requires an extension in filing Form NDH-1, it shall apply to the Regional Director in Form NDH-2 along with the prescribed extension fees and the Regional Director shall pass an order within 30 days of the receipt of such extension application.
Form NDH-3 declares the half-yearly returns of the Nidhi Company and such returns shall be duly certified by a Company Secretary or Chartered Accountant and shall be filed within 30 days from the completion of each half year.
Prescribed Corporate Structure of a Nidhi Company
Share Capital and Allotment
The Companies Rules provides that a Nidhi Company shall issue equity shares at a nominal price of not less than Rs. 10 per share and that, such Nidhi Company shall not levy service charge on such an issue of equity shares. The Rules also provide that, every depositor shall be allotted a minimum of 10 equity shares or shares worth Rs. 100 and further that, each saving or recurring deposit holder shall hold at minimum 10 equity shares worth Rs. 10 each.
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