Complete Guide on Nidhi Company Rules and Regulations

Nidhi Company is an another Non-Banking Financial Company (NBFC) formed under Section 406 of the Companies Act of 2013.

It rules and regulations are governed by the Ministry of Corporate Affairs (MCA). Furthermore, the Reserve Bank of India oversees deposit acceptance and makes new Nidhi modifications.

The primary goal of such businesses is to produce wealth among their members by borrowing and lending. Benefit Funds, Permanent Funds, Mutual Benefit Companies, and Mutual Benefit Funds are commonly connected with Nidhi Companies.

What is the purpose of a Nidhi Company?

The primary objective of the Nidhi Company’s formation is to instil the habit of thrift and saving among its members for their mutual benefit.

It adheres to the motto of “One for all, All for one,” in which each member considers the needs of the others and contributes their fair share of funds.

Reasons to Establish a Nidhi Business in India

• The term Nidhi, which has its origins in India’s traditional roots, means “treasure.” A Nidhi Firm is a type of non-banking financial company that was established under Section 406 of the Companies Act 2013.
• Nidhi Company’s main goal is to instill in its members the habit of saving and thrift. Nidhi businesses, which borrow and lend money from members to members, are known by a variety of names, including Nidhi, Benefit Funds, Mutual Benefit Funds, Permanent Fund, and Mutual Benefit Company.
• They are mutual benefit societies with just individual members and limited dealings. A Nidhi company’s main source of funds is the contributions of its members.
• Members of such localised offices can obtain loans at relatively low interest rates for a variety of objectives, such as housing construction or maintenance. Nidhi Company operates in a constrained environment, limiting its ability to accept deposits.

What is the procedure for forming a Nidhi Company?

The Nidhi Company’s incorporation requirements and regulations are highly strict. The ‘Nidhi Rules, 2014′ were designed by the Central Government to ensure that every Nidhi Company accomplishes its ultimate goal.

As a result, anyone wishing to incorporate as a Nidhi must follow the pre- and post-requirements outlined in the Nidhi Rules-2014.

Specification for registering a Nidhi Company

Since Nidhi was incorporated as a public company under the Companies Act, 2013, anyone interested in forming a Nidhi company must meet the following act’s requirements:

• A paid-up equity share capital of INR 5 lakhs is required.
• To form a Nidhi Company, a minimum of seven members are required, three of whom must be directors of an existing company.
• Nidhi Corporations are unable to issue preference shares. If a corporation has previously issued preference shares, those shares must be redeemed according to the terms of the issue.
• Every company that wants to create a Nidhi firm must include the words “Nidhi Limited” in its name.
• The company’s only purpose will be to encourage members to save money by allowing them to receive and lend money among themselves.

Requirements after Post-registration:

Even after completing the incorporation step, every Nidhi Company must ensure that it meets the following requirements within one year of its establishment:

• A minimum of 200 members: In order to comply with the law, Nidhi firms must have at least 200 members. Furthermore, the organisation must verify that the total number of members does not fall below 200 at any time.
• Net Owned Fund: Net Owned Funds of at least Rupees ten lakhs, with unencumbered term deposits of at least 10% of outstanding deposits.
• Ratio: The NOF to deposit ratio must not exceed 1:20.
• Nidhi businesses are not permitted to admit a body corporate as a member. A minor is also not to be admired as a member.

Note: NOF refers to the total sum of paid-up equity share capital and free reserves as shown in the company’s latest  balance sheet

Documents Needed to Register a Nidhi Company

Once you’ve completed all of the prerequisites, you can apply for Nidhi registration, which requires the following documents:

• An identification evidence for all directors and stockholders: Before forming a Nidhi Company, you must provide the directors’ and shareholders’ identities. It comprises a copy of the member’s PAN card if they are Indian nationals, and a copy of their passport if they are a foreign national.
• Residential proof of directors and shareholders: you must also produce residential proof of the company’s members in the form of bank statements or utility bills that are no more than two months old.
• A proof of registered office in India: you must include a residential evidence of your registered office with your Nidhi registration application.
• Send the office a copy of your property tax receipt, water bill, or power bill. If the office is rented, you must produce a copy of the leasing agreement or an ownership document with the landlord’s permission.
• Include passport-size pictures of all directors and shareholders, as well as all proposed members’ Aadhar cards.

Rules and Regulations of the Nidhi Company (Annual Compliances)

Every company incorporated under Section 406 of the Companies Act, 2013, must comply with three crucial requirements:

• Form NDH-1: The Return of Statutory Compliances is included in Form NDH-1. If your incorporated firm meets all of the requirements of the Nidhi Rules 2014, you must file Form NDH-1 and pay the required costs. Also, make sure to file it within 90 days of the first financial year’s end. In reality, the form must be duly validated by a Chartered Accountant or a Company Secretary. You can also hire a cost and management accountant to help you with this.
• Form NDH-2: It’s an application for a time extension. Within 30 days following the end of the first financial year, file Form NDH-2 for a time extension. To do so, submit an application to the Regional Director along with the required fee as per the Nidhi Rules, 2014. As a result, the Regional Director will consider the application and issue orders within thirty days of its receipt. This form must be filed only if your firm fails to achieve the following requirements:

1. 1. Maintaining a minimum of 200 members within one year of establishment; and
   2. Failure to maintain a NOF to deposit ratio of 1:20.

• Form NDH-3: The Half Yearly Return is the name given to this form. Within 30 days at the end of each half-year, file NDH-3 with the Registrar of Companies (ROC) together with the required fees. The form must also be duly certified by a practising Chartered Accountant, Company Secretary, or Cost Accountant.

What are the consequences of Nidhi Company’s non-compliance?

If the company and each officer in default do not comply with the Nidhi Rules 2014 and the Companies Act, 2013, the company and each officer in default will be found guilty and will be subject to a fine of Rs. 5000/-.

Furthermore, if the violation persists from the company’s end, it will be ruled criminal. As a result, the defaulter must pay around Rs. 500/- per day till the violation is resolved.

A summary of Nidhi Companies’ deposits

The following are the rules that every Nidhi corporation should follow when making deposits:

• Nidhi Companies may not receive deposits in excess of 20 times their Net Owned Funds; consequently, the NOF to Nidhi Companies ratio should not exceed 1:20.
• A Nidhi Company may not accept or lend deposits to anybody other than its members, and
• They may not make any type of advertisement soliciting deposits.

Note: Information on private circulation of fixed deposit schemes among Nidhi members marked “for private circulation to members only” is not to be construed as a solicitation of deposits.

• Companies engaged in Nidhi business should not pay any brokerage or for the deployment of money or incentives for mobilising deposits from members.
• They shall not pledge any of their members’ assets as security.
• Deposits in the name of a minor are permissible if done by the natural or legal guardian, who must be a Nidhi member. A minor, on the other hand, is not eligible to join Nidhi.

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RBI Update:

RBI has issued notification dated 13/04/2016 regarding Overseas Direct Investment (ODI) by Resident Individuals wherein RBI has rationalized and revised Form ODI which now comprises of Five sections instead of six sections.

Nidhi company is the cheapest and easiest form of NBFC. It is very easy form to register and does not require much capital. Anybody can register a Nidhi company with only 5 lakh capital and 7 members.

Final Thoughts

Being a Nidhi Company is not easy; one must adhere to a vast number of Nidhi laws and regulations in a timely manner. It is critical for a firm to comply with all Nidhi company requirements; else, the company would face severe consequences.

Because the RBI oversees a Nidhi’s actions, there is no room for error on the part of the company. Delegate compliance to us if you don’t want to face costly penalties. We’ll walk you through the compliance requirements and assist you in filing your annual taxes.

The incorporation of a Nidhi Company is made considerably easier by enlisting the help of an experienced professional. Even if you understand the notion of Nidhi registration, there’s a chance you’ll make a mistake. As a result, cling to RJA services to make Nidhi Company Registration easier. We offer a special package that will assist you with the incorporation of Nidhi.