Requirements Nidhi Company Registration in India

Introduction

In recent years the authorities have become very stern and vigilant related to all kinds of financial institutions in India. As a result, various finance business models are suspended like multistate finance society, Microfinance company registered under Section 8 of Companies Act, 2013.

Currently, one can operate a finance business either as a banking company or an NBFC. Traditionally Non Banking Financial Companies are regulated by RBI. However, there are certain exceptions like Nidhi Company, Housing Finance Company, Chit Fund company which are regulated by their separate laws.

Nidhi Company Registration in India

As we discussed with so many restrictions there are very limited options available to register a finance business. Unlike traditional Non Banking Finance Companies which require a huge amount of initial capital as well as compliances for registration, Nidhi Company registration is quite easy. For Nidhi Company Registration there is a very minimal capital requirement and no RBI licensing is required.

Nidhi company is a public limited company which is regulated as per the provisions stated in Nidhi Rules, 2014. Following are basic minimum requirements for registration of a Nidhi Company:

• The name of the Nidhi company must end with Nidhi Limited Company
• Minimum 3 Directors are required
• Minimum 7 Members are required
• Minimum paid up share capital must not be less than 5 lakh. And the company is not authorized to issue preference shares.

Membership Requirement under Nidhi Company

In the initial phase, the Nidhi Company is required to be registered with 7 members like any other limited company. However, within one year from the date of its incorporation, the Nidhi Company is required to increase its member’s strength up to 200. Once the no of member exceeds 200 it must not reduce that limit at any point of time during its existence.

Who can be a Member?

Anyone who is in possession of shares of a Nidhi limited will be considered as its members. As per Nidhi Rules, it can only accept deposits and offer loans to its members only. Nidhi Company is required to issue a share of the minimum denomination of 10 rupees.

• For every Fixed deposit, Nidhi Company is required to issue 10 shares or shares equivalent to 100 rupees.
• For any other kind of deposit, NidhiCompany is required to issue 1 share.

Who cannot become a Member?

Following people cannot become a member of a Nidhi Company:

1. A minor person
2. Any body corporate, Trust or any other form of institution.

Restriction under Nidhi Rules, 2014

Though Nidhi company registration does not require RBI licensing, its operations are regulated by the provisions stated in Nidhi Rules, 2014. These rules impose a number of restrictions on Nidhi Company. Following is a list of such restrictions:

• It cannot issue preference share or any other kind of debt instrument including debentures.
• It can only accept fixed, savings and recurring deposits. Opening current accounts is not allowed.
• It cannot carry on any business other than borrowing and lending of deposits.
• Nidhi company can only accept deposits and grant loans to its members and no one else.
• Nidhi Company is not allowed to advertise in any way to attract deposits. However, they can privately circulate information relating to deposits among its members only.
• They cannot pay any kind brokerage or incentive for mobilizing deposits or advancement of funds.
• They are not allowed to carry on any of the following business;
• Hire Purchase
• Chit fund business
• Insurance
• Leasing finance
• Security acquisition
• The main object of any Nidhi company is to accept deposits and forward loans. However, they are not allowed to give the following loans:
• Personal Loan: As they can give loan against securities but not on the basis of any credit report or IT return.
• Micro Finance: It cannot engage in granting small credit. This sector is highly regulated and only a registered Microfinance NBFC undertake such activity.
• Vehicle Finance: Such finance activity can only be undertaken by a registered NBFC or Banking Company.
• Hire Purchase: This activity is restricted under Nidhi Rules.
• Nidhi Company is not allowed to provide any unsecured loans. the loans issued must be against a security. Such security can include the following:
• Immovable Property
• Jewelry, gold or silver
• Insurance Policy, Fixed deposit, National Saving Certificate, Government securities etc.

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