Nidhi Company

A Nidhi Company is a type of Non-Banking Financial Company (NBFC) recognized under Section 406 of the Companies Act, 2013. The core motive of a Nidhi Company is to cultivate the habit of saving among its members and foster a system of mutual benefit through borrowing and lending. These companies work solely for their members, encouraging them to invest small amounts regularly and use those savings for internal loans at minimal interest rates. Nidhi Companies do not deal with the general public but operate within a closed group, making them a community-driven financial system.

How does a Nidhi Company work?

A Nidhi Company operates as a mutual benefit society, focusing exclusively on its members.

Savings and Deposits: Members of the Nidhi Company are encouraged to save regularly. The company accepts deposits from its members in the form of fixed, recurring, and savings accounts. This fosters a habit of saving within a trusted community.

Lending to Members: The funds collected through member deposits are used to offer loans to other members. These loans are provided at relatively lower interest rates compared to traditional financial institutions, offering financial assistance within the community.

Member-focused Model: A Nidhi Company is unique because it operates only for the benefit of its members. It cannot lend to or borrow from anyone outside this group, ensuring a closed and secure financial ecosystem.

Simple Financial Structure: The company’s operations are limited to borrowing and lending, which reduces risk and ensures that the financial activities remain transparent and member-centric.

What is the criteria for registering a Nidhi Company?

To register a Nidhi Company, certain eligibility criteria must be fulfilled to ensure the company operates within the legal and regulatory framework. These requirements are set to maintain the financial integrity of the Nidhi Company, ensuring it focuses on its core objective of encouraging savings and mutual benefit among its members.

1. Minimum Number of Members: A Nidhi Company must begin with at least 7 members, including 3 directors (Directors have to give consent by filing DIR-2 form). These members form the initial shareholder base, and the directors are responsible for the company's management and operations. This structure ensures the company has a solid foundation to serve its members.

2. Share capital: The company must have a minimum paid-up equity share capital of ₹5 lakh. This capital acts as a financial reserve and ensures the company can meet its initial operational needs and regulatory requirements. It also reflects the company’s commitment to creating a stable financial model.

3. No External Activities: Nidhi Companies are strictly prohibited from engaging in external businesses like trading, insurance, or any activity beyond borrowing and lending among members. This limitation ensures that the company's focus remains on mutual benefit and that risk exposure is minimized.

4. Compliance within one year: The company must have at least 200 members and a net-owned fund to deposits ratio of 1:20 within the first year of incorporation.

What Documents Are Needed for Nidhi Company Registration?

To register a Nidhi Company, the documents needed are:

1. PAN card of all directors and shareholders.

2. Proof of Identity (Voter ID/Passport/Driver's License) for all directors.

3. No Objection Certificate (NOC) from the property owner if the office is rented.

4. No Objection Certificate (NOC) from the property owner if the office is rented.

5. MoA and AoA for the company's objectives and rules.
6. Digital Signatures (DSC) for directors and authorized signatories.

What is the Process of Registration for Nidhi Company?

Step1. Name Reservation: The first step is to apply for the name of the company using INC-1 or RUN (Reserve Unique Name) service or within SPICe form.

Step2. Obtain DSC and DIN: The directors of the company must obtain Digital Signature Certificates (DSC) and Director Identification Numbers (DIN).

Step3. Prepare and Submit Incorporation Documents: The next step is to prepare the Memorandum of Association (MoA) and Articles of Association (AoA). These documents, along with the SPICe form, should be submitted to the Registrar of Companies (ROC).

Step4. Approval and Certificate of Incorporation: Once the ROC approves the documents, a Certificate of Incorporation (CoI) is issued, signifying the legal establishment of the Nidhi Company.

What are the Post-Incorporation Compliances for a Nidhi Company?

After registration, Nidhi Companies must comply with the following:

1. 1. Maintain at least 200 members: By the end of the first financial year, the company must meet this requirement.

2. 2. Limit deposits: The company cannot accept deposits exceeding 20 times the net-owned funds.

3. 3. Hold Annual General Meetings (AGMs): The company is required to hold AGMs within six months from the end of the financial year to discuss financial performance and compliance.

4. 4. Filing Financial Statements (AOC-4): The company must file Form AOC-4 to submit its financial statements, including the balance sheet and profit and loss account, within 30 days from the date of the AGM. This ensures transparency and accountability in financial reporting.

5. 5. Filing NDH-1, NDH-2, NDH-3: These are forms to report the financial activities of the company to the ROC.

   1. NDH-1: This form is a return of statutory compliance, filed within 90 days from the end of the financial year, providing details on the number of members and deposits of the Nidhi Company. It must be filed with the Registrar of Companies (ROC).

   2. NDH-2: This form is used to apply for an extension if a Nidhi Company fails to meet the compliance of having 200 members within the first year. It must be filed within 30 days from the end of the first financial year and is submitted to the Regional Director.

   3. NDH-3: This is a half-yearly return that provides detailed information about the company's deposits, loans, and members. It must be filed within 30 days from the end of each half-year and is submitted to the Registrar of Companies (ROC).

6. 6. Annual filings: Nidhi companies are required to file annual returns within 60 days of Annual General Meeting using Form MGT-7.

7. 7. NDH-4: Nidhi Companies in India to apply for declaration of compliance regarding the membership criteria and other conditions required under the Nidhi Rules using NH4.

8. 8. Filing Income Tax Return: A Nidhi Company must file its ITR annually with the Income Tax Department. The return must be submitted by the specified due date, which is usually September 30 for companies. Nidhi Companies typically need to file their Income Tax Returns (ITR) using ITR-6.

What are the Benefits of a Nidhi Company?

a. Community-Centric:

Nidhi Companies are designed to serve the specific needs of a community or group, promoting localized financial development.

b. Ease of Formation:

Compared to other financial entities, the process of establishing a Nidhi Company is relatively straightforward, making it accessible to smaller communities.

c. Limited Regulatory Compliance:

Nidhi Companies have a simpler regulatory framework compared to traditional financial institutions, making it easier for members to manage and operate.

d. Encourages Financial Discipline:

By promoting savings and providing affordable credit to members, Nidhi Companies contribute to fostering financial discipline and responsible financial behavior within the community.

Why consider a Nidhi Company?

a. Localized Financial Inclusion:

Nidhi Companies play a crucial role in promoting financial inclusion at the grassroots level, catering to the specific needs of local communities.

b. Member Empowerment:

Through the mutual benefit structure, Nidhi Companies empower their members by providing a platform for savings and access to credit within their community.

c. Flexible Operations:

Nidhi Companies have the flexibility to design products and services that align with the unique requirements of their members, fostering a sense of ownership and participation.

How can JKstartup360 help?

At JKStartup360, we specialize in simplifying the registration process for Nidhi Companies and ensuring compliance with all post-incorporation requirements. Our expert team guides you through every step of the registration process. We will assist you with filing essential forms to secure the necessary approvals from regulatory authorities. Once your Nidhi Company is established, we provide comprehensive support for post-incorporation compliances, including timely filing of Income Tax Returns (ITR) and annual returns. With our tailored solutions, you can focus on growing your business while we handle the complexities of regulatory compliance, ensuring your Nidhi Company operates smoothly and efficiently.