Activities Prohibited in a Nidhi Company

Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business. It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.

Also, it can’t advertise itself to ask for any deposits.

Number of members

Minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.

Share Capital and Owners’ Funds

A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company. Nidhi Company can’t issue preference shares.

Documents required for registration

1. Proof of the registered place of business (Ownership documents/ rent or lease agreement)
2. No Objection Certificate (signed by the owner/ landlord)
3. Identity proofs
4. Address proofs of the members
5. Photos of the members
6. PAN card copies of the members
7. Digital Signature (DSC)
8. Director Identification Number (DIN) of the directors
9. Memorandum of Association of the company (MoA)
10. Articles of Association of the company (AoA)

Only one object will be mentioned in MoA of the company: “cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit..”

Conditions to be fulfilled for getting ‘Nidhi’ status

Within one year of its registration

1. Nidhi Company should have minimum 200 members within one year from commencement
2. Also, the net owned funds should be 10 lakh rupees or more. Net owned funds = Equity share capital + free reserves (-) accumulated losses (-) intangible assets
3. Unencumbered term deposits must be 10% or higher of the outstanding deposits
4. The ratio of net owned funds to deposits shouldn’t be more than 1:20

If Nidhi Company satisfies all above conditions, it should file NDH-1 along with prescribed fees within 90 days from the end of the first financial year after incorporation. The form must be duly certified by practicing CA/ CS/ CWA.

Extension of another financial year can be availed upon submission of NDH-2 to the Regional Director within 30 days from the end of the first financial year.

If even after the second financial year, it doesn’t fulfill the requirements, it can’t accept deposits till it complies with the provisions, and also penalty will be imposed.

Prohibition Activities in Nidhi Company

The Nidhi Companies have to abide by certain prohibitions which are imposed on them in terms of their activities. These activities can be listed as follows:

• Nidhi Companies cannot deal with chit funds.
• Nidhi Companies cannot deal with hire-purchase finance.
• Nidhi Companies cannot deal with leasing of finances.
• Nidhi Companies cannot deal with insurance business.
• Nidhi Companies cannot deal with securities business.
• Nidhi Companies cannot accept deposits from any other person except members.
• Nidhi Companies cannot lend funds to any other person except members.

Benefits of Registering as Nidhi Company

There are various Benefits which can be availed by registering as a Nidhi Company. These advantages can be summed up as follows:

• Legal existence: The registration of a company as a Nidhi Company makes it a separate entity. It enjoys separate legal existence as a registered Mutual Benefit Society. Being a separate entity from the members of the company, the company can acquire or dispose of assets in its own name.
• Limited liability: Depending on the amount invested or contributed by the members of the company, their liabilities will be limited. The members will be liable only for their share in the company. Personal liabilities of the members cannot be used to meet the company’s liabilities.
• Availability of funds: The members can borrow from the funds contributed by themselves at lower interest rates.

What are the minimum requirements that are to be fulfilled for the registration as a Nidhi Company?

There are certain requirements which are to be fulfilled by a company in order to to be registered as a Nidhi Company. The requirements may be summed up as follows:

• The company must be incorporated as a Public Limited Company under the Companies Act.
• The company should have a minimum of 7 shareholders.
• The company should have a minimum of 3 directors.
• The company should have a minimum of Rs.5 lakh of equity capital.
• The company should have a minimum of 200 members.
• The company should have Net Owned Funds worth Rs.10 lakh or more.
• The name of the company should end with ‘Nidhi Limited’.
• The objective of the company should be lending and borrowing of funds among the members only.
• The company must have unencumbered term deposits of 10% or more of the outstanding deposits.
• The company should have a Net Owned Funds to deposits ratio of 1:20 or less.
• The Director Identification Number (DIN) of all the directors has to be provided.