Startup-Nidhi Company

Overview

Nidhi Companies in India promote thrift and savings among members. They can borrow and lend exclusively to their members, ensuring funds originate from shareholders. Although small compared to banks, they foster group savings.

What is a Nidhi Company?

Nidhi companies, governed by the Companies Act, 2013, operate in India's non-banking finance sector. They primarily lend and borrow money among their members. Also known as Permanent Fund or Mutual Benefit Companies, they are overseen by the Ministry of Corporate Affairs. Nidhi companies promote thrift and reserve funds among members and focus on deposit and lending activities exclusively for their benefit. These entities are based on the  "Principle of Mutuality".

Benefits

Limited RBI regulatory compliance: Nidhi Companies, registered as Public Limited Companies with the MCA, do not require an RBI license. They adhere to Nidhi Rules, 2014, and the Companies Act, 2013, for financial activities, offering simplified regulatory compliance.

Less Risky Proposition: Nidhi companies can only provide loans and accept deposits from members, reducing the risk of defaults and external influences on operations. They are a safe means of inviting public deposits by registering individuals as members.

Limited Capital Requirement: Nidhi Rules, 2014, stipulate a minimal capital requirement of ₹10 Lakhs for Nidhi Company registration.

Simple Formation Process: Establishing a Nidhi Company is straightforward, involving just 7 members, basic documentation, and MCA registration.

Uninterrupted Operations: Nidhi Companies enjoy perpetual succession, ensuring continued operation despite member changes due to death, insolvency, insanity, or retirement.

Boost Member Savings: Nidhi Companies aim to boost member savings and provide accessible loans, often at lower rates than the market, encouraging more savings among members.

Favorable Net Owned Fund Ratio: Nidhi Companies offer a favorable net owned fund ratio of 1:20, ensuring that for every 1 rupee invested, members can receive a deposit of 20 rupees.

Tax And Process

• Nidhi companies, governed by Section 406 of the Companies Act 2013, promote savings among members.
• Exempted from certain compliance requirements by the Ministry of Corporate Affairs.
• Document delivery rules were extended, but documentation was only required for shareholders with over ₹1,000 or 1% shareholding.
• Private placement rules simplified, allowing Nidhi companies to offer shares without limits.
• Penalties for not distributing dividends are reduced for payouts of ₹100 or less.

Documents Required

• Director's PAN Card Copy
• Passport-sized Photograph of Directors
• Director's Aadhar Card or Voter ID Copy
• Copy of Rent Agreement (if the property is rented)
• Electricity or Water Bill for the Business Place
• Additional Documents for Owned Property:
• Landlord NOC

Procedure

Step 1: Obtain DIN and DSC: Directors must apply for a Director’s Identification Number (DIN) and Digital Signature Certificate (DSC).

Step 2: Name Approval: Propose three unique names for the company, with one being approved by the MCA.

Step 3: MoA & AoA: Draft Memorandum of Association (MoA) and Articles of Association (AoA) and submit to the ROC.

Step 4: Certificate of Incorporation: Receive the Certificate of Incorporation (CIN) in 15-25 days.

Step 5: PAN, TAN, and Bank Account: Apply for PAN and TAN, then open a bank account with the relevant documents.

FAQ's