Registration of a Nidhi Company Under Section 406 of Companies Act, 2013 By CS Annu Sharma

In my write up, I have shared with you my knowledge about Nidhi Company Registration under Companies Act, 2013, in a Nutshell, it is easier to Incorporate a Nidhi Company for saving and Mutual Benefits.

Section 406 of Companies Act 2013 and Companies (Nidhi Companies) Rules, 2014 govern Nidhi companies. It shall be a public company. The Nidhi Company shall have only one object in its memorandum that is of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit. Every Company incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

No Nidhi shall issue preference shares. If preference shares had been issued by a Nidhi before the commencement of this Act, such preference shares shall be redeemed in accordance with the terms of the issue of such shares. It is a type of Non-Banking Financial Company (NBFC). It is formed to borrow and lend money to its members. It inculcates the habit of saving among its members and works on the principle of mutual benefit. These companies typically operate in the southern part of the country.

1. Eligibility for Nidhi Company Registration

#Before Incorporation
  • Minimum Seven People: Minimum seven people are required to start the Nidhi Company in India. These companies shall have a minimum of three directors. The same seven people can become shareholder and director of the company.
  • Minimum Capital: Nidhi shall be a public company and shall have a no minimum paid up equity share capital at the time of registration as per Central Government Notification. However, it should have Net Owned Funds of ten lakh rupees or more.
  • Unique Name: The name of the Nidhi Company should be unique and should not be similar to any existing company name or trademark.
# After Incorporation

  • Not less than two hundred members
  • Net Owned Funds of ten lakh rupees or more
  • Unencumbered term deposits of not less than ten per cent. of the outstanding deposits as specified in rule 14
  • Ratio of Net Owned Funds to deposits of not more than 1:20.
# 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.
2. Documents Required For Nidhi Company Registration

# Identity proof of Directors and Shareholders

  • PAN Card for Indian Nationals (Mandatory)
  • Passport for Foreign Nationals (Mandatory)
  • Proof of nationality for Foreign Nationals
  • Proof of Identity (Voter ID/Passport/Driving License) (any one)
  • Resolution of the board of company / LLP for authorization of director/partner
  • 2 Passport size photos.
# Address proof of Directors and Shareholders

  • Bank statement/Electricity/Telephone/Mobile bill) (not older than two months) (any one)
# Proof of Registered office

  • Conveyance/ Lease deed/Rent Agreement etc. along with rent receipts (any one)
  • Copy of the utility bills (Telephone/Gas/Electricity bill) (not older than two months) (any one)
  • NOC from Landlord
# Other Documents

  • DSC form (physically signed)
Note: All the Documents in case of Foreign Director should be additionally complied as follows:

  • Notarized (if residing in commonwealth countries)
  • Notarized & Apostiled (if residing in a country which is a signatory to Hague convention)
  • Notarized & Consularised (If not covered in the above categories)
3. Procedure for Registration of Nidhi Company:

  • Name reservation: The first step in incorporation is to reserve/approve the name of the company. The proposed name selected should do not contain any word which is prohibited under Companies Act, 2013. An approved name is valid for a period of 20 days from the date of approval, for a new company. It is permitted to apply for two proposed names and one Resubmission (RSUB) while Reserving Unique Names for companies through the RUN web service.
  • Digital Signature Certificate (DSC) of Director: The application for the public limited company is filed online and it is mandatorily required to be signed by the director and shareholder of the company. So DSC is required to be taken for the directors and shareholder of the company, who is required to sign the e-form for registration before filing incorporation application for the company. Photo, ID and Address proof is required to along with DSC application form for issuance of DSC.
  • Obtain Director Identification Number (DIN): DIN is a unique identification number to the director issued by Registrar of the companies (ROC) for becoming a director in India. An application is filed along with ID and address proof duly attested by CS/CMA/CA.
  • Approval of other authorities: The Registrar of Companies may require the applicant to furnish the approval or concurrence of any department, regulatory body, appropriate authority, or Ministry of the Central or State Government(s) in relation to the work to be done.
  • Document submission: Application for registration/incorporation of Nidhi Company is made to Registrar of Companies (ROC) along Memorandum and Article of Associations, declaration, affidavits etc.
  • Certificate of Incorporation: ROC then scrutinizes the incorporation form and documents, if ROC finds the documents are in order, issues Certificate of Incorporation which is the Registration certificate of Nidhi Company. After receiving the certificate of Incorporation the Nidhi Company is set to start its function.
  • PAN &TAN of the company: PAN and TAN are simultaneously applied along with company registration forms and are issued along with Certificate of Incorporation and also mentions into Certificate of Incorporation.
#Compliance Requirement

  • 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 comply with the provisions, and also penalty will be imposed.
4. Advantages of Nidhi Company Registration:

  • Limited RBI Regulations: There is limited RBI regulatory imposition on Nidhi Company. These companies follow the Nidhi Rules, 2014 of Companies Act, 2013.
  • Limited Capital Requirement: The Ministry of Corporate Affairs has done away with the minimum capital requirement of INR 5 Lakhs for Nidhis. However, as per Nidhi Rules, 2014, net owned fund of Nidhi Company should be INR 10 lakhs.
  • No license from RBI: Nidhi don’t require to obtain a license from RBI like NBFC. Nidhi have to incorporate them as a public company, infuse the required amount of capital as per Nidhi Rules, 2014 and they can start.
  • Small Savings Channelization: The small sections of the population contribute to the funds of and avail credit from Nidhi companies.
  • Lower Rate of Credit: The loans given to the members are at a lower rate of interest than the market rate.
5. Loans under Nidhi Company: Fund lending is a major feature for a Nidhi Company. Here are some important points:

  • The maximum loan to one person will not exceed Rs. 200,000 if the deposit is less than 2 crore.
  • A Nidhi Company cannot give any unsecured loan or a micro finance loans.
  • The maximum period of a gold loan is 1 year
  • Repayment period for a loan against property cannot exceed 7 years.
  • Maximum gold loan can be 80% of the value of the gold.
  • Maximum loan against a property cannot exceed 50% of the value of the property.
  • A Nidhi Company cannot provide vehicle loans.

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