Nidhi Company Registration

A Nidhi company is a special kind of Non-Banking Financial Company (NBFC). Its main job is to borrow and lend money, but only among its members. The core idea is "mutual benefit," meaning everything the company does is for its members' good.
These companies are set up under Section 406 of the Companies Act, 2013. The Ministry of Corporate Affairs (MCA) oversees them through the Nidhi Rules, 2014.

Is a Nidhi Company an NBFC?

Yes, a Nidhi Company is classified as a Non-Banking Financial Company (NBFC). However, it differs from traditional NBFCs in several ways.

Important Distinctions:
No RBI Registration Required: Nidhi Companies are exempt from registering with the Reserve Bank of India (RBI).
Limited Regulation by RBI: Since they only deal with their members, the RBI provides certain exemptions under the RBI Act, 1934. The RBI can issue directives, but does not oversee the company's daily operations.

They cannot:
Issue preference shares, debentures, or any other debt instruments.
Conduct business such as chit funds, hire purchase, leasing, or insurance.
Who Regulates Nidhi Companies in India?
Nidhi Companies are not regulated by the RBI like other NBFCs. Instead, they are controlled by the MCA.

Key Regulations:
Nidhi Companies must follow the Companies Act of 2013.
They must also comply with the Nidhi Rules, 2014, and any changes made later.
They are required to file annual returns and financial reports with the Registrar of Companies (RoC).

Areas Monitored by MCA:
Compliance with minimum members requirement (e.g., 200 members within 1 year).
Maintenance of Net Owned Funds (NOF).
Limits on how much the company can deposit.
Proper and safe lending practices.

Role of the RBI:
The RBI does not directly manage Nidhi Companies.
However, it can give directions if needed to protect the overall financial system.
The RBI also monitors systemic risks, particularly when a Nidhi Company functions beyond its permitted scope.

• Promotes Savings: Cultivates financial discipline and regular savings among members.
• No RBI Approval: Exempt from strict Reserve Bank of India regulations, offering operational flexibility.
• Limited Liability: Protects members' personal assets from company liabilities.
• Affordable Credit: Provides loans to members at lower interest rates.
• Simple & Cost-Effective: Easier and cheaper to set up and run compared to NBFCs.
• Member-Focused: All transactions (deposits/loans) are restricted to members, enhancing trust. 

Members: Minimum 7 members (3 directors).
Name: Must end with "Nidhi Limited".
Capital: Minimum Rs. 5 Lakh paid-up equity share capital.
Objects (MoA): Sole object is to cultivate thrift and receive/lend deposits from members.
Documents (Members/Directors): PAN, Identity Proof (Voter ID/DL/Passport), Address Proof (Bank Statement/Utility Bill not >2 months old), Photos.
Company Docs: MoA, AoA, Proof of Business Address (Rent/Lease Agreement + NOC if rented).
Digital Signatures (DSC) & Director Identification Number (DIN) for directors. 

Documents Required for Nidhi Company Registration
Preparing the following documents in advance will speed up the Nidhi company registration process. It's important to make sure each document is current and properly attested.
Documents for Directors and Members
To confirm who the people involved are and where they live, specific documents are needed.
PAN Card: A self-attested copy of the Permanent Account Number (PAN) card for all directors and members.
Identity Proof: A self-attested copy of Aadhar Card/Voter ID/Driving License/Passport for all directors and members.
Address Proof: A self-attested copy of the latest bank statement or utility bill (like electricity, telephone, or gas bill) that is not older than 2 months for all directors and members.
Passport Size Photographs: Recent passport-size photos of all directors and members for identification.

Digital Signature Certificate (DSC): Required for all proposed directors to file forms electronically on the MCA portal.
Documents for the Registered Office
The registered office address is very important for all official communications and rules.

Proof of Registered Office Address: The latest utility bill (electricity, telephone, or gas bill) not older than 2 months, in the company's name or the property owner's name.

No Objection Certificate (NOC): If the premises are rented or leased, you need a No Objection Certificate from the landlord or owner.

Rent Agreement/Lease Deed: If the premises are rented, a copy of the rent agreement or lease deed must be given as proof that you occupy the space.
Other Essential Incorporation Documents
Besides personal and office documents, certain legal forms and statements are also required.
Declaration from Directors: A statement from the directors confirming they are not disqualified from being directors under the Companies Act, 2013.
Consent to Act as Director: Each director needs to provide a DIR-2 form, showing they agree to be a director of the company.

Rules and Restrictions for Nidhi Companies

Nidhi companies follow specific rules and limits to ensure they stick to their goal of mutual benefit and don't get involved in unauthorized financial activities. These restrictions protect their members and keep the Nidhi model honest.

What a Nidhi Company Can Do?
Nidhi companies have clear boundaries that help them serve their members effectively.

Accept Deposits: A Nidhi company can accept deposits from its members. These can be savings deposits, recurring deposits, or fixed deposits, offering members flexible ways to save.
Provide Secured Loans: They can give secured loans to their members. These loans are backed by things like gold, silver, property, or fixed deposit receipts held with the company. The loan amounts and terms must follow the limits in the Nidhi Rules, ensuring smart lending.
Offer Locker Facilities: Nidhi companies are allowed to offer locker facilities to their members. This comes with specific conditions and limits on how many lockers they can provide, adding another benefit for members.

What a Nidhi Company Cannot Do?
To prevent misuse and keep their special status, Nidhi companies are not allowed to do certain things.
Cannot carry on businesses like chit funds, hire purchase finance, leasing finance, insurance, or buying shares from any other company. This makes them different from other financial institutions.
Cannot issue preference shares, debentures, or any other debt instruments. They raise funds mainly through member deposits and can issue only equity shares with a face value.
Cannot open current accounts for its members. Only savings, recurring, and fixed deposits are allowed.
Cannot buy another company by purchasing shares or control of who is on the Board of Directors of any other company. This stops them from moving into unrelated businesses.
Cannot do any business other than borrowing and lending money in its name. This strict focus maintains their mutual benefit goal.
Cannot use any assets given by its members as security for other purposes.
Cannot enter into any partnership for its borrowing or lending activities. All operations must be done directly by the Nidhi company itself.
Nidhi Companies are not allowed to advertise for deposits and can accept deposits only from their existing members. However, as per Rule 7, they can display a simple notice board at their office with details like interest rates and terms.
Cannot pay any commission or bonus for getting deposits from members, for using funds, or for giving loans. This prevents aggressive selling and ensures deposits come purely from members' savings.

Compliances After Your Nidhi Company is Registered
After your Nidhi company registration is complete, there are ongoing rules you must follow to ensure the company runs legally and efficiently. Following these rules is key to the company's long-term success.

First-Year Compliance Requirements
Within one year of incorporation, a Nidhi Company must achieve the following:

Minimum 200 Members
Net Owned Funds (NOF): As per Rule 3(1)(d) of the Nidhi Rules, 2014, the company must have NOF of at least ₹20 lakh (Paid-up equity share capital + Free Reserves – Accumulated Losses – Intangible Assets) to ensure a strong financial base.
NOF to Deposit Ratio: You must keep a ratio of Net Owned Funds to deposits of no more than 1:20. This means for every Rs. 1 of NOF, the company can take up to Rs. 20 in deposits, which helps control its lending amount.
Unencumbered Term Deposits: You must keep unencumbered term deposits equal to at least 10% of the outstanding deposits as per the Nidhi Rules. These deposits should be kept in a scheduled commercial bank or post office in the company’s name. This acts as a reserve to maintain enough liquid funds.
Filing NDH-1 Form
Filing Form NDH-1 on time is very important to prove your company met the initial rules as per Rule 5(2).

Every Nidhi Company must file this form within 90 days after the end of its first financial year or from the date it became a Nidhi Company.
NDH-1 provides details about:
Members
Net Owned Funds (NOF)
Unsecured deposits
It confirms the company has followed the initial requirements.
Filing NDH-2 Form
NDH-2 is a request for more time to meet these rules. If the company does not meet initial requirements, it must take extra steps.

If the company fails to have 200 members or Rs. 20 lakh NOF within one year, it must file Form NDH-2.
This form is submitted to the Regional Director within 30 days after the end of the first financial year.
Filing NDH-3 Form
The NDH-3 form shows the company’s financial health and rule compliance.

Every Nidhi Company must file Form NDH-3 twice a year.
This half-yearly report is submitted within 30 days from the end of each half-year.
You need to file NDH-3 twice a year, once for the period ending March 31 and again for the period ending September 30. Make sure it’s digitally signed before submission.
Filing Form NDH-4
This form is key to getting official recognition as a Nidhi Company.

Once the company meets the criteria of 200 members and Rs. 20 lakh NOF, it must file Form NDH-4 with the Central Government.
Filing NDH-4 officially declares the company as a Nidhi under the Nidhi (Amendment) Rules, 2022.
As per the Nidhi (Amendment) Rules, 2022, NDH-4 must be filed within 120 days of incorporation to apply for official recognition as a Nidhi Company.
Regular Statutory Filings
Besides Nidhi-specific forms, general company rules are also mandatory. Like all companies set up under the Companies Act, 2013, Nidhi companies also need to follow regular legal filings, including:

Annual Return (Form MGT-7/7A): This must be filed with the MCA within 60 days from the date of the Annual General Meeting. It includes details about the company’s shareholders, directors, and overall management structure.
Financial Statements (Form AOC-4): Filed every year with the MCA, including the balance sheet, profit and loss account, and the auditor's report. It must be filed within 30 days from the date of the AGM.
Board Meetings: You must hold at least four Board meetings in a calendar year, with no more than 120 days between any two meetings, to ensure active leadership.
General Meetings: An Annual General Meeting (AGM) must be held once every calendar year, within six months of the financial year's end, to present financial results to members.