Ideal for borrowing and lending among family and friends
(Takes 30-40 days)
A corporation is referred to as a "Nidhi company" if it only manages "deposits from and loans to" its members (shareholders) and acts in their best interests.
As a result, a "Nidhi Company" has been granted some exemptions with regard to annual compliances and tax assessment.
The Companies (Nidhi Companies) Rules of 2014, Chapter XXVI of the Companies Rules of 2014, and Section 406 of the revised "Companies Act, 2013" govern the formation, administration, and control of Nidhi Companies in India.
A Nidhi Company's incorporation is intended to promote savings among its participants. Only members of Nidhi firms are permitted to "deposit from and lend to" them. In the end, the assets that are added to a Nidhi firm come specifically from its members and are to be used exclusively by the Nidhi firm's investors. The word "Nidhi" in Nidhi Company means "treasure" and has Hindi linguistic roots.
A particular type of NBFC is the Nidhi Company. Despite not being directly controlled by the RBI, it nonetheless has the authority to provide them instructions regarding their deposit acceptance activities. Additionally, these "Nidhi companies" are free from the RBI Act's basic rules as well as additional NBFC-specific directives because they exclusively interact with their members (shareholders). As a result, a Nidhi Company is the ideal legal entity to accept a "deposit from and loan to" a certain group of members.
All the provisions pertaining to the formation and management of a Nidhi Company in India are covered under Section 406 of the "Companies Act, 2013" and the Companies (Nidhi Companies) Rules of 2014.
The RBI also provides guidelines and norms for the Nidhi Companies. These are mostly connected to financial operations and investments made by businesses, especially NBFCs.
Loans made through a Nidhi Company have very reasonable interest rates. The advances are, in a sense, made against security. When compared to deposits in the organised banking industry, Nidhi deposits do not yield as much interest. The Nidhi Companies' only lenders and only borrowers are its members. As a result, these organisations also make reference to Mutual Benefit Societies. A Nidhi Company is the finest option if you want to start a business in India that deals with finance or advances.
The fundamental reason for establishing a Nidhi Company is to encourage its members to preserve money so they may readily meet any financial needs that may occasionally arise. Being frugal makes them independent and able to cover any additional costs. The benefits of having a firm classified as Nidhi don't stop here, either.
The creation of a Nidhi Company has several positive advantages. Here are a few examples:
It's important to remember a few things regarding how Nidhi Companies operate in India, as stated in Rule 6 of the Nidhi Rules of 2014:
Although enrolling a Nidhi Company is a simple process. Even yet, seeking professional assistance to complete various forms and submit them on time is advised. With more than 7 years of experience in the industry and the successful incorporation of more than 500 Nidhi Companies, LegalRaasta is also an expert in Nidhi Company Incorporations. India is the location of all of our operations.
First, the Nidhi Company's Directors must apply for a DIN (Director's Identification Number) and a DSC (Digital Signature Certificate).
The MCA issues DINs, and DSCs are digital signatures utilised throughout the entire e-filing process. For Directors who possess both DIN and DSC, this phase may be bypassed.
You currently have to choose and recommend three different names to MCA for your Nidhi Company. Only one of these three names will be accepted by MCA for your company. The suggested names must be unique and distinct from the names of currently enlisted organisations. Rule 8 of the Companies Act states that the confirmed name will be valid for 20 days.
These must outline the primary reason for forming a Nidhi firm.
The "MoA and AoA" must be submitted with a subscription statement to the ROC (Registrar of Companies).
To construct a Nidhi company and obtain the certificate of incorporation, it takes 15 to 25 days. This document declares the formation of an organisation and includes the corporate identification number (CIN).
Finally, you must submit applications for both "PAN and TAN". Typically, it takes 7 working days to get the PAN and TAN. Later, you must submit the "Certificate of Incorporation, MoA, AoA, and PAN" to the bank in order to open a bank account.
The MCA incorporates a Section 8 Company.
There must be compliance with the requirements of the Companies Act of 2013, such as the required minimum of Directors and Shareholders.
Article 8 Only non-benefit goals can be the focus when building a company. This company is not allowed to distribute any income or benefits it receives to its employees.
This implies that the salary will either be put back into the company or utilised to advance its core values, such as charity causes.
The activities of Section 8 Companies are supervised by the Board of Directors in accordance with their MoA and AoA, unlike other Trusts that are represented by the Trustees in accordance with a Trust Deed.
Must adhere to the recommendations made by the 2013 Companies Act. keeping up with bookkeeping, filing returns, doing audits, holding board meetings, etc.
A Section 8 Company won't implement any changes to the terms of its MoA and AoA without first seeking the Central Government's approval.
Depending on how many shares they own, shareholders of a Section 8 Company have different voting rights. similar to that of another organisation
The Company must abide by the rules of the Income Tax Act.
In the unlikely event that Section 8 Company is subject to the provisions of the GST Act, it must register with the GST.
It cannot switch to a different organisational structure without abiding by the rules, as material
The prerequisites for registering or conducting business as a Nidhi Company are listed below.
Minimum number of shareholders or members – 7
Minimum number of Directors -3
The required minimum capital is Rs. 5 lakhs.
DIN for Directors
Minimum 3 Directors.
Preference Shares won't be issued at all.
By accepting deposits from and making loans to its members only for their mutual interests, the company's goal is to encourage the saving habit.
The Nidhi Company must have at least 200 members or shareholders before the end of the first year.
NOF should be more than Rs. 10 lakhs.
More than 1:20 should be used as the ratio between NOF and Deposit.
Deposits that aren't obligated should be more than 10% of total deposits.
Here, we can grasp the rules that apply to loans and deposits made to the Nidhi Company.
The three sorts of deposits that a Nidhi firm will accept are as follows. These three types of deposits are "savings deposit, fixed deposit (FD), and recurring deposit."
On FD and RDs, Nidhi may provide a maximum interest rate of 12.5%, and on savings accounts, 6%.
Nidhi may deposit up to 20 times the amount of the first investment.
Nidhi Companies' loans can be secured by one of three types of securities. Loans may be given in exchange for "Gold, Property, Others (LIC, FD, etc.)."
A Nidhi Company cannot operate a microloan business but may lend it money with a 20% interest rate in exchange for security.
If a member refuses to pay back any amount of money, it may pursue legal action.