All about Nidhi company

In India, Nidhi companies are established to cultivate the habit of savings and thrifts among all its members.  These companies can borrow money from its members and also lend to them as and when required. Hence, the funds contributed for Nidhi company is only from its shareholders (members). When compared to banking segment, these companies are stated to be minute and used mainly to develop savings among certain group of people. 

An overview

It is as registered limited companies that they are registered as and involve borrowing and lending money to members. The RBI does not take care of the activities of such companies, since it is quite similar to the NBFC. But these companies deal only with money of its shareholder members. As a matter of fact, such companies have been exempted from RBIs core provisions and other NBFC applicable regulations. 

What are the limitations?

Few restrictions of the Nidhi Company are given below subject to 2014 Nidhi Rule. According to the Rule 6, any Nidhi company is not to:

• Issue debentures, debt instrument or preference shares in any form or by any name.
• Carry chit fund business, leasing finance, hire purchase finance, acquisition or insurance of securities that are issued by any specific body corporate.
• Acquire another company through control of Board of Director composition of the other company or purchase of securities for management change, unless special resolution has been passed in the general meeting as well as obtaining previous Regional Director approval of having jurisdiction over Nidhi. 
• Open up current account with members. 
• Accept deposits or lend to any person besides its members
• Carry on business besides the business of lending or borrowing with its own name. Also the Nidhis are to adhere to all provisions given under the rule to offer rented locker facilities to its members, but subject to rental income from facilities which is not to exceed 20% of gross income of Nidhi during financial year at any time. 
• Lend money or take deposits from any corporate body.
• Pledge any assets that are lodged as security by its members. 
• Cause to get issued or issue any kind of advertisement of any form to solicit deposit, provided private circulation of fixed deposit detailed schemes among Nidhi members carrying terms ‘for member private circulation only’ are not to be taken into consideration as solicit deposit advertisement. 
• Enter partnership agreement in lending or borrowing activities. 
• Pay incentive or brokerage to mobilize member deposit or grant loans or deploy funds.

Nidhi company registration

For nidhi company registration in Indias,, the very first step involved is to incorporate Limited Co. under 2013 Companies Act. To start Limited Co. incorporation procedure, there will be required 7 shareholders and 3 Directors. During Nidhi co. incorporation, care should to taken to make sure that Limited Company object is mentioned within MOA to cultivate habit of savings and thrift among its members, to lend and receive deposit to members only for mutual benefits.