Formation of a Nidhi Company

Nidhi companies are a special type of non-banking financial company (NBFC) in India that promote the habit of thrift and savings among their members. These companies are primarily involved in borrowing and lending money among their members, functioning on the principle of mutual benefit. Governed by the Companies Act, 2013, and Nidhi Rules, 2014, Nidhi companies offer a legal and secure platform for individuals to pool their resources, invest in savings, and provide financial assistance to each other. If you are interested in forming a Nidhi company, this guide will take you through the essential steps involved and the legal requirements.

What is a Nidhi Company?

A Nidhi company is a non-banking financial institution (NBFC) that is specifically designed to promote savings and lend money to its members. Unlike other NBFCs that deal with the general public, Nidhi companies only provide services to their members, and no external involvement is allowed. These companies operate within a closed group and aim to inculcate the habit of saving while offering financial assistance to members who need loans.

Nidhi companies do not require registration with the Reserve Bank of India (RBI) like other NBFCs. However, they must follow the rules and regulations set forth by the Ministry of Corporate Affairs (MCA) under the Nidhi Rules, 2014.

Key Features of Nidhi Companies

1. Member-Only Operations: Nidhi companies can only accept deposits and offer loans to their registered members, making them exclusive to their community.
2. Encourages Thrift: The primary goal of a Nidhi company is to encourage the habit of saving among its members and provide financial support.
3. No External Control: Nidhi companies cannot engage in any business other than lending and borrowing within their membership base.
4. Regulated Loan Limits: The loans provided to members are regulated, and the interest rates charged are capped by law to prevent exploitation.
5. No Outside Borrowing: Nidhi companies cannot raise funds from sources other than their members.

Eligibility Criteria for Forming a Nidhi Company

Before initiating the incorporation process, it’s essential to ensure that your company meets the following eligibility criteria:

1. Minimum number of members: A Nidhi company requires at least seven members, out of which three must be directors.
2. Capital requirement: A minimum of ₹5 lakh is needed as initial capital for forming a Nidhi company.
3. Unique name: The company’s name must include the term “Nidhi Limited” and should not closely resemble any existing company name.
4. Membership growth: The company must have at least 200 members within its first year of operation.
5. Net owned funds: The ratio of net owned funds to deposits should not be less than 1:20.

Step-by-Step Process for Forming a Nidhi Company

1. Obtain Digital Signature Certificates (DSC)

The first step in forming a Nidhi company is to obtain DSCs for all proposed directors. These digital signatures are required to file online documents with the Ministry of Corporate Affairs (MCA). You can obtain a DSC from certified agencies authorized by the government.

2. Apply for Director Identification Number (DIN)

Each director must obtain a Director Identification Number (DIN) from the MCA. This unique identification number is necessary for any individual to serve as a director in any company in India. You can apply for DIN by filling out the e-form DIR-3 and providing the necessary identification documents.

3. Reserve the Company’s Name

The next step is to reserve a unique name for your Nidhi company. You can apply for a company name through the RUN (Reserve Unique Name) service provided by the MCA. The name must end with "Nidhi Limited" and adhere to the guidelines set by the Companies Act, 2013.

4. Prepare the Memorandum of Association (MOA) and Articles of Association (AOA)

The MOA and AOA are crucial legal documents for the formation of a Nidhi company. The Memorandum of Association defines the company's objectives, such as promoting savings and financial self-help among members. The Articles of Association specify the internal rules and governance policies of the company. These documents must be drafted in accordance with Nidhi Rules, 2014.

5. Filing of Incorporation Forms

Once the name is approved, and the MOA and AOA are prepared, you can proceed with the filing of incorporation forms with the MCA. You will need to file the following forms:

• Form SPICe+: This is an integrated web-based form used for company incorporation. It includes forms for applying for incorporation, PAN, and TAN.
• Form INC-33 and INC-34: These are electronic forms used to file the MOA and AOA, respectively.

Ensure that all documents are correctly filled out and attach necessary identification proofs of the directors and shareholders.

6. Issue of Incorporation Certificate

Once the MCA verifies and approves the application, they will issue a Certificate of Incorporation for your Nidhi company. The certificate includes the company’s Corporate Identification Number (CIN), and the company officially comes into existence from this date.

7. Post-Incorporation Compliance

Formation of Nidhi company must comply with certain requirements within its first year of operation:

1. Membership: The company must have at least 200 members within one year.
2. Net owned funds: The company’s net owned funds must increase to ₹10 lakh.
3. Deposit limits: The company can accept deposits up to 20 times its net owned funds.

Additionally, annual filings and financial statements must be submitted to the MCA, and the company must adhere to all other regulations set by Nidhi Rules, 2014.

Benefits of Forming a Nidhi Company

1. Promotes Savings: Nidhi companies foster a savings culture and help members achieve financial stability.
2. Limited Liability: Members enjoy limited liability, meaning their personal assets are protected in case of the company’s losses.
3. Lower Risk: Since loans are only provided to members, the risk of default is minimized.
4. Simple Structure: Nidhi companies are simpler to manage compared to other NBFCs, given their narrow scope of operations.

Conclusion

The formation of a Nidhi company offers a structured and legally sound way to promote financial self-reliance and savings among members. While the incorporation process involves multiple steps and compliance requirements, the benefits of creating a Nidhi company—particularly in fostering mutual financial support—make it an appealing option for those looking to create a community-focused financial organization. By adhering to the legal framework and maintaining transparency, Nidhi companies can thrive and help members achieve their financial goals.