Nidhi Company Compliance
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Overview of Nidhi Company Compliance
Updated on December 31, 2022 04:39:28 PM
Nidhi Company, categorized as a Non-Banking Financial Company (NBFC), is often referred to as a Mutual Benefit Finance Company due to its advantageous features. It operates under the provisions outlined in the Nidhi Rules 2014 and the Companies Act 2013.
According to Section 406(1) of the Companies Act, 2013, a Nidhi Company is defined as “A company incorporated with the objective of promoting thrift and savings among its members, accepting deposits from, and lending to, its members only for their mutual benefit.”
Nidhi Company compliance involves adhering to statutory regulations outlined in the aforementioned laws. With its focus on fostering a culture of thrift and savings, Nidhi Company is an attractive option for those interested in the lending business with minimal capital investment.
Benefits of Nidhi Company Registration
Nidhi Company offers an easy formation process, requiring a minimum of 7 persons, with 3 appointed as Directors. The registration is hassle-free and typically takes 10-15 days to complete. Moreover, the registration costs are efficient, with a minimum capital requirement of Rs 5,00,000. This capital can be invested within 2 months of registration.
One of the significant advantages of Nidhi Companies is that they do not require approval from the Reserve Bank of India (RBI), despite falling under the category of Non-Banking Financial Companies (NBFCs). Instead, Nidhi Rules, 2014 govern their activities and operations.
Nidhi Companies provide a high level of certainty for investors as their primary objective is to encourage savings among members. This makes them an attractive long-term investment option. Additionally, the level of risk involved in Nidhi Companies is minimal due to their focus on accepting deposits and providing loans to members as per Nidhi Rules 2014. Loans are offered at favorable rates, making it a trustworthy and secure method of lending.
Pre-Incorporation Compliances of Nidhi Company
Key compliance requirements for Nidhi Companies include:
Formation by a minimum of seven members, with at least three appointed as Directors.
Pre-Incorporation Compliances of Nidhi Company
Necessary compliances to be followed are:
- Minimum of seven members can form a Nidhi Company out of which three are appointed as Directors of the company
- Nidhi Company can come into existence with a minimum share capital of Rs 5, 00,000.
- In case preference shares are issued they are to be redeemed as per the same terms of the issue.
- A minor cannot considered as the member of Nidhi Company
- Company must have “Nidhi Limited” in its name.
- Minor cannot be a member of a Nidhi Company
- A trust or a corporate body cannot be the member of Nidhi Company
- Can’t acknowledge the store of over 20% of Net Owned Funds.
- Nidhi Company can’t open branches in case it fails to earn any profit after assessment for sequential three money related years.
- The rate of interest on the credit will not surpass 7.5% over the most noteworthy pace of intrigue offered on deposits.
Post-Incorporation Compliances of Nidhi Company
- The number of members should not be less than 200 within one year of its incorporation
- The Net possessed Fund ought to be Rs. 10 lakh or more.
- The proportion of Net-possessed Funds to the stores must not surpass 1:20.
- As mentioned in Rule 14 of the Nidhi Rules, 2014, the stores ought not be under 10% of the outstanding deposits.
- Support of Books of Accounts.
- Keep up the legal Registers.
- Gather Statutory Meetings.
Minimum share capital of Rs 5,00,000 to establish a Nidhi Company.
Redemption of preference shares in accordance with the terms of issue.
Exclusion of minors as members of the Nidhi Company.
Inclusion of “Nidhi Limited” in the company’s name.
Prohibition of trusts or corporate bodies as members.
Limitation on accepting deposits to not exceed 20% of Net Owned Funds.
Prohibition on opening branches if the company fails to generate profits for three consecutive financial years.
Imposition of interest on loans not exceeding 7.5% over the highest interest rate offered on deposits.
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On average, it takes around 7-10 working days to register a private limited company in India subject to document verification by MCA.
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