What is Nidhi Company?

1. A Nidhi Company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013.

2. Their core business is borrowing and lending money between their members. It is also considered as alternate for financing business.Nidhi Company is a close substitute for credit co-operative society.

3. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company. They are regulated by Ministry of Corporate Affairs.

4. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities.

5. Nidhi means a company which has been incorporated with the object of developing the habit of thrift and reserve funds amongst its members and also receiving deposits and lending to its members only for their mutual benefit.

6. Nidhi Company does not require a license of Reserve Bank of India.

7. Nidhi companies are more popular in South India, and 80% of Nidhi companies are located in Tamil Nadu.

2. How it Works.

1. The rules of funding in a Nidhi company is done through the contribution of its forming members.

2. Later that money is used to offer loans to its own members according to their needs at very reasonable rates.

3. The funds or deposits of a Nidhi company are limited when compared with other banks because they are only able to operate their as they will be working with specific fund base in a limited area.

4. Some Following functions are done like providing loans to its members, collects deposit from its member, loans are focused to the limits of funds raised by the member.

5. The purpose of Nidhi Company is to give growth and support to small scale companies and tell them about habit of saving and working for the benefit of their own members by lending, receiving deposits etc.

3. Procedure of Incorporation.

A. Name Approval in ‘RUN’ facility

The Applicants are required to file name availability in RUN facility of MCA portal. Every Company proposed to be incorporated as a “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name. Now, one doesn’t require digital signature of applicant for name availability.

B. Obtaining Digital Signature Certificate (DSC)

The proposed Directors who may also be the Promoters/Applicants of Nidhi Company have to obtain Class 2 DSC.

C. File form SPICe PLUS/SPICE MOA/SPICE AOA

After the name approval, File form SPICePLUS with following attachments for incorporation of Nidhi Company.

PAN Card of subscribers

Id Proof of First Directors

Address Proof of First Directors

Address Proof of Registered Office (Rent Agreement/Sale Deed)

Latest Utility Bill of Registered Office (Electricity/Telephone/Gas)

NOC of Owner of Registered Office

Consent and Declaration from first Director in form DIR-2

Self Declaration from First Directors and Subscribers in form INC-9

4. Benefits.

1. Liability is Limited: Liability of Directors and shareholders of the Nidhi Company is limited. In case the company suffers from any loss and faces financial distress in the course of its business activity, the personal assets of any of the Directors or members are not at risk of being seized by banks, creditors, and government.

2. Less Regulations: Nidhi companies are governed under the Nidhi Rules, 2014. The Central Government is the regulating authority controlling its activities and operating. Guidelines imposed by the RBI on Nidhis are very few.

3. Better Credibility: Nidhi companies enjoy better credibility as opposed to any other members based organizations like Trusts, Cooperative Societies or NGOs.

4. Better Option for Savings: The main purpose of Nidhi Company’s incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves the other goal of its registration of being mutually beneficial. The Nidhi Companies are to lend and borrow money to and from its shareholders/members only.

5. Easy Access of Public Funds: The loans from the Nidhi Company come at a cheaper rate than loans from banks and other NBFCs for its shareholders. And the process of obtaining the loan and customized services are much moreconvenient and quicker.