A Nidhi Company is a community of people who come together for mutual financial support. Members of a Nidhi Company have the privilege to both lend and borrow money within the group.
This type of company falls under the non-banking financial sector. Its main goal is to encourage its members to save money regularly. The saved money can then be used wisely for future investments. The Reserve Bank of India (RBI) oversees the financial activities of Nidhi Companies. Additionally, they are regulated by the Ministry of Corporate Affairs in India.
By fostering a culture of saving, Nidhi Companies play a significant role in helping individuals manage their finances better. They provide a safe platform for members to save and access funds, making them valuable to the financial community.
Key Rules and Regulations for Nidhi Companies in 2023
Nidhi Companies are unique financial entities that operate under specific rules to ensure they function correctly and benefit all members. Here’s a simplified breakdown of these rules:
- Type of Company: A Nidhi Company must be a public limited company. It cannot operate as a private entity.
- Financial Contribution: Each member must contribute a minimum of ₹5 lakh as equity share capital.
- Share Issuance: As per the Companies Act of 2013, Nidhi Companies are not allowed to issue preference shares to their members.
- Objective in Memorandum: The company must state that its funds are dedicated to cultivating saving habits and fostering investments among members. These funds should be used exclusively for lending to and borrowing from its members.
- Company Naming: The name of a registered Nidhi Company must end with “Nidhi Limited“.
- Membership and Management: To start a Nidhi Company, there must be at least seven members, including three directors. After one year of operation, the company should have at least 200 members.
These regulations are designed to promote a culture of saving and prudent financial management among the members of Nidhi Companies, ensuring a secure and beneficial environment for all involved.
Nidhi Company: What You Can and Cannot Do
A Nidhi Company is a special type of company in India. It’s made for people to help each other with money. But there are some important rules about what it can’t do:
- No Ads: First, a Nidhi Company isn’t allowed to advertise. It can’t tell people about itself, not even through someone else.
- Bank Account Rules: If you’re part of a Nidhi Company, you can’t have a current bank account in its name.
- Only for Members: Also, the company can only deal with its members. It means it can’t take money from or lend money to anyone outside the company.
- Business Limits: There are certain businesses a Nidhi Company can’t do. It can’t run chit funds, give out leases, deal with securities, or hire purchase financing. It’s all about helping its members save and borrow money from each other.
- No Middlemen: Lastly, a Nidhi Company can’t use brokers to handle any deposits.
These rules make sure that Nidhi Companies stay true to their purpose: to make saving and borrowing among friends safe and easy. It’s all about trust and helping each other out in a simple way.
Essential Documents for Nidhi Company Registration
When you’re setting up a Nidhi Company, you need to have some important papers ready. Here’s what you’ll need:
- ID Proof: Every shareholder and director must provide a valid ID proof.
- Office Address: You need to show where your company’s office is located.
- Home Address: The place where all the shareholders and directors live must be proven too.
- Aadhar Card: All company members need to have an Aadhar card.
- Photos: And don’t forget, you’ll need passport-sized photos of everyone involved.
These documents are key to making sure your Nidhi Company starts on the right foot. They help prove who’s who and keep everything official.
Starting and Shutting Down Branches of a Nidhi Company
Opening a Branch:
- A Nidhi Company can open a new branch only if it has made a profit for the last three years after tax.
- In the district where the company operates, up to three branches are allowed. If you want more, you need permission from the Regional Director.
- Branches can’t be opened under different names or outside the state where the company is registered.
- All financial statements and annual returns must be filed before opening any new branches. Tax exemptions for Nidhi Companies are also something to consider.
Closing a Branch:
- To close a branch, you must advertise in a local newspaper 30 days before closing. The ad must be in the local language.
- The closing notice should also be displayed on the office’s notice board for 30 days.
- The Registrar needs to be informed about the closure 30 days in advance too.
Giving Loans:
- Loans are only for Nidhi Company members. There are rules for how much can be loaned based on the member’s deposits.
- For a ₹2 lakh loan, the member’s deposit must be less than ₹2 crores.
- For a ₹7.5 lakh loan, the deposit should be more than ₹2 crores but less than ₹20 crores.
- A ₹12 lakh loan requires a deposit of more than ₹20 crores but less than ₹50 crores.
- For a ₹15 lakh loan, the deposit must be over ₹50 crores.
- If someone doesn’t pay back a loan, they can’t get another one. Loans against property can only be half the property’s value.
- Loans can be secured with gold, silver, or jewellery, but only up to 80% of their value, and they must be paid back in a year.
- Loans can also be against government securities, national savings certificates, and fixed deposits. The payback time for fixed deposits is the remaining time on the FD.
- The interest rate for loans can’t be more than 7.5% above the interest the Nidhi Company gives on deposits. It’s calculated using the reducing balance method.
Director’s Tenure and Penalties in Nidhi Companies
Director’s Role Duration:
- A director of a Nidhi Company must lead for **ten straight years**.
- If they stop being a director, they need to wait **two years** before they can be eligible again.
- They must follow the rules set in the **Nidhi Rules, 2014**.
- If the government lets them stay longer, they can only stay until that extra time is up.
Fines for Rule Breaking:
- If a director breaks the Nidhi Rules or the Companies Act of 2013, they might have to pay up to ₹5,000.
- If the company disagrees with the director’s actions, the director could be fined ₹500 every day until they fix the issue.
Legal Help:
- For legal advice, you can check out Our Website. They have a guide on starting a Nidhi Company that could be helpful.