A Complete Guide to Nidhi Company

Introduction- Nidhi Company

“Nidhi” is defined as a company which has been incorporated as a Nidhi Company with the following objectives:

• To cultivate the habit of thrift and savings amongst its members,
• For their mutual benefit,
• To receive deposits from, and lending to, its members only, and
• Complying with rules prescribed by the Central Government for the regulation of such class of companies.

Nidhi Company Registration being like the public limited company needs to comply with two sets of norms, i.e. Public limited company as per the Companies Act, 2013, and Nidhi rules, 2014. The regulation of Nidhi company is under the Ministry of Corporate Affairs. In matters related to their acceptance and of deposit, Reserved Bank of India is empowered to direct them.

Applicability of Nidhi Company Rules

Central Government issued the Nidhi Rules 2014, in the exercise of powers conferred under Section 406 read with Section 469 of the Companies Act, 2013, which came into force on the 1^st day of April 2014. The applicability of these rules are explained below:

• Every Nidhi company or Mutual Benefit Society, under sub-section (1) of Section 620A of the Companies Act, 1956;

• Every company, functioning on the lines of a Nidhi company or Mutual Benefit Society but has either not applied for or has applied for and is awaiting notification to be a Nidhi or Mutual Benefit Society under sub- Section (1) of Section 620 A of the Companies Act, 1956; and

• Every company, incorporated as a Nidhi under the provisions of Section 406 of the Act.

Post Registration Requirement

The post requirements of Nidhi company for the minimum number of members, net owned funds, etc are provided under Sub-Rule (1) of Rule 5 of the Nidhi Rules, 2014 as follows;

A Nidhi company needs to ensure within a period of one year from the commencement of Nidhi Rules that it has:

• Members not less than 200,

• Net Owned Funds of ten lakh rupees or more,

• Unencumbered term deposit of not less than 10 percent of the outstanding deposits as specified in rule 14;

• The ratio of Net Owned Funds to deposits of not more than 1:20.

Incorporation of Nidhi Company

The following is some brief about the incorporation of Nidhi company:

• Several members- Minimum seven members are required to start a Nidhi company, out of which three must be directors of the company.
• Share Capital and Owners Fund- The equity share capital to start a Nidhi Company is a minimum of five lakhs and it cannot issue preference share.
• Documents necessary for Registration:
  • Proof of the registered place of business (Ownership documents/ rent or lease agreement)
  • No Objection Certificate (signed by the owner/ landlord)
  • Identity proofs
  • Address proofs of the members
  • Photos of the members
  • PAN card copies of the members
  • Digital Signature (DSC)
  • Director Identification Number (DIN) of the directors
  • Memorandum of Association of the company (MoA)
  • Articles of Association of the company (AoA)
• Submission of Form:
  • INC9- To be filed by all the subscribers to the Memorandum of Association
  • DIR2- To be filed by all the Directors of the Company. Declaration as per Rule 5 and 6 of Nidhi Rules 2014 – to be signed by all the subscribers.

Also Read : Procedure of Nidhi Registration and documents required

What are Net Owned Funds?

Net owned funds are the aggregate of paid-up equity share capital and free reserves as reduced by the accumulated losses and intangible assets that appear in the last audited balance sheets. It is important to note that to calculate Net Owned Funds, the amount representing the proceeds of the issue of preference shares shall not be included for calculating Net owned funds.

Further, Sub-Rule (3) of Rule 5 provides the procedure to be followed in case the members are less than 200 or/and the ratio of Net owned funds to deposits is more than 1:20. It provides that in such cases, the company shall within 30 days from the close of the first financial year, apply to the Regional Director in Form NDH-2, with fees as specified in Companies (Registration Offices and Fees) Rule, 2014 asking for the time extension. The Regional Director after considering the application shall pass orders within 30 days of such receipt of application.

Acceptance of Deposits by Nidhi Company

It is of importance to note that a Nidhi company shall not accept deposits which are exceeding 20 times of its Net owned fund as per its last audited financial statement.

Every company declared as a Nidhi or Mutual Benefit Society under section 620A(1) of the Companies Act, 1956 and the companies functioning on the lines of Nidhi company or mutual benefit society, but either didn’t apply or has applied and awaiting notification, and existing on or before 26th July 2001 and which have accepted deposits over aforesaid limits. the same shall be restored to the prescribed limit by increasing the Net Owned Funds position or by reducing the deposit as guided below:

a) If the ratio of Net Owned Funds to Deposits (as on 31.3.2013) is more than 1:20 but up to 1:35, the date by which the company has to achieve the prescribed ceiling of 1:20 is by 31.03.2015.

b)If the ratio of Net Owned Funds to Deposits (as on 31.3.2013) is more than 1:35 but up to 1:45, the date by which the company has to achieve the prescribed ceiling of 1:20 is by 31.03.2016.

c)If the ratio of Net Owned Funds to Deposits (as on 31.3.2013) is more than 1:45, the date by which the company has to achieve the prescribed ceiling of 1:20 is by 31.03.2017.