Procedure for incorporation of Nidhi Company
How to incorporate Nidhi company
Nidhi Company is incorporated under the provisions of Section 406 of the Companies Act, 2013 and Nidhi Rules, 2014.The formation of Nidhi Company to done in type of Limited Company. It enjoys the advantages of Non- Banking Finance Companies without obtaining licensing approval of Reserve Bank of India. The main function of Nidhi Company to borrow from its members and lend money to its members.
Nidhi Company as defined in Companies Act, 2013.
Power to Modify Act in its Application to Nidhi 406
- In this section, “Nidhi” or “Mutual Benefit Society” means a company which the Central Government may, by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the case may be.
- The Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act specified in the notification—
- shall not apply to any Nidhi or Mutual Benefit Society; or
- shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications and adaptations as may be specified in the notification.
- A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft before each House of Parliament, while it is in session, for a total period of thirty days, and if, both Houses agree in disapproving the issue of notification or both Houses agree in making any modification in the notification, the notification shall not be issued or, as the case may be, shall be issued only in such modified form as may be agreed upon by both the Houses
- In reckoning any such period of thirty days as is referred to in sub-section (3), no account shall be taken of any period during which the House referred to in sub-section (3) is prorogued or adjourned for more than four consecutive days
- The copies of every notification issued under this section shall, as soon as may be after it has been issued, be laid before each House of Parliament.
BASIC INFORMATION (NIDHI COMPANY) |
S No. | Name | Nidhi Company |
1 | Section | 406 of the Companies Act, 2013 effective from 01.04.2014 |
2 | Rule | Nidhis Rules, 2014 effective from 01.04.2014 |
3 | Suffix allowed | Nidhi Limited |
4 | Status | Always incorporated Public Company |
5 | Share Capital | Incorporated only with Equity Share Capital, Nidhi Company Cannot issue Preference Share capital |
6 | Minimum Paid Up Equity Capital | Rupees 5,00,000 |
7 | Object | No Nidhi shall have any object other than the object of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit |
8 | Sector | Non Banking Finance Sector |
9 | Any approval | No RBI approval is required as RBI has specifically exempted this category of NBFC in India to comply its core provisions such as registration with RBI etc |
10 | Comply | Comply with Section and rules of Nidhi Company along with Provisions regarding Public Company |
11 | Exemption | Notification dated 05 June 2015 |
12 | General Restrictions or Prohibitions | 1. Continuing business of chit fund, insurance, hire purchase finance or acquisition of securities by any corporate body 2. The issue of debentures or any other debt by any name or in any form 3. Current accounts with its members 4. lend or deposit money to other members other than the Nidhi members 5. Making a partnership arrangement in its borrowing or lending 6. Pay any brokerage or incentives for mobilizing deposits from members 7. Carry any business other than the business of borrowing or lending 8. Acquire any other companies by the purchase of securities 9 pledge any of the assets lodged by its members as security 10. take deposits from or lend money to any body corporate 11. issue or cause to be issued any advertisement in any form for soliciting deposit |
13 | Nominal Value | Not less than Rs 10/- each |
14 | Minimum Shares to be subscribed | 10 Equity Shares of Rs 10/- each for other 1 Equity Share of Rs 10/- each for savings account holder and a recurring deposit account holder |
15 | Prohibition regarding Membership | Body Corporate, Minor except made by the natural or legal guardian who is a member of Nidhi, Trust |
16 | Branches | 1. Earned net profits after tax continuously during the preceding three financial years. Subject to up to three branches within the district. 2. If need to open more than three branches within the district or any branch outside the district, Required prior permission of Regional Director |
17 | Restriction on opening Branches | 1. Branches outside State where its registered office is situated. 2. If financial statement and annual return (up to date) are not filed with the Registrar. |
18 | Acceptance of Deposits | Deposits not exceeding twenty times of its Net Owned Funds (NOF) as per its last audited financial statements. |
19 | Period of Deposits | 1. Fixed Deposit – 6 to 60 Months 2. Recurring Deposit – 12 to 60 Months 3. Recurring deposits relating to mortgage loans – Maximum Period corrospond to repayment period of Loans 4. Maximum Balance in Saving deposit account shall not exceed Rs 1 Lakh at any point of time |
20 | Rate of interest to be given | 1. Saving account – Not exceed 2% above rate payable on Saving account by nationalised Banks viz. 9% 2. Fixed or Recurring – Maximum rate of interest which NBFC can pay on their public deposits viz. 12.5% |
21 | Rate of interest to be received | Not exceed 7.5% above the highest rate of interest offered on deposits by Nidhi and shall be calculated on reducing balance method viz. 20% |
22 | Dividend | A Nidhi shall not declare dividend exceeding 25% or Such higher amount as may be specifically approved by the Regional Director for reasons to be recorded in writing and further subject to the following conditions- An equal amount is transferred to General Reserve; There has been no default in repayment of matured deposits and interest; and It has completed with all the rules as applicable to Nidhis. |
23 | Foreclosure of account | Foreclosure of fixed deposit account or a recurring deposit account by the depositor subject to following conditions – Nidhi shall not repay any deposit within a period of three months from the date of its acceptance; – where at the request of the depositor, a Nidhi repays any deposit after a period of three months, the depositor shall not be entitled to any interest up to six months from the date of deposit; – where at the request of the depositor, a Nidhi makes repayment of a deposit before the expiry of the period for which such deposit was accepted by Nidhi, the rate of interest payable by Nidhi on such deposit shall be reduced by two per cent. from the rate which Nidhi would have ordinarily paid, had the deposit been accepted for the period for which such deposit had run: |
24 | Loans | Nidhi shall provide loans only to its Member subject to following limits:- 1 total deposits of Nidhi from Members is less than 2 Crore Rupees – Rs 2 Lakh 2. total deposits of Nidhi from Members is More than 2 crore but less than 20 Crore – Rs 7.50 Lakh 3. total deposits of Nidhi from Members is More than 20 crore but less than 50 Crore – Rs 12 Lakh 4. total deposits of Nidhi from Members is More than 50 Crore – Rs 15 Lakh Conditions:- – Not make any fresh loans exceeding fifty per cent. of the maximum amounts of loans specified in clauses (1), (2), (3) or (4) if Nidhi has not made profits continuously in the three preceding FY – In case of default in repayment of loan, member shall not eligible for further loan |
25 | Security furnished members against loans | 1. Gold, silver and jewellery, repayment period not exceed one year. 2 immovable property subject to fifty per cent of the overall loan outstanding on the date of approval by the board, repayment period not exceed 7 years. 3. fixed deposit receipts, National Savings Certificates, other Government Securities and insurance policies |
26 | Director | Director – shall be member of Nidhi – shall hold office for a term up to ten consecutive years on the Board of Nidhi. – Shall be eligible for re-appointment only after the expiry of two years from the date of expiry of ten years period. |
27 | Auditor | No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of 5 years and audit firm for more than two terms of five consecutive years; They are eligible for subsequent allotment after the expiration of two years |
28 | Penalty for Non Compliance | Company and Every officer – Rs 5,000 In case of continuing failure – Rs 500 for every day |
INCORPORATION OF NIDHI COMPANY (SECTION 406 OF THE COMPANIES ACT 2013)
S No. | Name of Activity | Documents Execution | Information/Documents required from Client | Requirement | Limitation period |
1 | Name Application in RUN | Declaration regarding compliance of provisions of Concerned regulator | 1. Any 2 Proposed names of Company 2. Proposed Object of the Company 3. Significance of Coined word | Approved name shall be available for 20 days | |
2 | Incorporation in SPICE, SPICE MOA and SPICE AOA | 1. INC-9 2. DIR-2 3. Undertakind regarding NBFC Business 4. Preparation of object Clause 5. Declaration regarding Compliance of (rule 4, 5, 6 and 10 of Nidhi Rules, 2014) | For Incorporation, required following information for each subscriber/Director 1. Self Attested PAN 2. Self Attested Aadhaar (Not Required if having updated DIN) 3. Self Attested Latest Bank Statement having Name & Address of Individuals (Not Required if having updated DIN) 4. Mobile Number 5. Occupation 6. Email ID 7. Education Qualification 8. Place of Birth 9. Duration of stay at present address (if duration is less than one year, then previous address with proof) 10. Capital Bifurcation 11. Correspondence Address 12. DSC of all subscriber Documents required for regd office: 1. Copy of Registry & NOC (if own by director/subscriber)’ or 2. Copy of Lease/rent deed; and 3. Copy of utility Bill of Office location (Mobile/Gas/Electricity/Landline) not older than 02 months. | Minimum 3 Directors Minimum 7 Subscribers Minimum Capital Rs 5 Lakh | With in 20 days from approval of Name application |
POST INCORPORATION COMPLIANCES REGARDING NIDHI COMPANY (SECTION 406 OF THE COMPANIES ACT 2013)
S No. | Name of Activity | Compliance | Limitation period | Type of Compliance |
1 | Intimation of Registered Office | E-form INC-22 | With in 30 days from the date of Incorporation | One time intimation with ROC unless there is change |
2 | Commencement of Business | Form INC-20A | With in 180 days from the date of Incorporation | One time intimation with ROC |
3 | Appointment of first auditor | Form ADT-1 | With in 15 days from appointment | One time intimation with ROC unless there is change |
4 | Every Nidhi Company shall ensure that – It shall have Members not less than 200 – Net Owned Funds of ten lakh rupees or more; – ratio of Net Owned Funds to deposits of not more than 1:20. – Unencumbered term deposits of not less than ten per cent. of the outstanding deposits | 1. Net Owned Funds = Aggregate of paid up equity share capital + free reserves – accumulated losses and intangible assets appearing in the last audited balance sheet 2. Invested, in unencumbered term deposits with a scheduled commercial bank or post office deposits not be less than ten per cent. of the deposits outstanding last working day of second preceding month. Further, in case of any unforeseen emergency, the limit of 10% can be withdrawn only after prior approval of Regional Director. | Within 1 Year of Incorporation | Post Incorporation Compliance with ROC |
5 | Seek Extension for not complying with either of following – Members not less than 200 – ratio of Net Owned Funds to deposits of not more than 1:20. | File RD-1 with attachment of NDH-2 | Within 30 days from close of 1st Financial year | Application to Regional Director for extension |
6 | Return of Statutory Compliances | File GNL-2 with attachment of NDH-1 | Within 90 days from close of 1st Financial year after incorporation | One time return with ROC |
7 | Open More than 3 Branches in District or Branch in outside the district | Prior permission | Permission of Regional Director | |
8 | Intimation regarding Opening of any Branch | 30 days of opening | Intimation to Registrar | |
9 | Closure of Branch | 1. Publish Advertisment in vernacular language 2. Fixed Copy of Advertisement on the notice board of Nidhi 3. Intimation to ROC | 1. 30 days prior to closure | |
10 | 2. 30 days from Advertisement given | |||
11 | 3. 30 days from Closure | Intimation to Registrar | ||
12 | Auditor Certificate | Auditor Certificate regarding Compliance of Nidhi Rules, 2014 which shall annex to Audit report | Every Year | Yearly Compliance |
13 | Filing of Half yearly return with Registrar | File GNL-2 with attachment of NDH-3 | With in 30 days from conclusion of each half year | Half Yearly Return with ROC |
14 | Filing of financial statement | E-form AOC-4 | Within 30 days from the date of AGM | Yearly return with ROC |
15 | Filing of Annual Return | E-form MGT-7 | Within 60 days from the date of AGM | Yearly return with ROC |
16 | Filing of approval of Financial statement | E-form MGT-14 | With in 30 days of passing resolution | Yearly filing with ROC |
EXEMPTION TO NIDHI COMPANY (NOTIFICATION DATED 05 JUNE 2015 AND 22 JAN 2019)
S No. | Compliance | Exemption |
1 | Service of Documents and Financial Statements to Members | This provision grants a relief to the Nidhi Companies from sending documents, notices etc. to small shareholders (i.e. those holding shares of one thousand rupees or less in face value or one percent or less of the total paid-up share capital of the Nidhis whichever is less) instead documents can be served by a public notice in newspaper and notice Board |
2 | Private Placement of Shares | Few procedural requirements in relation to private placement like maintenance of record of private placement; restrictions on fresh offer, restriction on receipt of subscription money in cash etc. has been relaxed for Nidhi Companies. |
3 | Further issue of Share capital | Nidhi Companies can make further allotment of their shares without having to comply with requirements of Section 62. |
4 | Buyback of Shares | when shares are purchased by the NIdhi from a member on his ceasing to be a depositor or borrower, it shall not consider reduction of Share Capital |
5 | Payment of Dividend | if the dividend is not claimed by a member within 30 days from the date of declaration, then the same may be paid by crediting it to the account of the member. Further Section 127 deals with punishment for failure to distribute dividend. However for Nidhi companies, where the dividend payable to a member is one hundred rupees or less, it shall be sufficient compliance of the provisions of the section, if the declaration of dividend is announced in the local language in one local news paper of wide circulation and announcement of the said declaration is also displayed on the notice board of the Nidhis for at least three months |
6 | Deposit Amount from person proposed to appoint as Director | Amount reduced from Rs 1 Lac to 10,000 |
7 | Loan to Directors and their relatives | Section 185 Shall not apply, provided the loan is given to a director or his relative in their capacity as members and such transaction is disclosed in the annual accounts by a note. |
8 | Remuneration | Nidhi Company can pay remuneration to directors other than managing director, wholetime director or manager for performing special services and for seeking approval of members in specified cases |
9 | Filing fees for return of allotment | Filing fees to be paid to ROC for filing return of allotment has been reduced. |
10 | Vote on Poll | no member of Nidhi Company shall exercise voting rights on poll in excess of five per cent of total voting rights of equity shareholders. |
11 | Dmat of Shares | Nidhi Company is not required to get it shares dematerialised |