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All about Nidhi Company

All-about-Nidhi-Company

ALL ABOUT NIDHI COMPANY

A non-banking finance firm which is governed by the central government is called a Nidhi Company. The basic function of a Nidhi Company is to facilitate easy lending of money between the various core members of the concerned company. The concept of a Nidhi Company was introduced by Section 406 in the Companies Act of 2013. The funds are either borrowed from a party or provided to other party on the basis of mutual benefit of both sides. A nidhi Company is the cheapest and safest way of raising money from the general public in a faster way than other agencies. It is also called a Mutual Benefit Company as it tried to benefit both the lender and the loan seeker. Any individual can register for becoming a member of a Nidhi Company without going through any background check.

CHARACTERISTICS OF A NIDHI COMPANY

  1. The major characteristics of a Nidhi Company is that it does not require any licensing form the Reserve Bank Of India. All the other banking firms or non-banking money lending firms require a necessary licence issued by the Reserve Bank of India to operate and function in the market but a Nidhi company doesn’t need to do so.
  2. A Nidhi company is the only type of non-banking legal entity which comes under the direct control of the Reserve Bank of India. A of its functions and proceedings are kept in check by the Reserve Bank actively. This characteristic of a Nidhi Company gives it a  unique presence in the whole market.
  3. A Nidhi Company is a small scale legal entity. It is an easy means of savings for the middle class and the lower class people. It provides an effective means of saving money as a Nidhi company requires minimum amount of documentation for doing so.
  4. There is a very rigid system of membership and lending loans in a Nidhi company. Unlike other non-banking entities, Nidhi Companies provide more secure monetary investment. This is a characteristic which is responsible for investments from middle class people on a smaller scale.
  5. The minimum amount of capital investment in a Nidhi Company is only 5 lakhs. It is a smaller amount than any other company types like private limited company etc. demand for initial investment.

PROCESS OF REGISTRATION FOR A NIDHI COMPANY

  1. All the proposed directors of a Nidhi Company need to obtain theri Digital Signature Certificates. This is a mandatory step as the registration for the proposed Nidhi Company can never be initiated by the concerned government agencies before all the directors submit their Digital Signature Certificates.
  2. Like in the process of registration of all other kinds of companies, a Nidhi Company also need to apply for a name approval for the company. The Ministry of Corporate Affairs allows to opt for two options for the name of the Nidhi Company at once. If any one of the names is approved, then the process moves further. But if the name is not approved that is, it is already the name of an existing Nidhi Company; you need to propose another name option for the company to the Ministry of Corporate Affairs and wait for it to get approved.
  3. Spice Form :  The spice form includes many official forms like the Memorandum Of Association ( MOA ), Articles Of Association ( AOA ) etc. To register for a Nidhi Company, you need to submit these forms along with all the required information of the proposed directors and shareholders of the concerned company. All this information is provided to the Ministry of Corporate Affairs and after approval of all the documents, they proceed with the registration process of the Nidhi company.
  4. After a month or so, the whole registration process of the Nidhi Company is completed by the Ministry of Corporate Affairs. The successful registration of the company is followed by the incorporation of the Nidhi company legally. A certificate of registration and a company identity number is provided by the MCA. These documents are important as they work as proof of successful registration with the ministry of corporate affairs.

LIST OF DOCUMENTS REQUIRED FOR REGISTRATION OF A NIDHI COMPANY

  1. Proof of Identity of all the proposed directors and shareholders of the Nidhi company. PAN card and Aadhar card are the identity proofs that need to be submitted by Indian nationals. For foreign nationals, a copy of their Passports is required as the proof of their identity.
  2. A proof of the address of all the proposed shareholders and directors of the Nidhi Company is also a required document for its successful registration. Electricity bills, phone bills and bank statements which are not any older than 2 months can be used as address proof. Any one of these documents need to be submitted along with other requirements.
  3. After registering for a Nidhi company, you also need a work space to run your business. This place may be rented or your own property. The Ministry of Corporate Affairs needs a proof of the office address of the Nidhi Company as well. Electricity bill, phone bill, water bill etc. of the office can be used as an address proof for spaces which are your own property. But if you have rented a place for your company’s office, then you need to submit a No Objection Agreement ( NOA ) or a rental agreement signed by your landlord to the Ministry.

ADVANTAGES OF A NIDHI COMPANY

  1. Sure Existence of the company :

Nidhi Companies are all separate legal entities which exist on their own.  It is a recognised legal firm whose existence and function does not change with any unfortunate event taking place in the interior space of the Nidhi Company. For example, if one of the shareholders of the Nidhi Company dies untimely, then the functioning of the Nidhi Company does not collapse. A Nidhi Company can only cease to exist when it is properly dissolved by a legal process which are according to the provisions of law.

  1. Individual Entity :

The registration of a Nidhi Company offers it a separate Identity and not just the identity related to its directors or shareholders. In simple terms, apart from a Nidhi Company’s shareholders, it in itself holds a legal identify. This ensures that a Nidhi Company can own any kind of property in its own name legally which is a great advantage.

  1. Management :

The management of a Nidhi Company is comparatively easier than other companies. To introduce a change in the system of other business structures like public limited companies or private limited, it takes a tiresome long process with a lot of formalities. But this is not true for Nidhi Companies. After filling out an application for the MCA ( Ministry of Corporate Affairs) explaining the changes in the internal management of the Nidhi Company that you want, the changes would be approved and introduced almost immediately.

  1. Market Value :

A Nidhi Company is considered to be more trustworthy than any of the other legal money lending companies available in the market. As the functioning and the internal management of the Nidhi Company is majorly in control of the Central Government. They look after all its affairs, functions and roles which is the reason other business entities are not preferred over Nidhi Companies by the people.

  1. Loans at lower rates :

The primary objective and function of a Nidhi Company is to provide loans to its members in an easier way without much formalities and time consumption. The loans provided by the Nidhi Company to its members is given out at a much lower interest rate than the loans which are provided in the market. This helps in saving up money of the loan seekers.

DISADVANTAGES OF A NIDHI COMPANY

  1. RBI Vigilance :

There are no essential compliances imposed upon the Nidhi Companies by the central government or the Reserve Bank of India. However, the internal activities of the Nidhi companies are governed and kept under surveillance by the Reserve Bank Of India. The deposit acceptance functions of the bank are particularly kept in check by the RBI from time to time.

  1. Low Credit :

In all the Nidhi companies, a major drawback is that there is a limited credit available only. The whole idea behind a Nidhi Company is to provide loans in a smooth way to it’s members on lower interest rates but this is defeated when a hindrance like limited credit availability comes into the way of the operations of a Nidhi Company.

  1. Fund Raising Issues :

A Nidhi Company only accepts cash deposits from it’s active members. This is the amount which is available for lending loans to the shareholders. As there is a limited amount of members present in a Nidhi Company, the amount of funds available for lending loans also drops. This means that lesser the number of members in a Nidhi Company, lower is the availability of funds.

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