A nidhi company is a type of company in the Indian non-banking finance sector, recognized under section 406 of the Companies Act, 2013. Their core business is borrowing and lending money between their members. Nidhi Company isn’t required to get the license from Reserve Bank of India (RBI), so it is easy to form.

Requirements for Nidhi Company

• A Nidhi company to be incorporated under this Act shall be a Public Company.
• Minimum paid-up equity share capital of 5,00,000/-
• No preference shares shall be issued. If preference shares had already been issued by a Nidhi Company before the commencement of this Act, such preference shares are to be redeemed.
• The object of the company shall be cultivating the habit of protecting and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefits.
• It shall have the words ‘Nidhi Limited’ as part of its name.

Post Incorporation Requirements for Nidhi Company

Every Nidhi must, within one year from the commencement meet all of the following criteria:

1. It must have a minimum of 200 members,

2. It must also ensure that net owned funds are Rs. 10,00,000/- or more,

(‘Net owned funds’ mean the aggregate of paid-up equity share capital and free reserved as reduced by the accumulated and intangible assets appearing in the last audited balance sheet),

3. It must also ensure that the ratio of net owned funds to deposit is not more than 1:20.

4. It must have unencumbered term deposits of not less than 10% of the outstanding deposits.

If the Nidhi Company satisfies the above conditions, The Company shall within 90 days from the close of the first financial year after incorporation, file NDH-1 duly certified by a Practicing CA/CS/CWA along with the prescribed fees.

In the case at the end of the first financial year, Nidhi is not able to meet above requirements, Nidhi Company shall within 30 days from the close of the first financial year, apply to the

Regional Director in form NDH-2 for extension of time along with the prescribed fees.

If even after second financial year Nidhi is not able to meet the above requirements, then the Nidhi Company shall not accept any further deposits till it complies with the provisions, and Nidhi will be liable for penal consequences

Restrictions on Nidhi Company

A Nidhi Company shall not: –

• Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate.
• issue preference shares, debentures or any other debt instrument or in any form.
• Open any current account with its members.
• Acquire other companies by way of control, share purchase, the composition of the Board of Directors, etc.
• Carry on any business other than borrowing or lending in its name
• Accept deposit or lend to any person other than its members.
• Pledge any of the assets lodged by its members as security.
• Issue or cause to be issued any advertisement in any form for soliciting deposits.
• Enter into any partnership arrangement in its borrowing or lending activities.
• Accept deposits more than 20 times of its Net Owned Funds as per the last audited balance sheet.
• Declare dividends more than 25%, it wants to declare more than 25% than seek prior approval from Regional Director & transfer amount equal to such higher amount in General Reserves.
• Appoint Auditor for more than 1 term of consecutive 5 years & Audit Firm for more than 2 terms of Consecutive 5 Years. However, Such an Auditor/Auditor Firm may be reappointed after completion of 2 years from completion of his/her term.
• Appoint Director for a term of more than 10 consecutive years but eligible for re-appointment after completion of 2 years from ceasing to be a director.

Usually, Nidhi Company Registration Process takes 30 to 45 days, Registration of a Nidhi Company consists of the following steps:

Minimum 7 Members and 3 Directors will be required to start the Incorporation of Nidhi Limited.

• Obtain a Digital Signature Certificate (DSC)
• Drafting of Spice+
• Application for DIN
• PAN Application
• TAN Application
• GSTIN Application
• EPFO Registration
• ESIC Registration
• Opening of Bank Account for the Company