Section 406 of the Companies Act, 2013 lays down the guidelines that direct the operations of Nidhi companies in India. Nidhi companies are a sort of community where a specific group of people collaboratively work towards their collective well-being. The Nidhi company Rules of 2014 enthusiastically support this idea, promoting a culture of savings among its members. Financial activities, like taking deposits and lending, unfold within the circle of these members. It’s important to note that the funds pooled for this entity are exclusively at the disposal of the Nidhi company’s shareholders, with no external access. In this blog, we shall see the detailed process of Nidhi company incorporation.
Overview of Nidhi Company
Nidhi Company, categorised as a Non-Banking Financial Company, operates under the supervision of the Reserve Bank, particularly concerning deposit acceptance. Notably, due to their focus on group dynamics and exclusive dealings with members, registered Nidhi enjoy exemptions from major provisions of the RBI Act. This positions Nidhi Company registration as an ideal business model for those inclined towards a group-centric approach with limited financial transactions among members.
Pre-Registration Requirements for Nidhi Company Formation
In accordance with the prevailing Company Act, the formation of a Nidhi company in India necessitates a minimum of 7 members and three directors. A minimum capital requirement of Rs. 5 lakhs is essential for establishing such an entity. Directors must obtain a Director Identification Number, and it is imperative for the company to refrain from issuing preference shares. Additionally, strict adherence to existing bylaws that foster a culture of saving among members for mutual benefit is mandatory.
Process of Nidhi Company Incorporation
In the process of Nidhi company incorporation, careful attention to each step is crucial to avoid potential discrepancies in the future. The following detailed procedure provides the necessary steps for Nidhi Company incorporation:
Step 1: Apply For Digital Signature Certificate
A Digital Signature Certificate is essential for electronically signing crucial business documents. The MCA’s online portal facilitates the acquisition of DSC from certified authorities, including but not limited to IDSIGN, NSDL, CDAC, Code Solutions CA, Pantasign, SafeScrypt CA Services and the National Informatics Centre, as well as IDBRT Certifying Authority.
Step 2: Prepare MOA And AOA
Drafting the Memorandum and Articles of Association is vital for defining the company’s scope of operation and internal management. The MOA encompasses important clauses as per the Company Act, 2013, while the AOA outlines rules and regulations for internal administration.
Step 3: Fill SPICe+ Web Form For Nidhi Company Incorporation
The SPICe+ web form streamlines the incorporation process and is divided into two sections: Part A and Part B. Part A involves name reservation, and Part B covers various services such as incorporation, DIN allotment, PAN and TAN allotment, EPFO and ESIC registration, opening of bank account, and GSTIN allotment. Provide at least three preferred names during Part A, ensuring uniqueness through real-time crosschecks with the MCA’s database.
Filling Part B Involves:
- Registered or Correspondence Address
- Subscribers and Directors Details
- Capital Information
- Source of Income, AO Type, Area code and Range code for PAN and TAN application
Upload the required documents, including MOA, AOA, declaration by first subscribers and directors, utility bills, and consent of nominee. After confirmation of declarations, submit the form.
Step 4: Fill AGILE Pro And E-MOA, E-AOA
Complete the AGILE-PRO form for GSTIN, ESIC, EPFO, and bank account details. Subsequently, file the Electronic Memorandum of Association and electronic Article of Association. The INC-9 declaration e-form will be auto-populated based on Part B information.
Step 5: Final Steps
The final steps involve:
1. Download and affix DSCs on the INC-9 declaration form.
2. Upload Part B and associated forms.
3. Note the generated Service Request Number.
4. Make the online payment as prompted on the screen.
Following these steps meticulously will lead to a successful Nidhi Company incorporation.
Key Considerations for Nidhi Company Operations after Nidhi Company Incorporation
1. Legal Framework: The operational structures and norms for Nidhi companies in India are outlined in Section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014.
2. Regulatory Oversight: The Reserve Bank of India plays a vital role in overseeing the regulatory aspects of Nidhi companies, particularly concerning financial activities and investments.
3. Exemptions from Regulatory Requirements: Nidhi companies, engaged in deposit and loan activities, enjoy exemptions from certain regulatory requirements imposed on other financial institutions, including Non-Banking Financial Companies, as granted by the RBI.
4. Financial Credit for Members: Nidhi companies offer accessible financial credit to their members at lower interest rates compared to traditional banks. However, the utilisation of loans is restricted, with members permitted to allocate funds solely for purposes such as home manufacturing or renovation, child’s education, etc.
5. Interest Rates for Deposits: Members of Nidhi companies typically receive lower interest on deposited amounts compared to the organised banking sector.
6. Restricted Lending and Borrowing: The lending and borrowing activities of Nidhi companies are exclusively accessible to their members. This exclusivity in financial transactions designates Nidhi companies as Mutual Benefit Societies.
Final Thoughts
Nidhi Company incorporation involves a meticulous process outlined by the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014. Governed by the Reserve Bank of India, Nidhi companies enjoy regulatory exemptions, particularly in the realm of financial activities and investments. Offering accessible financial credit to members at lower interest rates, Nidhi companies are distinct in their restricted loan applications, primarily designated for specific purposes. Members benefit from lower interest on deposits, setting them apart from traditional banking sectors. As Mutual Benefit Societies, Nidhi companies play a unique role in fostering financial cooperation among their exclusive membership.
