Nidhi Companies are a unique and different kind of financial institution of India which were started by the government with the aim of promoting savings amongst members and also helping them in need. Unlike other financial institutions, Nidhi Companies are a mutual benefit society where members deposit and borrow. This article describes your rights and duties under Nidhi Companies.
Nidhi Company Formation
There are certain rules and regulations to form a Nidhi Company:
| Requirement | Details |
| Public Business Registration | A Nidhi Company has to be publicly registered under the Nidhi Rules, 2014. |
| Capital Requirement | The company must have a paid-up equity share capital of five lakh INR. |
| Naming | The name of the company should end with Nidhi Limited to indicate its type. |
| Share Issuance | Nidhi Companies can only issue equity shares – not preference shares. |
| Company Objectives | Encourage members to save, deposit with them, and loan to members. |
| Minimum Requirements | Must have more than three directors and seven shareholders at the onset. |
| Should have more than 200 members within a year from its creation. | |
| Net Owned Funds | Must have net owned funds of at least ten lakh INR comprising paid-up equity capital, reserves, and surplus. |
| Total deposits shall not exceed 20 times net owned money. | |
| Term Deposits | A minimum of 10% of outstanding deposits must be term deposits to preserve liquidity. |
Restrictions & Prohibitions of Nidhi Companies
Some restrictions and prohibitions are imposed to safeguard the members and make sure the proper running of Nidhi Companies:
- Business Activities: Nidhi Companies can only borrow and lend with their members. They may not lease, purchase financing, hire, insurance or purchase securities.
- Financial Instruments: They are barred from distributing preference shares, bonds and other debt instruments.
- Partnerships: Nidhi Companies may not form partnerships to borrow or lend.
- Advertising: They are not permitted to advertise to draw in deposits from the public.
- Asset Security: Shareholders can’t pledge their assets against the company’s activities.
- Acquisitions: Nidhi companies can’t acquire any other Companies without a Special Resolution and the Regional Director approval.
Opening of Branch Offices under Nidhi Company Rules
A Nidhi Company might expand by opening branch offices but under particular rules:
- Profit Requirement: To open additional branches the company has to have published net profits before tax within the last 3 fiscal years.
- Branch Limit: A Nidhi Company may set up up to three branches in the district with no further approval. For more than 3 branches permission from the Regional Director is needed.
- Geographic Restrictions: Branches, collection facilities or offices outside the state of the Registered Office aren’t permitted.
Closing a Branch Office under Nidhi Company Rules
Whenever a Nidhi Company closes a branch office it must take these measures:
- Notification: The company releases a newsprint ad in the local language 30 days before closing.
- Public Awareness: The general public ought to be notified of the closure by notification.
- Notification from Registrar: Within the 30 day time, the branch closing should be informed to the Registrar of Companies.
Director’s Rules & Regulations under Nidhi Company Rules
Directors are extremely important persons in the management of any Nidhi Company. The rules they must follow are the following:
- Membership Requirement: Directors must be members of Nidhi Company.
- Tenure: Directors can serve ten years on the Board.
- Re-appointment: Directors may be re-appointed after a two-year lag post – tenure.
Penalties for Not Following Nidhi Company Rules
Sanctions for breaking the rules are levied:
- Fines: Companies and their executives face a fine of as much as Rs. 5,000 for breaking the Nidhi Rules.
- Further Penalties: A further fine of Rs. 500 a day until compliance is achieved.
Conclusion
Nidhi Companies are responsible for maintaining financial discipline and mutual benefiting their members. Members of these companies need to know the rules and regulations in order to make sure the organisation runs smoothly and also conforms to the rules.
As per the Companies Act, 2013 and the Nidhi Rules, 2014, directors and members can make ensure a legally run Nidhi Company. Whether you’re a member, a possible member or a director, knowing your rights and duties helps the legal running of Nidhi Companies.
FAQs
What are the rules for Nidhi Company?
Nidhi Companies must be publicly registered, have a paid up equity share capital of five lakh INR and end the name with “Nidhi Limited.” They can not issue preference shares, have to have more than three directors and seven shareholders and must have specific financial requirements including term deposits.
How does the Nidhi Company structure work?
A Nidhi Company requires three directors and seven shareholders at the initial stage and at least 200 members annually thereafter. It functions on a mutual benefit basis by saving for members and by lending only to members within strict financial and operational guidelines.
What role does Nidhi Company play?
A Nidhi Company aims at motivating members to save and making loans to them. They are a mutual benefit organization that accepts deposits and lends to their members only, encouraging financial discipline and community savings.
What conditions are needed for Nidhi?
Conditions for a Nidhi Company are 5 lakh INR paid-up equity share capital, three directors and seven shareholders and 200 members within 12 months. They must have certain financial ratios and may not borrow or even lend to members outside their role.
What advantage does Nidhi company bring?
Nidhi Companies provides a regulated and safe platform for loans and savings among members to promote financial discipline and community support. They begin with much less capital, have a simple incorporation process and also provide financial services to members only.
