The Companies Act, 1956 had stayed for too long and even if not said by anyone but everybody felt that there was a need for reforms in the act. And then finally it happened. The reform was right there upfront. The year against the two words were now replaced. It changed from 1956 to 2013. It was a much needed one. It brought many new companies along with it which included One Person Company and Nidhi Company. I will talk about the Nidhi Company. So, what basically is a Nidhi Company? What is its significance? How can it come into existence? A lot of other questions might be surfacing your mind.
What is a Nidhi Company?
Nidhi company is a Non-Banking Finance Corporation (NBFC) which is more popular in the southern part of the nation. It is recognised under section 406 of the Companies Act, 2013 and is governed by the Companies Act, 2013 and Companies (Nidhi Companies) Rules, 2014. Like all other finance corporations, it also falls under the purview of RBI. Even though it is an NBFC but it has been exempted by the rules applicable to them. It only deals with the money of the existing members/ shareholders of the company. It deals in lending and borrowing of money within the members.
What is its significance?
• It is constituted for sole purpose of helping its members. It is formed for mutual benefit.
• It instills the feeling of savings and thriftiness among its members.
• The investments are secured and lucrative.
• It doesn’t require an RBI license.
How does it come into existence?
A. Conditions during incorporation
1. Minimum paid capital should be Rs.5,00,000.
2. No preference shares can be issued.
B. Conditions after incorporation
Every company should ensure the following within 1 year.
1. Minimum members must not be less than 200.
2. Minimum net owned fund should be at least Rs.10,00,000.
3. The ratio between net owned funds and deposits must not be more than 1:20.
4. No body corporate or trust must be admitted to it as its member.
5. A minor should be a part of it.
1. The minimum number of directors should be 3.
2. The director should be the member of the company.
3. The director should be appointed for a minimum of 10 years.
1. Minimum requirements
The company should fulfil all the minimum requirements to register a Nidhi Company like:
a. Minimum 7 members
b. Document requirement
c. Minimum capital requirement
2. Choose directors
A minimum of 3 directors must be chosen by the company and it must be done wisely, for the directors run the company.
3. Apply for DSC and DIN
Digital signature is encrypted signature made for every director. It is used in various processes during incorporation.
Director Identification Number(DIN) - As per the law, every director must have a DIN. If the newly appointed director doesn’t have one, he should apply for it. It is like a PAN card since it has lifetime validity.
4. Name approval
A Nidhi company should get its name approved. It should either have the words Nidhi Limited or Mutual Benefit Company at the end.
5. Applying for incorporation
The one final and the most important step is to apply to the registrar for Nidhi Company incorporation. Before the incorporation, you must consult an expert for his/her advice.
This article has been contributed by Akshit, LegalRaasta- an online platform for Nidhi Company Registration.