Are you interested in starting your own finance company? If yes, then we can guide you what will be a best possible way to begin a Finance/Loan Company. There are two modes of setting up a financial company in India; one is applying for the NBFC registration and the other is taking over of an already existing NBFC. Before we move forward, you should be aware of the terms NBFC, NBFC registration, and NBFC takeover.
What do you understand by NBFC?
NBFC stands for Non-Banking Financial Company. It is regulated by the reserve bank of India. The primary objective of NBFCs is to deal in the business of lending, investment in shares/stocks/bonds/debentures, leasing, hire-purchase, insurance business, chit business or receiving of deposits under any scheme or an arrangement.
What do you understand by NBFC Registration?
NBFC registration is an Incorporation of the Finance Company which is regulated by the Reserve Bank of India. NBFC can be incorporated either as a public limited company or private limited company, as per companies Act, 2013 and RBI guidelines. In India, there are two types of NBFCs:
1. Deposit-taking NBFC
2. Non-Deposit taking NBFC
Furthermore, there is a requirement of minimum capital of Rs. 2 Cr. For NBFC registration, an application is submitted with the regional office of RBI along with the required documents. RBI will verify the documents and approve it by issuing the certificate of registration.
NBFC registration involves the incorporation of the company, followed by the collection of documents and filing of COSMOS application and thereafter submission of physical documents with the regional office of Reserve Bank of India.
What do you understand by NBFC Takeover?
NBFC takeover involves the drafting of MOU followed by the due diligence and filing of RBI application. After receiving the approval of RBI you have to publish the public notice, make a share transfer agreement and list of assets to be transferred. At, last you just need to intimate the Reserve Bank of India.
Why NBFC Registration is popular than NBFC Takeover?
In case, of NBFC registration, you file a fresh application and have a completely new team of management. While in case of an NBFC takeover, there may be a conflict when you try to retain the members of the target company.
When you file an application of NBFC registration, you have the knowledge of all liabilities and its rules & regulations. While when you are planning to acquire the target company, there is a risk of not being aware of the hidden liabilities, which causes a problem in the process.
If you are thinking or planning to takeover NBFC, then you must know the following consequences of the process-
· Amount paid for goodwill is often less as compared to its actual price
· Conflict in new management
· Cultural clashes in two companies
· Reduce employee’s morale
· Hidden liabilities of the target company
Due to the above mentioned consequences we always suggest you to apply for NBFC registration in place of NBFC takeover.