How Nidhi Company Arrange Finance

For entering into the professional world every person wants to register their business just to have a legal existence. Registering your company would give a legal existence to your business or you can say a life of its own.

One of the essential requirements for every company is to have sufficient funds. Without having funds no company can survive for a long time. Similarly registering your business entity as a Nidhi Company would also require funds and now the question arises that from where Nidhi Company arrange such finance? To answer such question first you need to understand what actually the Nidhi Company is?

This article talks about the meaning of Nidhi Company, its requirements, how does it work, how does it arrange finance, what are the criteria's and usefulness, filing and other statutory requirements with ROC and other relevant topics.

What is Nidhi Company?

Nidhi companies are the limited companies registered under Companies Act, 2013. The word Nidhi in Nidhi Company comes from a word which means treasure. It refers to any mutual profit society notified by the Central / Union Government as a Nidhi Company.

Basically Nidhi Company means a Company which has been incorporated with the aim of- utilizing money in a best possible manner and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefit. and compliance with the rules as prescribed by Central Government. They are also known as mutual benefit societies because their dealings are restricted only to the members. Nidhi company is similar to NBFC. Around 80% of the Nidhi companies are situated in Tamil Nadu.

The team of Registrationwala helps you to know more about Nidhi Company and provide their best consultancy and Nidhi Company registration services regarding the same, which makes the process of incorporation of Nidhi Company much easier.

Statutory Requirements

To incorporate a Nidhi Company there should be minimum 3 directors and 7 shareholders, It shall be a Public Company having minimum paid up equity share capital of Rupees 5 lakh. It shall have the word Nidhi Limited as a part of its name. Like for example XYZ Nidhi Limited. If such requirement is not fulfilled then the same is not possible to incorporate.

The object of the Nidhi company should be only that of lending money, and taking deposits from its members for its mutual benefit only.

How to arrange finance?

Nidhi Company is one of the categories of NBFC's or in other words, it is the cheapest and easiest form of NBFC as well. Also, it is very easy form to register and does not require much capital. Anybody can register a Nidhi Company with only 5 lakh minimum capital and with minimum of seven members.

Now if we talk about the funds for the Nidhi Company, it can be contributed solely from its members or shareholders or we can say Nidhi Company can arrange finance only through its members or shareholders. They are allowed to borrow from its members and lend to its members only. If you are registering Nidhi Company and you are dealing with public at large then this point might breaks your heart because as per law Nidhi Company can only deal with its members. In other words , it means that it can accept deposit and provide only to its members.

A Nidhi company shall not accept deposits exceeding 20 times of its net owned assets and also fixed deposits shall be accepted for a minimum period of 6 months. Maximum balance in a saving deposit account shall not exceed Rs. 100000/-

In this way, Nidhi Company can arrange finance.

Why to incorporate Nidhi Company?

1. Nidhi Company is the best vehicle to start your plan.
2. Though Nidhi Company comes under the category of NBFCs (Non-banking Financial Companies), yet it is exempted from stringent regulatory compliances, which otherwise you have to follow if you start NBFCs
3. It is beneficial for Nidhi Company to raise money among its members.
4. Nidhi company can give loan to its members, only if members provide some securities such as Gold, silver, jewellery, properties or any type of financial securities.
5. Death of any member or shareholder does not effect the continuity of Nidhi company. It goes on forever. The life of the company does not depend upon the life of the members.
6. A public limited company have a separate identity from its members.

Compliances after incorporation

After incorporation of Nidhi Company it needs to comply the following criteria within one year-

• Net owned funds should not be less than 10 lakhs.
• It should not have less than 200 members or shareholders.
• Net owned funds to deposit ratio ahould not be more than 1:20

Here, *Net owned Funds = Paid up Equity share capital + Free reserves Accumulated losses Intangible Assets

The Nidhi -company is not found in many regions of the country because the purpose of Nidhi company is very much less and is to be created for only above said purposes.

Therefore the person who wants to start the company for the above said purpose than only should start a Nidhi company otherwise not.

Also read:  Checklist of Important Annual Compliances for Nidhi Company

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.