Nidhi companies are a type of non-banking financial company (NBFC) that is regulated by the Ministry of Corporate Affairs (MCA) and governed by the Companies Act, 2013. Nidhi companies are known for their unique business model, which is based on the concept of mutual benefit.

Nidhi companies are primarily formed for the purpose of promoting the habit of thrift and savings among its members, and for lending money to its members. They are popular in India, especially in rural areas, and are considered an important tool for financial inclusion.

In this article, we will discuss Nidhi companies in detail, including their features, registration process, rules and regulations, and benefits.

Features of Nidhi Companies:

1. Minimum Requirements: A Nidhi company can be formed with a minimum of seven members and three directors. The directors and members can be the same person.

2. Mutual Benefit: The primary objective of a Nidhi company is to promote the habit of thrift and savings among its members and to lend money to its members.

3. Non-Transferable Shares: The shares of a Nidhi company are non-transferable. This means that the shares cannot be sold or transferred to anyone outside the company.

4. No External Funding: Nidhi companies are not allowed to accept deposits from anyone other than their members. This means that they cannot accept funds from external sources such as banks, financial institutions, or the general public.

5. Limited Activities: Nidhi companies are not allowed to engage in any other activities other than borrowing and lending money among its members.

Registration Process:

The registration process for a Nidhi company is similar to that of any other company. The following are the steps involved in the registration process:

1. Obtain Digital Signature Certificate (DSC) and Director Identification Number (DIN) for all the proposed directors.

2. Apply for name reservation of the proposed company with the Registrar of Companies (ROC).

3. Once the name is approved, file the incorporation documents including Memorandum of Association (MOA), Articles of Association (AOA), and other necessary documents with the ROC.

4. Obtain the Certificate of Incorporation from the ROC.

5. Apply for PAN and TAN for the newly formed company.

6. Open a bank account in the name of the company.

Rules and Regulations:

Nidhi companies are governed by the Companies Act, 2013 and the rules and regulations prescribed by the Ministry of Corporate Affairs. Some of the key rules and regulations applicable to Nidhi companies are as follows:

1. Minimum Capital Requirement: Nidhi companies are required to have a minimum paid-up equity share capital of Rs. 5 lakh.

2. Membership: Nidhi companies can only have individuals as members and cannot have corporates or trusts as members.

3. Reserve Fund: Nidhi companies are required to create a reserve fund, and transfer at least 20% of the profits earned in a financial year to this fund.

4. Lending Limits: Nidhi companies are not allowed to lend more than Rs. 2 lakh to a single borrower, and the total amount of loans given cannot exceed 25% of its total deposit base.

5. Branch Expansion: Nidhi companies are allowed to open branches only after three years of continuous operations, and only if they have earned profits in the preceding three years.

Benefits of Nidhi Companies:

1. Encourages savings: The primary objective of a Nidhi Company is to promote the habit of saving and thrift among its members. These companies accept deposits from its members and lend them money at reasonable rates of interest.

2. Low-interest rates: Nidhi Companies offer loans at a lower rate of interest as compared to banks and other financial institutions. This makes it easier for its members to borrow money for their various financial needs.

3. Easy to register: The registration process for a Nidhi Company is simple and easy. It requires a minimum of seven members to form a Nidhi Company, and the registration can be done online through the MCA portal.

4. Limited liability: The liability of the members in a Nidhi Company is limited to the amount of shares held by them. This means that the personal assets of the members are not at risk in case of any default by the company.

5. Trustworthy: Nidhi Companies are highly trustworthy as they are registered and regulated by the MCA and the RBI. This gives the members of the company a sense of security and confidence.

6. Long-term investment: Nidhi Companies encourage its members to invest in long-term savings plans. This helps its members to build a corpus for their future financial needs.

7. Higher returns: Nidhi Companies offer higher returns on deposits as compared to banks and other financial institutions. This makes it a more attractive investment option for its members.

8. Social cause: Nidhi Companies work towards a social cause of promoting savings and thrift among its members. They also provide financial assistance to its members who are in need, which makes it a socially responsible organization.

9. Tax benefits: The interest earned on deposits with Nidhi Companies is exempt from income tax up to a certain limit. This makes it a tax-efficient investment option for its members.

Nidhi Companies play an important role in promoting savings and thrift among its members. They offer various benefits such as low-interest rates, limited liability, higher returns, and tax benefits. They also work towards a social cause, which makes it a socially responsible organization. Therefore, investing in a Nidhi Company can be a good option for those looking to build a long-term savings corpus.