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Nidhi Company Registration

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Overview of Nidhi Company Registration

According to Section 406 of the Companies Act of 2013, a Nidhi company is a particular form of entity in the non-banking financing sector. Between their members, they conduct their main activity of borrowing and lending money. They are additionally known as Benefit funds, Permanent funds, Mutual benefits, and Mutual Benefit Funds firms. In India, the Ministry of Corporate Affairs is in charge of these organizations and retains the authority to give instructions regarding deposit acceptance procedures. These organizations’ main goal is to help their serving members develop a habit of saving money and being frugal. In India’s southern region, the Nidhi Company concept is quite well-liked.

Facts About Nidhi Company

  • The RBI is not obliged to approve the Nidhi company’s formation in India. As a result, incorporation is quite simple.
  • Public companies are how Nidhi Companies are incorporated.
  • “Nidhi Limited” must be included after their name.
  • Because the undertakings of Nidhi Companies are relatively similar to NBFCs, they are governed by the Reserve Bank of India.
  • Without any outside interference, the primary goal of Nidhi Company mainly centered around internal loan and borrowing activities.
  • According to the 2014 Nidhi Rules, Nidhi is allowed to offer its members locker space for rent. The rental income can be at most 20% of the Company’s total revenue throughout the fiscal year.

The Regulation Relating To Nidhi Company Registration

Section 406 of the 2013 Companies Act governs the creation of Nidhi Company. Nidhi Company Rules & Regulations are enforced by the Ministry of Finance, a government organization. The Bank of India (RBI) has the power to order Nidhi Companies in regard to deposit and acceptance.

Benefits of Nidhi Company Registration

The principal advantages of Nidhi Company Registration in India are as follows:

  • Simple Formation: A Nidhi Company is created using a relatively straightforward procedure. There are a few prerequisites for making the Nidhi Company, including a minimum of seven members, of which three will serve as directors, and a simple documentation procedure.
  • Non-Compliance with the Reserve Bank of India: A Nidhi Company doesn’t need to follow Reserve Bank of India regulations. The Nidhi Company is therefore allowed to establish its own rules.
  • Lower Risk: By restricting lending, borrowing, and depositing to members only, the Nidhi Company is less likely to experience financial problems.
  • Affordable Registration: Since the Nidhi Company registration process is more straightforward than other NBFC registration processes, it has less financial impact on the Director. Additionally, it assists the Nidhi Company in obtaining commercial financing for corporate expansion.
  • Savings certainty: The idea behind the goal of a Nidhi Company is to encourage saving among Indians.
  • System of Net-owned Funding: A Nidhi Company adheres to the Net Owned Funding System, which refers to the transaction where a sum of money is invested in the Company to raise funds for it. This quality lowers owners’ ownership costs and aids in company expansion for Nidhi Companies.

Requirement for the Nidhi Company Registration

The Governing Authority establishes the following requirements for the incorporation of Nidhi Company in India:

  • 7 members must be a minimum, 3 of whom must be designated directors.
  • Five lakhs rupees is the minimum equity share capital.
  • According to the Company Act of 2013, you must be a limited company.
  • The Company’s desire to encourage members to practice frugal spending and saving is demonstrated by the need for the Company’s object to be included in MOA.

Documents Required in Nidhi Company Registration

The list of documents needed to register a Nidhi company in India is as follows:

  • DIN, or Directors Identification Number
  • The proposed directors’ and members’ PAN numbers
  • Proof of residence and mailing address for the proposed directors and members
  • Pictures of the prospective members and directors
  • Identity cards like the Aadhar card
  • Licensed business location evidence, such as a rental agreement or lease
  • In the event that the location is owned, ownership proof must be provided.
  • NOC, if necessary
  • Memorandum of Association, or MOA
  • Article of Association, or AOA

Process of Getting Nidhi Company Registration

The specific steps for the Nidhi Company registration process are as follows:

  • Get DSC and DIN From MCA-Certified Organizations: Obtaining the DSC (Digital Signature Certificate) and DIN (Directors Identification Number) from the MCA accredited agencies is the initial step for all directors. The agencies mentioned above seek essential documents for the services and impose regular fees. DSC is used to authenticate the document electronically. It is unquestionably the safest and legal way to sign e-forms and other documents.
  • Name Acceptance: One must submit to the MCA their three top suggestions for the name of their Nidhi Company, and the MCA will choose one of these suggestions. Nidhi Company should have a distinctive character. This approved name is only valid for 20 days.
  • Registration Application: When the name has been authorized, the directors must apply for registration with the Articles of Association (AOA) and Memorandum of Association (MOA).
  • Incorporation Certificate: The competent authority must give a certificate for incorporating a Nidhi Company within 15–20 days. This certificate also includes the Company Identification Number (CIN) for the Company.

Restricted undertakings for Nidhi Company as Per the Nidhi Rules

The following undertakings are not permitted for Nidhi Companies to engage in:

  • Chit fund, lease finance, hire purchase financing, and the purchase of corporate-issued securities are all areas of business.
  • Preference shares, debentures, or other financial instruments may be issued under any name or in any form.
  • Opening a current account with its active participants.
  • Control over the BOD makeup of any other company in any way, including the acquisition of another entity through the purchase of securities.
  • Entering into a contract to change its management without a board-approved special resolution and the approval of the Regional Director in charge of that jurisdiction.
  • Engaging in actions that go against the Company’s mission.
  • Taking deposits from or lending money to non-members.
  • Using a member’s assets as collateral.
  • Accepting deposits from anyone or transferring money from corporations.
  • Signing any cooperation agreement for lending or borrowing purposes.
  • Utilizing any advertising to request a deposit.
  • Paying incentives, collecting deposits from serving members, deploying funds, or granting loans.
  • The Nidhi Company shall not obtain loans from banks, other financial institutions, or any other source to advance the loans of its members, according to the new guidelines.
  • Another restriction is the prohibition of acquiring or purchasing securities, controlling the makeup of any other business’s board of directors, or making arrangements to change the management of any other firm.

Nidhi Company (Amendment) Rules of 2022 modifications

The modifications mentioned above made following the Nidhi Company (Amendment) Rules of 2022 regarding the registration of Nidhi Company are as follows:

    • No business may solicit deposits from or extend loans to any of its members in the following circumstances:
      • It doesn’t follow Nidhi Company’s new regulations or specifications.
      • The central government has denied the application in Form NDH -4.

However, the Company created on or after the start of these Nidhi Company New regulations shall not be subject to anything stated in these regulations.

    • After meeting the following requirements, every public business that wants to be declared as a Nidhi firm must submit Form NDH-4 within 120 days after the date of establishment for that purpose.

(i) There are at least 200 members.

(ii) It has at least Rs – twenty lacs in net-owned funds.

The central government must inform the Company of its decision within 45 days after reviewing the application; otherwise, the judgment will be granted.

But the Company will start operating once the central government accepts its application.

  • With Form NDH-4, the Company must include a declaration attesting that each of its directors and promoters is a fit and proper person.

To ascertain whether any promoter or Director is a proper individual, the following factors should be taken into consideration:

  • Integrity, honesty, moral behavior, justice, good name, and character.
  • Avoiding any of the disqualifications mentioned above.

(i) He is the subject of any complaints or inquiries under section 154 of the Criminal Procedure Code.

(ii) Chargesheet brought against him for economic crimes

(iii) He is the subject of a department order, restraining order, or restriction relating to a company law, securities legislation, or active financial market.

(iv) He was convicted of a crime involving moral turpitude.

(v) Declared participation but wasn’t let go.

(vi)  A disturbed mentality.

(vii) Wilful defaulter.

(viii) Economic criminal on the run.

(ix) A director of at least five businesses.

(x) This person is a promoter in three or more Nidi Companies or a director in five or more Nidi Companies.

    • From 5 lakhs to 10 lakhs, the minimum paid-up share capital has been increased.
    • Every condition must be met by a Nidhi company that existed on the date the Nidhi Company New Rules were enacted within 18 months of that date.
    • Companies incorporated on or after the execution of the Nidhi Company New Rules shall not be subject to the need to apply Form NDH 1 within 90 days of the Company’s establishment.
    • The minimum amount of Net Owned Funds for the Nidhi firm has increased from 10 lakhs to 20 lakhs.
    • Any branch outside the district that a Nidhi company wishes to open must now submit an application in Form NDH 2 along with the fee specified by the Companies (Registration Offices and Fee) Rules, 2014, and notify the Registrar of the opening within 30 days of the branch’s opening. It can only open attachments after submitting its annual report or financial statement to the Registrar. Additionally, it may only establish a Branch within the jurisdiction in which its registered office is located.
    • A change has been made to the Forms in the Annexure (NDH 2 Form: heading, serial number. 4, serial no. 6, in Form NDH 3 and NDH, and another Form of NDH 5 is inserted after NDH 4).

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