What is Nidhi Company and how it works?

Nidhi Companies belong to the Non-banking financial companies structure. Registering a Nidhi Company allows a Nidhi to borrow from its members and lend to the members.

Nidhi Companies are registered in India are created to cultivate the habit of thrift and savings among its members. The funds that are contributed to a Nidhi Company are only from its members.

For Incorporating a Nidhi Company, no license is required from the Reserve Bank of India. Hence, the formation of the Nidhi Company is easy. Nidhi Companies are registered as Public Companies and should have Nidhi Limited at the last of the name.

It should also be noted that the Nidhi Companies fall under the purview of the Reserve Bank of India as the functioning of Nidhi Companies is similar to NBFCs.

The following documents are required to incorporate a Nidhi Company.

• Directors Identification Number
• PAN number of the shareholders as well the Directors
• Residential Proof of the shareholders and directors
• Photographs
• Identification Documents such as the Aadhar card
• Rent agreement or lease agreement of the Registered office
• If the office is owned, then ownership information or the registered office address must be provided
• NOC if required
• MOA
• AOA
• MCA form

What are the advantages of getting a Nidhi Company Registration?

Firstly, to Incorporate a Nidhi Company Limited Capital is required. But it should be noted that it is necessary to first incorporate as a limited Company.

The major objective of this form of entity is to raise funds from the public. This is also a type of NBFC that carries out activities such as accepting deposits from the members. So, a Nidhi Company can raise funds easily.

The Companies are registered under section 406 of the Companies Act 2013; this form of entity is based on the mutual benefit principle. The primary beneficiaries are the members of the shareholders of the entity. Hence, a Nidhi Company easily provides loans to its members.

An applicant can select a group of members to carry out this process. Once the Nidhi Company is registered, there is no need to involve any external management.

There are fewer Compliances as compared to other forms of entities. Under the RBI act, Nidhi companies are exempted from carrying out a different form of Compliances.

Under the Companies act, this form of entity would secure the status of limited liability. Also, this form of entity is independent of the members and Directors.

As the Nidhi Companies are similar to the NBFCs, they have to comply with the requirements of the NBFC, and the entities are exempt from a specific provision of the RBI act.

Compared to the credit societies that are regulated by the societies registration Act, there are fewer Compliances for Nidhi Companies. Hence, when an individual wants to adhere to fewer compliances, he can opt for Nidhi Company.