Nidhi-Company

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Nidhi Company

The feature that differentiates Nidhi Company from other companies, NBFCs etc. is that "Nidhi" deals with "deposits from" and "loans to" it's members (shareholders) only, and works for the mutual benefits of it's members. Accordingly, certain exemptions have been provided to these companies in respect of annual compliances and taxation.

Nidhi Companies in India are formed, governed, and regulated by Section 406 of the new Indian Companies Act of 2013, the Companies (Nidhi Companies) Rules of 2014, and the Chapter XXVI of the Companies Rules, 2014.

The objective of incorporating a Nidhi Company is to encourage savings amongst it's members. And To fulfill this objective of cultivating the habit of saving amongst it's members. Nidhi companies are allowed to take a deposit from and lend to the members only. In other words, the funds contributed to a Nidhi company come only from it's members (shareholders) and are to be used only by the shareholders of the Nidhi Company.

The name "Nidhi" in Nidhi Company means "treasure" and it originates from the Hindi vocabulary.

Nidhi Company is a certain category of NBFC. Though not directly regulated by the RBI, still RBI has powers to issue directives for them related to their deposit acceptance activities. Moreover, because these "Nidhis" deal with their shareholder-members only, they have been exempted from the core provisions of the RBI Act and other directions applicable to NBFCs. Therefore, Nidhi Company is an ideal legal entity to take a deposit from and lend to a specific group of people.

Key Features

It cannot carry any of the following kinds of transactions. Such as leasing finance, hire purchase finance, chit fund, insurance, or acquisition of securities issued by any corporation.
It cannot accept deposits from or give loans to some external individual or corporation.
A Nidhi Company is not empowered to issue preference shares, debentures, or some other debt instruments in any form.
Companies Act 2013 and Nidhi Rules 2014 act as the governing bodies, which regulate the functions and operations of a "Nidhi Company" in India.
A "Nidhi Company" does not come under the purview of RBI. Therefore, it does not need any license from RBI to operate a loan business.
It is not entitled to perform either a "vehicle finance business or microfinance business" in India.
Within 12 months of registration, the number of members must be at least 200.
A maximum interest rate of 20% p.a. (calculated by the reducing balance method) can be charged.
The maximum rate of interest that can be offered on savings deposit account shall not exceed 2% above the rate offered by Nationalised Banks.
Nidhi Company can accept FD, RD & savings and can earn an interest of 12.5% currently.
The rate of interest that can be offered on Fixed and Recurring Deposits shall not exceed the maximum rate of interest prescribed by RBI for the NBFCs to be offered on deposits. The maximum limit for the rate of interest for NBFCs is also applicable to the Nidhi companies.
It's operations must be limited to the district level for the first 3 Years. After completion of 3 years, 3 offices can be set up within the same district. For expansion out of the district, prior approval from the "Regulator Director" is required.
It can only give loans against security. These securities may be Gold, Property, Fixed Deposits, Government Securities, or Life Insurance Certificates.
Unencumbered deposits (Deposits which aren't offered as securities for any purpose) should not be less than 10 % of outstanding deposits.
Filing of Annual Accounts, Audit, and Tax Returns, in the proper format, is compulsory.

You can start your Nidhi Company at about Rs. 25,000 only.

Benefits

Liability is Limited: Liability of Directors and shareholders of the Nidhi Company is limited. In case the company suffers from any loss and faces, financial distress in the course of it’s business activity, the personal assets of any of the Directors or members are not at risk of being seized by banks, creditors, and government.
Less Regulations: “Nidhi” companies are governed under the Nidhi Rules, 2014. The Central Government is the regulating authority, which controls it’s activities and operations. Guidelines imposed by the RBI on “Nidhis” are very few.
Better Credibility: “Nidhi” companies enjoy better credibility as opposed to any other member-based organizations like Trusts, Cooperative Societies or NGOs.
Better Option for Savings : The main purpose of a Nidhi Company’s incorporation is to encourage the habit of saving among the members of the Company. This is how it achieves the other goal of it’s registration of being mutually beneficial. The Nidhi Companies are to “lend and borrow money” to and from it’s shareholders/members only.
Easy Access of Public Funds: The loans from the Nidhi Company come at a cheaper rate than loans from banks and other NBFCs, for it’s shareholders. And the process of obtaining the loan and customized services are much more convenient and quicker.
Ease of Fund: Nidhi Company is the safest and the cheapest way of inviting deposits from the general public. You just need to take them as registered members.
Micro Banking: Nidhis provide banking services to the remote and rural public of India which still is based in far-off locations and is, hence, devoid of accessing finance from national banks and NBFCs.
It acts as a “Better Credit Co-operative Society”: Nidhi Company is a close substitute for credit co-operative society. And, therefore, more preferred by the small financer. Once a Nidhi company has been registered, the members can avail of all the benefit’s of a credit co-operative society. Simple Processing: Borrowing and lending to known persons, belonging to the same group, is much less complicated than dealing with banks, where the procedure is impersonal and fixed.
Easy Registration Process: The process to register a “Nidhi Company” with LegalRaasta is quite simple and transparent. You don’t need to take any license from RBI. You just have to incorporate your company as a public limited one with the MCA.
Single Regulatory Body: After the Amendment in Companies act 2013, Nidhi Companies are overseen by Nidhi Company Rules.
Low Capital Requirement: Ministry of Corporate Affairs (MCA) commands the minimum capital requirement of Rs.5 lakhs for the incorporation of a “Nidhi”. And, within 1-year, the capital has to be raised to at least Rs.10 lakhs. The Fees, DIN, DSC & Other Expenses are approx. Rs.25-30,000. These include Government fees that differ from State to State.
Fulfilling the needs of Lower & Middle-income groups: Nidhi Companies play an important role in meeting the needs of lower and middle-income groups by providing them financial help without complex formalities and documentation.
Easier Eligible: People getting minimum wages and belonging to lower strata are usually unable to take loans from traditional banks because of their high eligibility criteria. For them, Nidhi Company is a good option to obtain finance because of fewer conditions.
No External Involvement: Nidhi Companies take funds from their members and further provides loans to their members only. All transactions are done within this group only. So, no external factors are affecting the working of these companies. The investors/members themselves oversee the operations of the company.
Separate Entity: Nidhi Company is a separate legal entity that can acquire assets and incur debts in it’s own name.

Indian Subsidiary registration

The Indian subsidiary Company is the company whose interests are held and controlled or held by another company. The preference share capital and the paid-up equity share capital of the Subsidiary company can be used to determine the holding company, subsidiary company relationship between two companies. It can either be owned or owned in part by another company. It should be noted that the company that owns the subsidiary is known as a parent company or a holding company. Although, a holding company does slightly differ from a parent company.

Besides, a company owned 100% by another company is said to be a Wholly Owned Subsidiary of the company who had made 100% investment in it

Features

No requirement of prior approval for repatriation dividend.
Debt, Equity, and Internal accruals are the available funding mechanisms.
Indian Transfer pricing regulation is applicable to the Indian subsidiary Company.
It is treated as an Indian company for all other applicable laws and the purpose of income tax.
It is taxed at a lower rate of 30% in comparison to a foreign company whereas a foreign company is taxable at 40%.
The dividend distribution tax (DDT) is subjected to 16.995%.

Advantages

Limited Liability:The liability of Directors and members of the private limited company is limited to their shares. This means the company suffers from any loss and faces financial distress because of primary business activity, the personal assets of shareholders/Members/Directors will not be at risk of being seized by banks, creditors, and government.

Continuity of Existence:Mostly, the life of the business doesn’t affect by the status of shareholders and even after the death of the shareholder the private limited company continues to exist.

Brand ValueThe brand value of a company will get increased because employees feel secure in joining the private limited company, vendor feels secure in offering credit, investor feels secure in investing, the customer feels trust and confidence in a brand in buying company product or services because of the sound corporate structure. Many startup companies start with zero revenue and rapidly reaches to a multibillion-dollar company in just a few years just because of the high brand value of the company.

Scope of expansion:The scope of expansion is higher because it is easy to raise capital from a venture capitalist, financial institutions, angel investor, and the advantages of limited liability, the Private limited offer more transparency in the company.

Foreign Direct Investment in IndiaForeign Direct Investment (FDI) is 100% allowed in several business activities/industries without any prior approval. But FDI is not allowed in Proprietorship or Partnership; LLP requires prior Government approval.