Nidhi (Hindi: fund) Company is a type of loan Company, recognized under Section 406 of the Companies Act, 2013, governed by Nidhi Rules, 2014, and exempted from the stringent regulatory compliances of other NBFCs. Only members of the company can make deposits and take loans amongst themselves, so it serves as a mutual benefits society in the form of a company. The objective of a Nidhi company is to promote a habit of thrift among its members and reserve funds for mutual benefit. They are also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company.
They are regulated by Ministry of Corporate Affairs. Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. They are incorporated as a public limited company and hence, they have to comply with two set of norms, one of Public limited company as per Companies Act, 2013 and another is for Nidhi rules, 2014. Every Nidhi shall, within a period of one year from the commencement must ensure that it has not less than 200 members.
At the time of incorporation, a Nidhi Company is required to have at least 3 directors and 7 shareholders/ members as it is a type of public Company. It also requires an initial paid-up equity capital of only Rs. 5 Lakhs. A Nidhi Company can operate from more than one branch after 3 years and also from different districts after getting RD approval.
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Main Highlights of Nidhi Company
- Nidhi Company is the lowest expense loan Company as compared to NBFC & other loan Companies
- Nidhi Company is regulated under Companies Act, 2013, o need to follow stringent RBI rules for Nidhi Companies.
- Nidhi Company can earn maximum interest of 20% on loan at reducing balance method.
- Nidhi Company can accept deposit upto 20 times of its net worth.
- Nidhi Company is allowed to lend only against gold, property, FD, Government Securities
- Nidhi Company can open 3 branches within the district of its operation.
- Nidhi Company must add minimum 200 members within 1 year of its incorporation.
- A Nidhi Company cannot carry om a business of chit funds, hire purchase finance, leasing finance etc.