The structure of a Nidhi company is similar to that of other types of financial institutions, such as banks and credit unions. A Nidhi company typically has a board of directors and a management team, which is responsible for overseeing the company’s operations and making strategic decisions.
Nidhi companies are owned and operated by their members, who are also the borrowers and lenders. Members of a Nidhi company can deposit their savings with the company, which the company can then use to lend to other members at a reasonable rate of interest. The company may also offer other financial products and services, such as fixed deposits, recurring deposits, and loans, to its members.
In order to operate legally, Nidhi companies must meet certain requirements, such as having a minimum net owned fund (NOF) of INR 5 lakh (approximately USD 6,800) and not accepting deposits from the public. They are required to use any deposits they receive from their members for the benefit of their members, and they are not allowed to engage in any activities that are not related to borrowing and lending.
It is important to carefully research and compare different financial institutions, including Nidhi companies, before making any investment decisions. It is also a good idea to be aware of any potential risks associated with investing in financial institutions, and to only invest funds that you can afford to lose.
Instructions before starting a Nidhi Company
Before starting a Nidhi company, you will need to do the following:
- Choose a unique name for your company and get it approved by the Ministry of Corporate Affairs (MCA).
- Incorporate the company by filing the necessary documents with the MCA, including the Memorandum of Association (MoA) and the Articles of Association (AoA).
- Obtain a Certificate of Incorporation from the MCA.
- Appoint a board of directors and hold the first board meeting.
- Obtain a PAN and TAN from the Income Tax Department.
- Register for VAT or GST, depending on the state in which the company is located.
- Obtain any necessary licenses or approvals from relevant authorities.
It is advisable to seek the advice of a legal professional to ensure that you meet all the necessary requirements for starting a Nidhi company.
FAQs and Answers
A Nidhi Company was formed primarily to instil the habit of small savings among its members for their mutual benefit and to encourage members to build an investment habit. The members’ contributions are the primary source of funding for a Nidhi company.
Typically, loans are granted at much lower interest rates to the members for various purposes, such as house construction or repairs, emergency loans, personal loans etc., to provide membership benefits. The loans are generally considered secure, with a lower credit risk of defaulting.
According to the Nidhi Rules, 2014, a Nidhi company must have a minimum of 200 members. The membership of a Nidhi company consists of individuals who have contributed to the share capital of the company and are eligible to receive dividends. The members of a Nidhi company must be natural persons and must not be a partnership firm, limited liability partnership, or any other corporate entity.
The main objective of a Nidhi company is to encourage savings and provide financial assistance to its members in the form of loans and other financial services. These companies are required to follow certain rules and regulations as prescribed by the Ministry of Corporate Affairs (MCA) in India.
In order to be eligible for membership in a Nidhi company, an individual must meet the following criteria:
The individual must be at least 18 years of age.
The individual must be capable of entering into a contract as per the Indian Contract Act, 1872.
The individual must have contributed to the share capital of the company.
The individual must not be disqualified from being a member of the company as per the provisions of the Companies Act, 2013.
