Comprehensive Guide to General Restriction on Nidhi Company

Comprehensive Guide to General Restriction on Nidhi Company

 

In companies Act 2013, there are various types of restrictions applied on directors and shareholders to borrow or lend money to the companies. Therefore, the Ministry of Corporate affairs came with the solution which is known as Nidhi Company.  It is one of the most popular form of giving money to its members and accept deposit from its members. This company doesn’t requires any type of certificate from the Reserve of India.

If you are thinking of incorporating Nidhi Company, first look the restrictions of it that are listed below.

  • No Nidhi Company enables the business of chit fund, hire purchase finance, insurance issued by the corporate body ,and  acquisition of securities. Basically, the Nidhi Company supports the Mutual fund principle, it gives loans to its members and accept amount from them. It is restricted from the above mentioned businesses. Furthermore, the Nidhi Company is not allowed to invest money on the securities of the other companies.
  • No Nidhi Company issues preferences, shares, debentures, or any other debt instruments by any name or in any other form. The sole purpose of the Nidhi Company to deal with its members only, that is also by issuing the equity shares of the company. Thus, Nidhi company is restricted of issuing any type of security.
  • Nidhi Company is prohibited from accepting deposit from the general public and offer loan to the public. The dealing of borrowing and lending money is also between its members. Hence, it is restricted from carrying on its own business.
  • Nidhi Company shall not open current account with its members. Nidhi company can offer money and receive deposit from its members, as it is not fully fledged substitute of NBFC or a bank, so it is not allowed to open any type of current account. Important thing here is to keep in mind is that law doesn’t not prohibited to open the saving accounts with its members.
  • Just like other financial institutions, a Nidhi Company is restricted from advertising itself related to the deposits. Though, they can issue advertisement within its group of members of the renowned event like launching a new product.
  • No Nidhi Company will gain another organization by buy of securities or control the structure of the Board of the Directors of some other organizations in any manner whatsoever or enter into any arrangement for the change of its members.

Except if it has passeda unique goals in its general meetings and furthermore got the previous approval of the Regional Directors having jurisdiction over such Nidhi. Nidhi Company just works inside the state where its enlisted office is situated. However, people can buy another companyoutside the state and can their operations as well.

  • No Nidhi Company will pay any incentive or any brokerage for mobilization of the deposit from the company members or for granting of loans to the members or deployment of the members. As stated above Nidhi Company is part of soliciting of deposit. A Nidhi Company cannot hire a person to get the deposits.
  • No Nidhi Company can pledging assets- as money belongs to the members, Nidhi Company cannot pledge assets and raise a loan for any other bank. Let’s understand this point  with this example, suppose a company lend money to its member against gold. Now company holds the loan, Nidhi Company cannot pledge this gold and raise a loan from any other company. Furthermore,  It restricts the Nidhi Company from money or any deposit from anybody corporate.
  • No Nidhi Company will go into any partnership arrangement in its borrowing or lending activities. As Nidhi company works on the  mutuality principle, so it is not considered as fully fledged bank. Therefore, it is not connected to the different moneylenders to finance a big venture.

Minimum Members and Net Owned Fund Requirements of the Nidhi Company:

  • Every Nidhi Company should have minimum 200 members within 1 years from the date of incorporation.
  • Every Nidhi Company should net owned of Rs. 10 Lakhs from the date of the incorporation.
  • Unencumbered term deposits of not less than 10% of the outstanding deposits.
  • Ratio of NOF to deposit of not more than 1:20.

Rules Relating to the Directors:

  • The Director shall not hold office for term up to 10 consecutive years.
  • The Directors shall be eligible for re-appointment only after the expiry of two years from the date of expiry of ten years period.

 

Loans under Nidhi Company:

As per the  law, Nidhi company can advance loan of 2 Lakh. In the event, if the amount of the deposit is than two Crore rupees. Further details are followed.

  • Two Lakh rupees, if the deposit less than 2 Crore.
  • Seventy Lakh Fifty Thousand, if the deposit is more than 2 Crore but less than 20 Crore.
  • Twelve Lakh Rupees, if the deposit is more than 20 Crore but less than Fifty Crores.
  • Fifty Lakh Rupees, if the deposit is more than fifty crore rupees.

Conclusion:

Nidhi Company is not dynamic and flexible than other companies. There are limitations on the working of this. Since, its deal in money related issues that is too without RBI approval, the restriction is bound to be there. Keeping in mind these restrictions before incorporating Nidhi Company. If you are looking for the Nidhi Company registration, feel free to contact us. Our team of professionals will help you regarding Nidhi Company registration and other related issues and give you one-step solution against them.