Nidhi Company Registration | Documents | Procedure | Unilex

What is Nidhi Company?

Nidhi means a company which core business is of receiving deposits from and lending money for their mutual benefit among their members, thus promoting a habit of small savings amongst its members. This company is also called “mutual benefit company” and is targeted at the lower & middle-class people. These companies are also known under different names such as Nidhi, Permanent Fund, Mutual Benefit Company and mutual benefit funds. Nidhi company registration have more demands in south part of our country. Company can provide loans only to the members and that too at an reasonable rate of interest. Government has issues separate set of rules for Nidhi Company called “Nidhi Rules, 2014”.

Why Nidhi Company?

Nidhi Company is one of the categories of NBFC’s or we can say that it is the cheapest form of NBFC as well. Also, it is a very easy form to register & does not require much capital. It is registered just like a limited company, involved in taking deposits & lending to its members. We can say that it is a small & legal way to start the finance business in India. It is to be noted that, RBI has exempted Nidhi Companies from the various regulations applicable on NBFC. However, Reserve Bank of India is empowered to issue directions to them in matters relating to their deposit acceptance activities. However, the deposits mobilized by Nidhis are not much, when compared to the organized banking sector.

Features of Nidhi Company

  • It Promotes small savings among middle & lower middle class

  • It accepts the term deposit for timely returns

  • It cannot issue Preferential shares.

  • It is an easy source of loan to members against collateral

  • Starting a Nidhi Company is beneficial for long terms gains due to the nature of investments & procedures.

Who can become member of a Nidhi company

  • Only individual can be a nidhi company member
  • Member should not be minor, although deposit could be accepted in the name of a minor, if they are made by a legal guardian.

Points to be considered while Registering Nidhi Company

  • Nidhi Company must be a public company, hence its name must contain- ‘Nidhi Limited
  • Minimum 3 directors is required
  • Minimum 7 Shareholders at the time of commencement.
  • However, this number shall increase to atleast 200 within 1 year of incorporation
  • Minimum Paid Up Capital is Rs. 5 lakh.
  • Minimum Net owned Funds* Rs. 10 Lakh within 1 year of incorporation.
  • Also, the ratio of net owned funds to deposit shall not be more than 1:20
  • *Net owned funds= Paid up equity capital+ Free Reserves- Accumulated balance of losses and other intangible assets (as per the last audited balance sheet
  • Nidhi Members should not exercise over & above 10% of the total voting rights of all shareholders.
  • Every Nidhi Company shall issue the equity shares of a minimum value of Rs.10/

General Restrictions on Nidhi Company

  • According to Companies Act, Nidhi Companies shall not:
  • Carry on the business of Chit Fund, Leasing Finance,
  • Issue Preference shares & debentures
  • Carry on the business other than the business of borrowing or lending in its own name
  • Take deposits from or lend to any person, other than its members
  • Must not pledge any of the assets that have been lodged by its members as security
  • Open current account in the name of its members.
  • Enter into any partnership arrangements in its borrowing or lending Activities.

Loans under Nidhi Company

  • Where the total amount of deposit of the Company is less than Rs. 2 Crores, then the maximum loan that can be extended to one person shall not exceed Rs. 200,000.
  • No granting of unsecured loan, micro finance loans or vehicle loans.
  • Maximum gold loan can be 80% of the value of the gold.
  • The maximum period of a gold loan is 1 year.
  • Maximum loan against a property cannot exceed 50% of the value of the property.
  • Repayment period for a loan against property cannot exceed 7 years

Acceptance of Deposits under Nidhi Company

  • A Fixed deposit (FD) can be accepted for a minimum of 6 months and a maximum of 60 months.
  • A Recurring deposit (RD) can be accepted for a minimum of 12 months and a maximum of 60 months.
  • A maximum balance on which the interest is given under the savings account cannot exceed Rs. 100,000.
  • No deposit is to be repaid within 3 months; otherwise, interest provided shall be reduced by 2 percent

Yearly Compliances of a Nidhi Company

If the Nidhi Company is able to satisfy all the aforesaid conditions, then it shall file NDH-1 within ninety days from the close of the first financial year after its incorporation (and where applicable, the second financial year*), duly certified by a practicing CA/CS/CWA along with the required fees. *In case the Nidhi Company is not able to meet the above requirement at the end of one year from commencement, it may apply to the Regional Director in Form NDH-2 for extension of time, within thirty days from the close of the first financial year.

However, if even after the second financial year, it is not able to meet the requirements for a Nidhi Company, then it shall not accept any further deposits from the commencement of the second financial year until it complies with all the mandatory provisions for operating as a Nidhi Company. It shall further be liable for penal consequences.

Moreover, the Nidhi Company shall also file NDH-3 within 30 days from the end of each half year.


If the nidhi company contravenes any of the afore-mentioned provisions, the company & every officer in default, shall be punishable with fine which may extend to Rs.5000 and where the contravention is a continuing one, a further fine which may extend to Rs.500, for every day during which the contravention continues.

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