The word ‘Nidhi’ literally translates to ‘treasure’ and is much indicative of the reasons backing the existence of a Nidhi Company. Section 406 of the Companies act 2013 defines Nidhi Company is an entity incorporated to develop saving habits amongst its members. The primary business of a Nidhi Company is to borrow and lend money between its members only while mutually benefiting from the scheme. These are also known as Mutual Benefit Funds, Permanent Funds & Mutual Benefit Companies. It is one of the classes of Non-Banking Financial Sector (NBFC) since it is not as organized as a full-fledged bank. They are widely operative in South India, also known as single office institutions developed mainly to provide financial assistance to the members of the company for their domestic as well other financial needs. This article is aimed at providing in-depth insight on the Incorporation of a Nidhi Company. But before that, let’s take a look on how a Nidhi Company operates.

Salient Features of Nidhi Company:

As mentioned above to, a Nidhi Company is essentially developed for the benefit of their members and helping them imbibe saving habits and prudence and thrifts.

  • Membership: According to the Act, a director shall also be a member of Nidhi Company. At any point of time, the number of a member shall not fall less than 200. A minor and a body corporate cannot be a member of such a company.
  • Contribution by members: The funds of a Nidhi Company are primarily soured from its members, with an objective to benefit both the depositors and borrowers mutually. Also, the deposits of Nidhi Company at any point of time shall not exceed more than 30 times of its net owned funds.
  • Loan Arrangements: A member-only can borrow from a Nidhi Company against securities which may include Gold, silver, immovable property, NSC, Government securities, etc., as per rules prescribed under the Act.
  • Dividend: A dividend not exceeding 25% of the net owned assets may be given to the members provide an equal amount has been transferred to the General Reserve and the company has made no defaults to the rules applicable to Nidhi Companies.
  • Working through Branches: A Nidhi Company may handle its operations through a network of branch, collection centers, and offices within the state where registered officer is situated, if it has recorded profits in past three financial years. A maximum of 3 branches can be opened in one go. For opening of more branches, prior permission form Regional Director had to be obtained in advance.
  • Share Capital and allotment: A Nidhi Company has to allot at least 10 equity shares of not less than 10/- share. It is not allowed to preference share capital or debentures to its members. If already issued, the same has to be redeemed in accordance with the terms and conditions of the Act.
  • Net owned Funds: Every Nidhi has to maintain a Net owned Fund of at least Rs. 10 Lacs within a period of one year after incorporation and ratio of net owned funds to deposits shall not be more than 1.20

Minimum Requirements and documents Checklist

Minimum Requirements (Pre-Incorporation)

  • Minimum paid-up share capital of 5 Lac.
  • Designated Partner Identification number for all directors
  • DSC to be obtained for both the directors.

Minimum Requirements (Post Incorporation)

  • Minimum number of members should be 200.
  • Minimum Net owned funds of Rs. 10 Lacs.
  • The deposits accepted should not exceed 20 times of net owned funds.
  • Unencumbered term deposits must be at least 10% of the outstanding deposits.

Documents Required:

  • Directors’ PAN card
  • Passport size photo of all directors.
  • Copy of Rent Agreement for purpose of Registered office (in English)
  • Property proofs (if owned)
  • Utility Bills of the business premises
  • No objection certificate to carry business in rented premised, in case rented.

Process of Incorporation

A Nidhi Company is incorporated as a public limited company and the following steps are to be followed:

Step 1: The first step would be obtain Directors’ Identification number in e-form DIR-3 for the directors; applying for digital signatures and uploading the same on MCA portal.

Step 2: Applying for name in INC-1 with ROC, with six suitable names in order of preference, ending with ‘Nidhi Limited’. The name so approved shall be available for use for a period of 60 days.

Step 3: Further, an application in Form INC-7 (declaration of incorporation) has to be submitted to ROC with duly drafted MOA & AOA, opting objects in line with very purpose of Nidhi Company i.e. cultivating saving habits and thrift amongst its members.

Step 4: Subsequently INC-22 notifying registered officer address from where the day to day affairs of the company shall be carried on.

Step 5: Filing form DIR-12, notifying particulars of the directors of the company.

Step-6: If all the documents are in place, concerned ROC will issue the certificate of incorporation post which the company may commence its business.


Step 1: Filing e-Form NDH-1 within 90 days from the closure of the first financial year. In case if the company is unable to file NDH-1 within stipulated time, then file NDH-2 to the regional director asking for extension of time to file required documents.

As stipulated earlier in this article, a Nidhi Company is one of the form of NBFC. In recent times, RBI has put a lot of restrictions on incorporation of NBFC, therefore more and more promoters have started resorting to Nidhi Companies as RBI has exempted from its core provisions, making it easy opportunity for people.

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