Nidhi Companies

About

●Nidhi Company is a type of Non-Banking Financial Company (NBFC).

●It is formed to borrow and lend money to its members.

●It inculcates the habit of saving among its members and works on the principle of mutual benefit.

●Nidhi Company isn’t required to receive a licence from the Reserve Bank of India (RBI), hence it is easy to form.

●It is registered as a public company under section 406 of the Companies Act 2013. and should have “Nidhi Limited” as the last word of its name.

Prohibited activities

●Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business.

●It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.

●Also, it can’t advertise itself to ask for any deposits.

Number of Members

●A minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.

Share capital

●A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company.

●Nidhi Company can’t issue preference shares.

Conditions to be fulfilled for getting ‘Nidhi’ status

Within one year of its registration

1.Nidhi Company should have a minimum of 200 members within one year from commencement.

2.Also, the net owned funds should be 10 lakh rupees or more.

3.Unencumbered term deposits must be 10% or higher of the outstanding deposits.

4.The ratio of net owned funds to deposits shouldn’t be more than 1:20.

Preference shares

●It is also commonly known as preferred stock.

●They are a special type of share where dividends are paid to shareholders prior to the issuance of common stock dividends.

●That is, preference shareholders hold preferential rights over common shareholders when it comes to sharing profits.

PRACTICE QUESTION

Q.Consider the following statements regarding the Nidhi Companies:

1. They are private limited companies formed to borrow and lend money to its members.
2. Equity share capital of 1 crore rupees is required to start a Nidhi Company.
3. They can not advertise themselves to ask for any deposits.

How many of the above statements is/are correct?

A. Only one

B. Only two

C. All Three

D. None

Answer: A

Explanation:

Statement 1 is incorrect:

●It is formed to borrow and lend money to its members.

●It inculcates the habit of saving among its members and works on the principle of mutual benefit.

●Nidhi Company isn’t required to receive the licence from Reserve Bank of India (RBI), hence it is easy to form.

●It is registered as a public company under section 406 of Companies Act 2013. and should have “Nidhi Limited” as the last words of its name.

●Therefore they are not Private limited companies.

Statement 2 is incorrect:

●A minimum of 5 lakh rupees, is required as the equity share capital to start a Nidhi Company.

●Nidhi Company can’t issue preference shares.

Statement 3 is correct:

●Nidhi Company can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business.

●It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.

●Also, it can’t advertise itself to ask for any deposits.