A Nidhi company is a type of Company that belongs to the non-banking finance category. This type of firm recognized under Section 406 of the Companies Act, 2013 and it is controlled by Nidhi Rules 2014 under the Central Government of India. The basic objective of this type of business or company is to facilitate lending money among the core members of their Nidhi company. Here are some of the examples of Nidhi Company, mutual benefit funds, permanent funds, benefit funds, and mutual benefit company.
Actually the name, Nidhi is one of the familiar words in India which means money or treasure in many Indian languages like Tamil, Telugu, Kannada, Hindi etc,. But, according to Indian Financial Sector, Nidhi Company acts as a Mutual Benefit Company and it is also called with various names like Mutual Benefit Fund, Benefit Fund and Permanent Fund.
The main aim to start Nidhi Company is to develop the habit of saving money in a wise manner and to use money carefully within the members. Nidhi company urges its members to save their extra money and using the money in a valuable way. It is mandatory that every Nidhi company should have Nidhi Limited in their name and their core business must be to lend and accept deposit among its shareholders and members only.
Restrictions on Nidhi Company in India
Registering a Nidhi company is not an easy task, it holds some kind of restrictions which all the members or the shareholders have to follow it. Generally, a Nidhi company is prohibited from undertaking any of the following activities:
- A Nidhi company should not undertake the business of chit fund, leasing finance, hire purchase, acquisition of securities or insurance.
- A Nidhi Company should not issue preference shares or debentures.
- A Nidhi Company should not open current account for any member of the company.
- A Nidhi Company should not accept deposit or lend money to any non-member or person who is not a member of this company
- A Nidhi Company are not allowed to issue any kind of advertisement.
- A Nidhi Company should not enter into any pay brokerage or agreement to woo any kind of deposits.
- The members of the company are not allowed to pledge any of the assets which is submitted as their security.
Disadvantages of Nidhi Company are as follows:
Apart from restrictions, you should also know about the disadvantages of Nidhi Company in DEPTH before you decide to start a Nidhi Company. Below are some of the disadvantages of Nidhi Company:
- Nidhi Company can accept the deposit and lend money only among its shareholders and members which means this type of company can’t accept deposits from the public for any reasons. The Nidhi Companies must accept deposits only from their members and shareholders, so obviously the funds raised from the deposits of the members will be limited.
- If the funds raised from the deposit of members of the company are limited, the availability of money to lend or credit is also limited. This thrash the whole objective for which the Nidhi Companies are started.
- After a year, a Nidhi Company should make sure that it holds minimum 200 members and their net owned fund should be Rs.10,00,000 as per the Section 406 of Companies Act 2013 and Nidhi Rules 2014 which may be difficult sometimes.
- The activities of a Nidhi Company fall under RBI vigilance. Even though, there are no strict abidances imposed upon the Nidhi Companies by RBI but all their activities are controlled and governed by the Reserve Bank particularly the deposit acceptance operations of the company.
- Other rules and regulations of the Nidhi Company is issued by the central government from time to time. Therefore, A Nidhi company is not totally free from the regulatory framework.
- Nidhi Company have to open 3 branches after completing its 3 successful years in the same place or district. And if a Nidhi Company wants to open their branches in other districts then it needs to get RD approval and importantly it cannot open any branches in other states.
- Nidhi Company adopts its plans or schemes for deposits under the guidelines issued by RBI and are not allowed to carry any schemes or plans for more than 5 years.
With all its limitations and disadvantages aside, Nidhi Company is one of the highly rising companies in India as it is worth for all range of people from small business person to corporate personalities. The required capital to start this company is really low and it is affordable even by a middle earning people. Starting a Nidhi company is also easy because it requires only 7 members with a minimum of 5 lakhs. And there is no procedure to check the background of the members or the directors, no minimum qualification is needed and no banking sector experience is also required for members to start a Nidhi Company. Registration process is also simple, just you have to apply it online with all needed copies of documents and registration fee.
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