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Nidhi Company

A Nidhi Company is a type of company incorporated under Companies Act 2013 which performs functions of the non-banking financial company. Their main business is lending and borrowing money among their members. They are governed by the Ministry of Corporate Affairs. Nidhi companies existed even before the existence of companies Act 2013. These types of companies are more eminent in the Southern part of India, and about 80% of Nidhi companies are located in Tamil Nadu.

They are public limited companies incorporated under Section 406 of the Companies Act 2013 and governed by Nidhi Rules, 2014.

Characteristics of Nidhi Company:
Public Limited Company
Equity Shares
Object
Nidhi
Face Value
Minimum Number of Shareholding
Membership

As per the Companies Act 2013, “Nidhi” means a company that is incorporated as a Nidhi with an object to develop the habit of careful use of money and saving amongst its members. A Nidhi Company can receive deposits from its members and can also lend money to them for their mutual benefit.

The central government can decide exemption regarding the applicability of any provision of the Companies Act 2013 to these types of companies. A copy of every notification granting such exemption must be presented before Lok Sabha as well as Rajya Sabha.

Public Limited Company:

Only a Public limited company can be a Nidhi Company with a minimum paid-up equity share capital of Rs. 5.00 lacs.

Equity Shares:

A Nidhi Company can issue only equity shares. Nidhi Company has to redeem preference shares after the commencement of the Companies Act 2013, if any, issued by it.

Object:

A Nidhi Company can have only one object i.e. “cultivating the habit of thrift and saving amongst its member, receiving deposits from, and lending to, its members only, for their mutual benefit”.

Nidhi:

Every Nidhi Company shall use the word “Nidhi” as its suffix for instance “XYZ Nidhi Limited”. Net Owned Fund Net Owned Fund of the Nidhi Company must be Rs. 10 Lacs or more and the ratio of Net Owned Fund to Deposit must be less than or equal to 1:20.

Face Value:

Face Value of equity shares of Nidhi Company must be less than or equal to Rs.10.00 each. Issues of shares are free of Service Charges.

Minimum Number of Shareholding:

Every Nidhi Company shall allot to each deposit holder at least a minimum of 10 equity shares or shares equivalent to Rs.100. But savings account holder and a recurring deposit account holder shall hold at least 1 share of Rs. 10.

Membership:

Only an adult can be a member of Nidhi Company. But deposit may be accepted in the name of a minor if such deposits are made by the natural or legal guardian who is a member Nidhi Company. Body corporate and trusts are prohibited from becoming a member of Nidhi Company.
Benefits of Nidhi Company:

Limited Liability:

The liability of members of a Nidhi company is limited. Since the Nidhi Company is a form of a company the liability of its members is also limited.

Perpetual succession:

The existence of the Nidhi Company is independent that of its members as well as its Directors.

Separate Legal Entity:

A Private Limited Company is a separate legal entity which means a Private Limited company can file a court case in its name and if a particular person wants to file a case against the company then he cannot file such a case against shareholder or Director but he can do it against the company itself.

Branches:

A Nidhi Company can open branches if it has earned net profit after tax continuously during the preceding 3 financial years. A Nidhi company may open up to 3 branches within the district. A Nidhi Company can open branches only in the state in which it has its Registered Office.

Deposits:

The main feature of Nidhi Company is it can receive deposits. But the amount of such Deposit must be less than or equal to 20 times of its Net Owned Fund.

Management:

Like any other company, Nidhi Company is also managed by its director. The Director must be a member of Nidhi Company. The Director of the Nidhi Company can hold office for the term up to 10 consecutive years. The Director shall be eligible for reappointment only after the expiration of 2 years of ceasing to be a Director.

Dividend:

The operation of the LLP and the distribution of profit is decided by a written agreement among the partners. A Nidhi Company can distribute dividends up to 25%.

Auditor:

A Nidhi Company can appoint or re-appoint an individual or a firm for one term of 5 consecutive years and two terms of 5 consecutive years.

RBI Approval:

Nidhi Company can commence its business of lending and deposits without the approval of the Reserve Bank of India.

Risk Factor:

A Nidhi Company can accept deposits from or lend to only its members, so it becomes less risky to conduct business operations of Nidhi Company.
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