Nidhi Companies

In News

• The Ministry of Corporate Affairs (MCA) has tightened the rules for Nidhi Companies.

About Nidhi companies 

• Meaning:
  • 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.
• Licence:
  • Nidhi Company isn’t required to receive the licence from the Reserve Bank of India (RBI).
  • Nidhi Company is registered under the Companies Act.
• 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.
• Members:
  • Minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.
• Significance:
  • Nidhi companies are very popular in South India and are key players in the financial system as they mobilise funds from their members and give loans to them at a lower interest than commercial banks.
• New Changes introduced:
  • Registration: To become a Nidhi company, the entity has to first register as a public limited company, which has more disclosure requirements than a private limited company.
  • Declaration: a public company set up as a Nidhi with share capital of 1 million needs to first get itself declared as a Nidhi from the Union government.
  • Membership: This can be done by submitting an application showing a minimum membership of 200 and net owned funds of 2 million within 120 days of its incorporation.
  • The promoters and directors of the company have to meet the criteria of fit and proper person as laid down in the rules.
  • Concept of deemed approval: That is, if no decision on the application is conveyed to the company within 45 days of filing the application, approval would be deemed as granted.
  • No Loan to companies: Only individual members are allowed in Nidhi companies and it cannot give loans to companies.

Source: TH