Nidhi Company in India – It’s Features, Advantages & Disadvantages

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NIDHI COMPANY

• Nidhi company registration in India is governed under section 406 of companies act, 2013. The word “Nidhi” is sometimes used in reference to a treasure/a fund i.e. the company incorporation with the primary objective of creating a habit of savings amongst its members.
• Companies which are incorporated as Nidhi Company are primarily involved in borrowing & lending to members only. Nidhi Company is a form of Non-Banking Financial Institution (NBFC). Inculcating the habit of savings among its members, Nidhi Company works on the principle of mutual benefit of both the company and its member.
• Since Nidhi companies are formed under the rules of companies act, 2013 therefore it is not required to take a separate license from Reserve bank of India (RBI), hence it is easy to get Nidhi Company incorporation rather than a bank.

FEATURES OF NIDHI COMPANY

• Borrowing & Lending to its members: Nidhi Company cannot lend & borrow from outside its member community. Restricting the business area of company also reduces the chances of business collapse.
• “Nidhi ltd.”: “Nidhi limited” must be added to name of the company incorporation if it is registered as a Nidhi company under companies act, 2013.
• Share capital: Minimum equity share capital of INR 5 lakh is required for company incorporation as Nidhi Company. Once you have registered it as a Nidhi company, You cannot issue preference shares.
• No. of members: Atleast 7 members must be there to start a Nidhi company. Out of these 7 members, 3 must be the full time directors of the company.

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ADVANTAGES OF NIDHI COMPANY

• Nidhi rules, 2014: According to the Nidhi rules as designed for the functioning of a Nidhi company, they are not allowed to deal with the funds of any person other than their members and the powers to impose certain restriction by RBI are limited.
• Ease of formation: Unlike other NBFCs or scheduled banks, Nidhi Company does not have to obtain a license from RBI. They have to initiate the process of new company registration as a public company with MCA under the Nidhi rules 2014 and they can start the functioning of the company.
• Channelizing savings: Nidhi Company gives an opportunity to all its members to start the borrowing and lending process once they become member of it. Promoting an environment of savings among a lower and middle section of society. These small sections can now contribute and avail credit from Nidhi companies.
• Low credit rate: Lower rate of interest on loan which is offered to the members of the Nidhi Company than prevailing market rate. This brings greater confidence amongst the members and boosts the process of savings to the members.
• Minimal outside intervention: Since Nidhi company offers the borrowing and lending facility for its members only. Therefore, outsider intervention is automatically reduced since an outsider does not actually have a say in the internal matter of the company.
• Cost effective: Nidhi Company registration is a cost effective affair. Unlike a scheduled bank registration or a private company registration formalities involved in Nidhi company registration are minimal. The minimum capital requirement of Nidhi Company registration is INR 5 lakh where you have the opportunity to invest the capital within the 2 months after the company registration.

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DISADVANTAGES OF NIDHI COMPANY

• Limited Fund Raising: Fund raising in a Nidhi Company is directly related with the number of members it have because a Nidhi Company can only accept deposits and lend only to its members which limits it source of raising funds. 
• Limited credit availability: Limited fund with the company raises the concern of limited credit availability which ultimately beats the very purpose for which the Nidhi companies were established.
• RBI vigilance: Although there are no strict compliances imposed upon the Nidhi company by RBI, still their activities are governed by the Reserve Bank especially their deposit acceptance operations.
• Other Regulations: The central government issues rules and directions governing Nidhi Companies from time to time. Therefore, they are not totally exempt from the regulatory framework.

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