Definition and Characteristics of Nidhi Company

Karan Garg
February 17, 2018

Definition and Characteristics of Nidhi Company

Definition and Characteristics of Nidhi Company: A Nidhi company belongs to the category of non-banking finance firms recognized under Section 406 of the Companies Act, 2013, it is governed by the Central Government. The basic business of such a company is to facilitate lending money between the core members of the company. Examples of a Nidhi Company are permanent funds, mutual benefit funds, a mutual benefit company and benefit funds.

The core idea behind creating a Nidhi Company is to receive funds (deposits) from members or lend to them, for the mutual benefit of both parties. All lending and borrowing must comply with rules laid down in Chapter XXIV of Company Rules, 2014.

Characteristics of Nidhi Company:

1. A Nidhi Company has dependency on the honesty, integrity and loyalty of the member and workers of the company.

2. It deals and supports the medium and small income groups.

3. The company is managed by amateurs as professional because high end managers are not affordable because of lack of funds.

4. People are apprehensive before investing in the Nidhi Companies as the company doesn’t require licensing from RBI.

5. Accepts term deposits for timely returns.

6. Easy source of loan to members against collateral.

7. Effective means of savings and loans with minimum documentation.

8. Secured means of investment due to rigid membership structure.

The primary object of Nidhi companies is investment deposits and loans applicable to members only. Loans are provided to members against collateral in form of jewellery and mortgage of property.

Important points to be considered while registering a Nidhi Company:

1. A Nidhi Company must have a minimum of 200 shareholders.

2. A Nidhi company must have unencumbered term deposits of not less than 10% of the outstanding deposits.

3. A Nidhi must have net owned funds of ten lakh rupees or more.

4. Minimum 7 Shareholders and 3 Directors are required to incorporate the Nidhi Company.

5. Nidhi can issue only rights shares and unsubscribed portion of rights issue can be apportioned by the Board of Directors as per the existing law.

6. Nidhi members should not exercise over and above 10% of the total voting rights of all shareholders.

7. A Nidhi Company must ensure that the number of membership should feature a minimum of 200 shareholders.

8. Nidhi Investments for minors can only be done where the legal guardian is a member of the Nidhi.

9. Every Nidhi Company shall issue the equity shares of a minimum value of Rs10.

10. The Nidhi Company should not be allowed to issue any new preference shares at any time.

You can also read:

Definition and Characteristics of Nidhi Company

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