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WHAT ARE THE RESTRICTION ON NIDHI COMPANY WHO CAN BECAME THE SHAREHOLDER OF NIDHI COMPANY?

YOU NEED TO KNOW WHAT ARE THE RESTRICTION ON NIDHI COMPANY WHO CAN BECAME THE SHAREHOLDER OF NIDHI COMPANY?

What are the restriction on nidhi company 

Nidhi Companies in India face several restrictions outlined by the Ministry of Corporate Affairs. These include a minimum capital requirement of Rs. 10 lakhs, limitations on membership to individuals, restrictions on lending activities to members, borrowing only from members, and compliance with Nidhi Rules, 2014. Branch expansion is subject to profitability, and a focus on rural development is mandated. The net owned funds must be maintained at a minimum of Rs. 10 lakhs, and engagement in speculative business or insider trading is prohibited.

Who can became the shareholder of nidhi company

Individuals can become shareholders of Nidhi Companies, fostering a mutual benefit ethos. However, corporate entities, trusts, and minors are ineligible for membership. Shareholders actively contribute to the company’s savings and can avail of financial assistance, adhering to the regulatory framework set by the Ministry of Corporate Affairs in India Visitofficialwebsite

restriction of nidhi company

  1. Membership Restrictions:

    • A Nidhi Company must have a minimum of 200 members within one year of its incorporation.
    • Membership is open only to individuals who meet the eligibility criteria specified in the Nidhi Rules, such as Indian citizenship and a minimum age requirement.
 

2. Objective Limitation:

    • Nidhi Companies are primarily formed to promote the habit of saving and to provide loans to their members. They are not allowed to engage in any other business or financial activities beyond this limited objective.
 

3. Capital Restrictions:

    • Nidhi Companies are required to have a minimum net owned fund of Rs. 10 lakhs.
    • They are prohibited from issuing preference shares or debentures, ensuring that the source of funds is limited to members only.
 

4. Lending Restrictions:

    • Nidhi Companies can only provide loans to their members, and these loans should be for the purpose of agriculture, trade, or industry.
    • The amount of loan given to a member should not exceed a certain limit, which is prescribed by the Reserve Bank of India (RBI) to prevent excessive lending and associated risks.
 

5. Borrowing Restrictions:

    • Nidhi Companies are not allowed to borrow funds from any source other than their members. This restriction ensures that their operations are self-sustaining and dependent on member contributions.
 

6. Deposits Restrictions:

    • Nidhi Companies can accept deposits only from their members. They cannot accept deposits from the public, which is a key differentiator from traditional banks and financial institutions.
 

7. Branch Expansion Restrictions:

    • Nidhi Companies can open branches, but certain conditions and restrictions apply. They can open branches only after three years of profitable operations and meeting other financial criteria. Additionally, they need prior approval from the Regional Director.
 

8. Regulatory Compliance:

    • Nidhi Companies must comply with the Nidhi Rules, 2014, and other relevant regulations. They need to file various reports and returns with the Registrar of Companies (RoC) and other regulatory authorities.
 

9. Transparency and Accountability:

    • Nidhi Companies are required to maintain proper books of accounts and financial records. Transparency in financial transactions is essential to safeguard the interests of the members.
 

10. Inspection and Monitoring:

    • Regulatory authorities, including the RoC and the RBI, have the power to inspect and monitor the operations of Nidhi Companies to ensure compliance with the rules and regulations.

What is Nidhi Company Registration in India

Nidhi Company Registration in India refers to the process of establishing a Nidhi Company, a type of Non-Banking Financial Company (NBFC) that is recognized under Section 406 of the Companies Act, 2013. The primary business of such a company is to facilitate lending money between the core members of the company.

The process of Nidhi Company Registration involves several steps:

  1. Obtain Digital Signature Certificate (DSC): The proposed directors of the Nidhi Company must obtain a DSC, which is used to verify the authenticity of documents submitted electronically.
 

2. Obtain Director Identification Number (DIN): Each director must also obtain a DIN, which is a unique identification number issued by the Ministry of Corporate Affairs (MCA).

 

3. Name Approval: The company must apply for name approval to the MCA. The name should end with ‘Nidhi Limited’.

 

4. File Incorporation Application: Once the name is approved, the company can file an incorporation application to the MCA along with necessary documents like Memorandum of Association (MoA) and Articles of Association (AoA).

 

5. Commencement of Business: After the company is incorporated, it must file a declaration for the commencement of business.

 

Nidhi Companies are governed by both the Companies Act, 2013 and Nidhi Rules, 2014. They are created primarily for cultivating the habit of thrift and savings amongst its members. The funds contributed by the members are used by the Nidhi Company for lending to members in need.

Definition and Characteristics of Nidhi Companies:

  1. Incorporation: Nidhi Companies are incorporated as public limited companies under the Companies Act, 2013.

  2. Objective: The primary objective of a Nidhi Company is to cultivate the habit of savings among its members and to provide them with financial assistance by receiving deposits and lending funds to members.

  3. Membership: Nidhi Companies are only allowed to provide services to their members and cannot engage in any other financial activity beyond this limited circle.

  4. Minimum and Maximum Members: As per the Nidhi Rules, a Nidhi Company should have a minimum of 200 members. The maximum number of members in a Nidhi Company is also prescribed by the Ministry of Corporate Affairs.

  5. Share Capital: Nidhi Companies must have a minimum net owned funds of Rs. 10 lakhs.

  6. No Preference Shares: Nidhi Companies are not allowed to issue preference shares or debentures.

  7. Restrictions on Loans and Advances: Loans are only given to members, and the amount of the loan cannot exceed a certain limit prescribed by the Reserve Bank of India.

  8. Restrictions on Deposits: Nidhi Companies can only accept deposits from their members.

  9. Branch Expansion: A Nidhi Company can open branches, but there are certain criteria and restrictions on branch expansion.

How do I register a nidhi company

Nidhi Company is a Non-Banking Financial Company that is regulated by the Reserve Bank Of India. It provides the service of lending and depositing to its member. Nidhi Company is registered as a Public Company. A minimum of seven members is needed to start a Nidhi Company and three members must be the directors of the company.

The procedure of Nidhi Company Registration:

  • Obtain DSC (Digital Signature Certificate)
  • Obtain DIN (Director Identification Number)
  • Apply for Name Approval, fill out the reserve unique name form for the reservation of Name.
  • Drafting of MOA and AOA under INC 32, INC 33
  • Submit the online application for a Certificate of Incorporation
  • After the approval of the document, the registrar provides the CIN along with PAN and TAN.

Who Can Become a Shareholder of a Nidhi Company:

To become a shareholder of a Nidhi Company in India, one must meet certain eligibility criteria. The Nidhi Rules, 2014, provide guidelines regarding who can become a member and shareholder of a Nidhi Company:

1. Indian Citizenship: Shareholders of Nidhi Companies must be Indian citizens. Non-resident Indians (NRIs) and foreign nationals are not eligible to become shareholders.

2. Minimum Age Requirement: Shareholders must be of a minimum age, usually 18 years or above, to become a member of the Nidhi Company.

3. Membership Application: Individuals who wish to become shareholders must apply for membership to the Nidhi Company. This typically involves submitting a prescribed application form along with the necessary documents and fees.

4. Residential Address: Shareholders should have a valid residential address in India. This address is used for communication and verification purposes.

5. Compliance with KYC Norms: Like all financial institutions, Nidhi Companies are required to adhere to Know Your Customer (KYC) norms. Therefore, prospective shareholders must provide valid identification and address proofs for KYC compliance.

6. Compliance with Minimum Share Requirement: Shareholders need to purchase a minimum number of shares as stipulated by the Nidhi Company’s bye-laws. These shares represent the individual’s ownership in the company.

7. No Criminal Record: In some cases, Nidhi Companies may conduct background checks to ensure that the prospective shareholders do not have a criminal record.

8. Meeting Other Eligibility Criteria: Nidhi Companies may set specific eligibility criteria for membership, and individuals must meet these criteria to become shareholders.

It’s important to note that these criteria may vary slightly from one Nidhi Company to another. Each Nidhi Company can set its own specific membership rules as long as they are in compliance with the Nidhi Rules, 2014.

The Regulatory Framework for Nidhi Companies:

Nidhi Companies are regulated by the Ministry of Corporate Affairs (MCA) and are required to comply with the Nidhi Rules, 2014. The regulatory framework for Nidhi Companies includes the following key aspects:

1. Registration and Incorporation: Nidhi Companies are registered as public limited companies under the Companies Act, 2013. They must follow the standard procedures for company registration, including obtaining the necessary approvals from the Registrar of Companies (RoC).

2. Minimum Net Owned Funds: As per the Nidhi Rules, a Nidhi Company must have a minimum net owned fund of Rs. 10 lakhs. This is essential to ensure the financial stability and sustainability of the company.

3. Minimum Number of Members: Nidhi Companies must have a minimum of 200 members within one year of their incorporation. This rule ensures that Nidhi Companies serve a broad membership base and promote financial inclusion.

4. Restrictions on Lending and Borrowing: Nidhi Companies are not allowed to engage in lending or borrowing activities with any entity other than their members. They can only provide financial services to their members, which sets them apart from traditional banks.

5. Limit on Deposits and Loans: The Nidhi Rules prescribe the maximum limit for the acceptance of deposits and the amount of loans and advances a Nidhi Company can provide to its members. These limits are set to prevent excessive financial risk and ensure the financial stability of the company.

6. No Preference Shares or Debentures: Nidhi Companies are prohibited from issuing preference shares or debentures. This restriction is in place to maintain the purity of the Nidhi concept, where funds are sourced from members for the benefit of members.

7. Branch Expansion: The Nidhi Rules also specify the criteria and restrictions for the expansion of branches by Nidhi Companies. For instance, a Nidhi Company can open branches only after it has earned a profit for three consecutive years, and it must meet other financial criteria.

8. Compliance and Reporting: Nidhi Companies are required to maintain proper books of accounts and submit various reports to the regulatory authorities, including the RoC. These reports help in ensuring transparency and accountability.

9. Annual Compliance: Nidhi Companies must comply with the annual compliance requirements, which include holding an Annual General Meeting (AGM), filing financial statements, and other compliance activities as mandated by the Companies Act, 2013.

10. Monitoring and Inspection: The regulatory framework allows for the monitoring and inspection of Nidhi Companies by authorities to ensure that they are functioning in compliance with the Nidhi Rules, 2014.

Conclusion

Nidhi Companies play a crucial role in financial inclusion in India by providing a platform for their members to save and access credit. These companies are subject to strict regulations and must adhere to the Nidhi Rules, 2014, set by the Ministry of Corporate Affairs. Shareholders of Nidhi Companies must meet specific eligibility criteria, which include Indian citizenship, a minimum age requirement, and compliance with Know Your Customer (KYC) norms.

The Nidhi concept, while promoting financial inclusion and mutual benefit, also ensures the financial stability and sustainability of these institutions. By limiting their activities to members and prohibiting the issuance of preference shares or debentures, Nidhi Companies are designed to maintain the purity of their mission. As a result, these institutions serve as an essential part of the Indian financial landscape, catering to the financial needs of individuals and promoting a culture of savings and responsible lending.

How auriga accounting help you to define restriction in nidhi company

Auriga Accounting, or any accounting software for that matter, is primarily a tool for managing financial transactions, maintaining financial records, and generating reports. It does not inherently define restrictions in a Nidhi company, but it can help in certain aspects related to financial management and compliance. Here are some points on how accounting software like Auriga Accounting can be used in the context of Nidhi companies:

  1. Transaction Recording: Auriga Accounting can help you record all financial transactions, including deposits, withdrawals, and interest calculations. This is essential for maintaining transparency and compliance.

  2. Member and Shareholder Management: You can use the software to keep detailed records of your Nidhi company’s members and shareholders, including their shareholdings and transaction history.

  3. Interest Rate Calculation: Nidhi companies are subject to certain restrictions on the interest rates they can charge and offer. Accounting software can automate interest rate calculations to ensure compliance with these restrictions.

  4. Dividend Management: If your Nidhi company generates profits, accounting software can help you calculate and distribute dividends to members in compliance with the applicable rules.

  5. Statutory Reporting: The software can assist in generating reports required by regulatory authorities. Nidhi companies must file various reports and forms to maintain compliance, and accounting software can simplify this process.

  6. Auditing Support: To ensure compliance, Nidhi companies are required to have regular audits. Accounting software can help in maintaining auditable records, making the auditing process smoother.

  7. Security and Access Control: You can set user permissions and access controls within the accounting software to ensure that only authorized personnel have access to sensitive financial information.

  8. Alerts and Notifications: The software can be configured to provide alerts and notifications for various financial activities, helping you stay informed about critical events and deadlines.

  9. Compliance Checklists: You can create internal checklists within the software to track and ensure compliance with the various rules and restrictions imposed on Nidhi companies.

  10. Data Backup and Security: Ensuring data security and regular backups is essential for a Nidhi company. Many accounting software solutions include features to protect and back up your data.

June 22, 2024

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