Nidhi Company Registration

The Companies Act 2013 introduced the concept of the “Nidhi Company” and also recognized the same under section 406 of the Companies Act 2013 for the purpose of encouraging the habit of credit & thrift activities among the population in India. Section 406 of the Companies Act 2013 defines a “Nidhi company “as a kind of company in the nature of a Non-banking financial institution which has the primary objective to engage in lending and borrowing money activities among its own members”. The funds are contributed and given on loans to its members for their mutual benefit only unlike a bank or financial institution. Thus, a Nidhi company registration is also known as Permanent Fund, Benefit Funds, Mutual Benefit Funds and Mutual Benefit Company and has gained popularity especially in the Southern states like Tamil Nadu in India.

For the above-mentioned objective, Nidhi Company has been specially exempted from the requirement of getting approval but is subject to limited monitoring from the Reserve bank of India, the organization responsible for the approval and monitoring of all operational banks and financial institutions. Instead, the Ministry of Corporate Affairs (MCA) undertakes the process of overseeing approval and functioning through issue of guidelines and directions. Once a Nidhi company gets registered, it is mandatory for such company to add ”Nidhi” along with its name and in all official documents and publications.

Nidhi Company Registration with Legalmart

The process of registration of Nidhi Company is a simple process, but requires caution and precision to not to end up in rejection of application. Therefore, it is always advisable to take expert assistance of professional experts having knowledge and experience in incorporating a Nidhi Company and helping you to gain your certificate of incorporation in a simple, quick and efficient manner at the comfort of your convenience. For which, Legalmart has gained experience in Nidhi Company registration under one roof.

Benefits of Registering Your Entity As A Nidhi Company

  • Easy & Simple process of Incorporation- Though, Nidhi companies are in the nature of a non-banking financial institution, but have been specially exempted from getting approval from the Reserve Bank of India and do not need any permission to operate the business from the same. Therefore, the process of incorporation of Nidhi is as simple as that of an incorporation of a public company. It requires at least seven members who infuse the minimum amount of required capital as provided under Nidhi rules, 2014 and at least three directors, with lesser compliance procedures and paperwork as compared to an NBFC.
  • No Possibility of any intervention by outsider- As compared to any other form of business entity, there is limited scope for any outsider to have a say in the business matters until and unless such person is a member of Nidhi. Further, a Nidhi company is formed, controlled and managed by its members for their mutual benefit. Therefore, neither any outsider can intervene or raise issues in the business operations of the Nidhi nor he/she is allowed to deposit money or avail credit from these companies.
  • Negligible risks associated with default in Loan repayment – Nidhi companies are primary for the purpose of inculcating the habit of credit & thrift among its members for their mutual benefit. They only accept deposits and lend loans to its members at an interest rate lower than market rate of interest on loan. Thus, there are lesser chances of loan-defaults as compared to other businesses. Due to this reason, they are considered to be one of the safest ways to offer deposits and avail loans.
  • Limited Powers of RBI for overseeing the functioning of a Nidhi – As above-mentioned, a Nidhi company is registered under the same procedure as that of public company under the Ministry of Corporate Affairs (MCA) and doesn’t need any permission from RBI for its functioning. Thus, a Nidhi company follows the provisions under Nidhi Rules, 2014 and is subject to limited monitoring powers by RBI, which are lesser stringent than other banking & financial institutions that are subject to licensing and functioning under RBI guidelines.
  • Perpetual Succession – Unlike a sole Proprietorship firm or a partnership firm, a Nidhi company is a separate legal person in the eyes of law. Nothing such as death, illness, retirement or insolvency of any or all of its members can affect the legal status of the company. Thus, a Nidhi company remains alive till its business operations are legally dissolved by operations of a court.
  • Net owned fund- Invest one get twenty- It is more beneficial to make deposit investments in a Nidhi, because the net owned fund ratio in a Nidhi company is in the ratio of 1:20 for investments vs returns. As compared to other businesses, deposits made by members in the company are more secured in the sense that the rate of interest of the credit is lesser that applicable rate of lending loans which further reduces the possibility of loan defaults.
  • Lower rate of credit – Due to the exemption provided by RBI to Nidhi banks, a Nidhi bank is allowed to offer loans at a rate lesser than the applicable lending rate of interests by banks & financial institutions. This feature generally attracts people to avail membership of Nidhi Company.
  • Minimal Capital Requirement – The Ministry of Corporate Affairs (MCA) has relaxed the provisions regarding the provisions for minimal capital requirement under Nidhi rules 2014, which earlier provided for a minimum capital contribution of Rs. 10 lakh. Now, a proposed Nidhi company is required to make a minimum capital requirement Rs. 5 Lakh only and that too is required to be invested within a period of two months from the date of incorporation of Nidhi Company. If you compare the requisite minimum capital contribution with the net owned funds ratio required in case of a NBFC, it is quite lower in case of Nidhi for incorporation purposes.

Disadvantages of Nidhi Company

  • Limited Sources of Fund Raising – As per the Nidhi rules 2014, a Nidhi is not allowed to transact credit & thrift outside its members and it is only members who can make deposits or avail loans from Nidhi. In such a situation, the availability of credit depends upon contributions made by members of Nidhi as the total amount deposited by them is limited which come from only one source.
  • Restricted credit availability A Nidhi company has the main object to invite members to make deposits and lends such received funds to other members and not allowed to undertake any other business activity. Therefore, the scope for receiving and lending funds depends upon the members and the availability is dependent on their contributions only.
  • Overseeing business operations by RBI – Though, Nidhi Company has been specially exempted from the need to obtain permission to incorporate and run business operations from RBI. However, the former is subject to limited overseeing of its business functions and as provided under Nidhi Rules 2014, a Nidhi company should have at least 200 members including Net owned funds of at least ten lakh rupees by the end of one year from the date of incorporation, which could be difficult to achieve for every Nidhi company.
  • Subject to Other Regulations – Nidhi Companies have been authorised and provided legal status under Section 406 of the Companies Act 2013 and Nidhi Rules 2014, which makes them under the authority of the Ministry of Corporate Affairs. Thus, they are subject to compliance of other rules & regulations applicable to them. For instance, a Nidhi company is not allowed to undertake business activities other than lending & borrowing in its own name. Further, it cannot offer deposits for more than a period of five years.
  • Limited Scope of Business – The biggest disadvantage of incorporating a Nidhi company is its limited business scope & activities. Nidhi companies are similar to a Non-banking financial company in essence and are incorporated with the primary objective to inculcating the habit of savings and crediting the same among members for their mutual benefit. Thus, it is not allowed to undertake any business activity or make investments outside the company or to pay brokerage on deposits etc. Thus, the business is entirely dependent on funds received from one side to lending the same to the other.

Eligibility criteria of Nidhi Company Registration

Section 406 of the Companies Act 2013 and Nidhi Rules 2014 provide for the following criterion for incorporation such as-

  • Any natural person along with seven members and at least three designated directors can start a Nidhi company.
  • Such a natural person should not be a minor and should be eligible to enter a contract. However, a major person who is a member of Nidhi (above the age of 18) can enter deposits in the name of the minor.
  • A Trust and a Body Corporate are ineligible to be entered as a member of Nidhi.
  • For registering a Nidhi Company, there should be an equity share capital of Rs. 5Lakh.
  • Such incorporated Nidhi shall mention the objective of “inculcating the habit of savings and thrift” among members for their mutual benefit as its primary objective in its memorandum of association.
  • Finally, within one year of incorporation of Nidhi company, it needs to mandatorily ensure that- It holds at least 200 members in the company
    • Holds a total net owned funds of not less than Rs. 10 lakhs.
    • Has at least ten percent of encumbered deposits of the outstanding deposits.
    • The ratio between Net owned funds to deposits is not more than 1:20.

Documents required for Nidhi Company Registration

Following documents are required to be submitted at the time of incorporation of a Nidhi-

  • Directors Identification Number for at least three directors.
  • PAN number of the proposed members and the proposed Directors.
  • Proof of residence of each member and each director.
  • Scanned Photographs.
  • Id proof of the proposed directors and members  of such Nidhi.
  • Proof of ownership of the registered office of Nidhi through Sale deed/rent agreement.
  • NOC from the premises owner (in case of rent agreement), where required.
  • MOA & AOA of the proposed company defining its goals & objectives.

How to Register Nidhi Company Online

The process of incorporation is similar to that of a “Public Limited company” and involves, the following steps-


Since, holding a name similar to an already established business could be a risky matter. Therefore, for the avoidance of such situation, the Ministry of Corporate Affairs allows a proposed company to propose at least two names for the proposed business after ensuring that the same is not already registered and is open for choice through the MCA “RUN” facility. Thus, such proposed Nidhi needs to file “RUN” form by placing two choices for proposed company name along with “Nidhi” in its name.


The proposed directors of such Nidhi need to apply for a digital signature certificate for filling e-forms on the MCA portal. Such proposed directors need to obtain Class 2 DSC.


After receiving approval of name through RUN facility, such proposed Nidhi needs to file and submit all requisite details in the form SPICe that allows following facilities –

  • Reservation of name for the proposed company (through RUN).
  • Company incorporation.
  • Application for DIN allotment up to 3 directors.


Once SPICe is submitted along with the above-mentioned documents and attachments, it will be thoroughly verified and authenticated by the Registrar of Companies and on being satisfied of all the requirements have been complied with, will issue certificate of incorporation  within a period of 15-20 days. Once issued, the certificate of incorporation is a certificate of conclusive proof that all the requirements related to registration have been complied with.


Once a Nidhi is registered, there are few compliances and fillings, a Nidhi is expected to be aware of and is further expected to complete these on time to avoid penalties which are-

  • Filling of the Form NDH 1, that specifies the list of members in such Nidhi within 90 days from the date of incorporation.
  • Filling and submission of Form NDH 2, for requesting extension of timeline to satisfy the target of 200 members.
  • Filling of Form NDH 3, providing for compliance of half-yearly returns of such Nidhi to be filed with NDH 1.
  • Filling of FORM AOC-4 providing for the financial statements of Nidhi on an annual basis.
Why you Choose Legalmart

Thus, the process of incorporation of a Nidhi company is simple process if undertaken by somebody who has expert knowledge and experience in undertaking the same. At Legalmart, we have a large team of professionals holding the qualifications of Chartered Accountants, Company Secretaries, Lawyers, and Financial Executives. Therefore, for a quick , efficient and hassle-free experience , please connect to Legalmart with constant assistance with 24*7 customer support.