Introduction

Nidhi Companies are classified as Non Banking Financial Company (NBFC) and has to be registered under section 406 of the Companies Act, 2013. The main business of Nidhi company is to borrow and lend money between the core members of the company. There is no need to obtain licence / approval from Reserve Bank of India to start the Nidhi Company. Nidhi company is being regulated by Reserve Bank of India and Ministry of Corporate Affairs.  Nidhi Company are Public Limited company and there is a statutory requirement to suffix Nidhi Limited after the name of the company.

To incorporate the Nidhi Company atleast seven members and minimum three designated directors are required. The Nidhi company can make 200 members within one year of incorporation.

Restrictions on Nidhi Company

Nidhi Companies have some restrictions. As per rule 6 of the Nidhi Rules, 2014, a Nidhi Company shall not :

1. Carry a business of Chit fund, hire purchase finance, lease finance, or acquisition of securities issued by anybody Corporate.
2. issue preference shares, debentures, or any other debt instrument by any name or form whatsoever.
3. Open Current account with its members.
4. Acquire another Company by the purchase of securities or control the composition of the Board of Directors of any other Company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in the general meeting and also obtain the previous approval of the Regional Director having jurisdiction over such Nidhi Company.
5. Carry on any business other than the business of borrowing or lending in its name: Provided that Nidhis, which have adhered to all the provisions of these rules, may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty percent of the gross income of the Nidhi at any point of time during a financial year.
6. Accept deposits or lend to anyone other than its members;
7. Pledge away any of the assets lodged by its members as security;
8. Take deposits or lend money to anybody from corporate;
9. Enter into any partnership arrangement in borrowing or lending activities;
10. Issue or cause to be issued any advertisement in any form for soliciting deposit
11. Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or granting loans.

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