Belonging to the classification of non-banking business firms and identified below Section 406 of the Companies Act, 2013, it is regulated 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 main concept behind developing a Nidhi Company is to obtain cash deposit from associates or contribute to them, for the common gain of the two parties. All lending and acquiring must agree with the decree stated in chapter XXIV of Company Rules, 2014.
The financial dealings and all the registration processes of a Nidhi company are regulated by the Ministry of Corporate Affairs. The deposit acceptance activities conducted by the Nidhi Company also come under the scanner of Reserve Bank of India and the latter has the rights to look into the financial dealings. Nidhi companies are only allowed deposits which are over six months and less than five years old.
A Nidhi Company must accumulate 200 members within a year of its formation.If it fails to do so, it needs to apply for permission to extend the time limit to acquire more members. Three of its members will be appointed as directors and there must be seven stockholders on inception.
A Nidhi Company must have an equity share capital of Rs. 5 lakh on inception. This entire amount must be paid-up. Moreover, 10% of the total deposit collected from members must be in a fixed deposit in a nationalised bank.
As a member, one can borrow money at a minimum rate, relative to the rate at which banks lend money.This can be a major advantage in times of need, as different individuals in the mutual benefit society are likely to need funds at different points in time.
It encourages all its members to save money and encourages a thrifty lifestyle. A Nidhi company, after all, is a mutual benefit society wherein members can lend or borrow money and accept financial aid amongst them.
Borrowing and lending to known persons, where the procedure is fixed, is much less complicated than dealing with banks or in an informal setting. A Nidhi Company enables its members to unlock the potential of their money and gain from lower interest rates when they require money themselves.