Nidhi Company-Features, Advantages and Limitation in India

Nidhis are companies registered under Section 406 of the Companies Act, 2013 and are regulated by the Ministry of Corporate Affairs (MCA). Section 406 of the Companies Act of 2013 and the Companies (Nidhi Companies) Rules of 2014 provide all the provisions concerning the incorporation and governance of the Nidhi Companies in India.

Basic Objective of a Nidhi Company:

The objective of Nidhi Company can only be of cultivating the habit of thrift and savings amongst its members, receiving deposits from and lending to its members only for their mutual benefit.

Features of a Nidhi Company :

Following are the features of a Nidhi company-

• Promotes small savings among the middle and lower-middle class,
• Accepts term deposits for timely returns.
• An easy source of loan to members against collateral.
• Effective means of savings and loans with minimum documentation.
• Secured means of investment due to rigid membership structure.

Advantages of a Nidhi Company :

The advantages of registering a Nidhi Company in India are-

• The main aim of such Nidhi companies is to promote the habit of saving and thrifts among the lower and middle sections of the society. Hence, it helps in channelizing small savings among members.
• Liability of Directors and shareholders of the Nidhi Company is limited.
• Nidhi companies are governed under the Nidhi Rules, 2014. The regulations imposed upon the Nidhi’s by RBI is also limited.
• The loans given to the members are at a lower rate of interest than the market rate.
• Ministry of Corporate Affairs (MCA) commands that the minimum capital requirement of Rs. 5 lakhs for Nidhi. And, within 1-year, the capital has to be raised to at least Rs. 10 lakhs. Thus, low Capital required.
• Nidhi Company is a separate legal entity that can acquire assets and incur debts in its own name.

Limitations of a Nidhi Company :

Disadvantage/Limitations of Nidhi Company in India-

• Nidhi Company can accept deposits and lend money between its shareholder-members only. As a Nidhi Company, you can’t accept deposits directly from the public.
• Nidhi Company can’t issue any Preference Shares, Debentures or any Debt Instrument to any person or corporates.
• No Nidhi Shall involve in businesses like Chit Fund, Hire Purchase Finance, Lease Finance and Insurances or can not buy any Corporate Share.
• Within a year after the commencement, Nidhi Company should ensure minimum 200 members and net owned fund of 10,00,000 according to the Sections 406 of Companies Act 2013 and Nidhi Rules 2014.
• The central government issues rules and directions governing Nidhi Companies from time to time. Therefore, they are not totally exempt from the regulatory framework.