NIDHI rules, 2014: Requirements, Post-incorporation compliances, and certain prohibition

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A company that is governed by the NIDHI Rules, 2014 and Section 406 of the 2013 Companies Act is referred to as a "NIDHI COMPANY." Such companies must abide by the law regulating Nidhi businesses. The Nidhi Company was only founded in India to encourage its own members to live simply and save money. A Nidhi company is a public limited company that adheres to special rules established by its members in order to be eligible to have shares at par value and voting rights that are proportionate to the number of shares held, according to the definition of a Nidhi company.

These NIDHI rules shall apply to every company which has been declared as a NIDHI company under section 620A or company functioning on the lines of NIDHI company under section 620A or company incorporated or declared as a NIDHI company under sub-section (1) of 406 of companies act.

Pre-incorporation requisite:

• A Nidhi company must be a public company that doesn't allow corporations or trusts to join as members.

• Nidhi company shall have a minimum paid up equity share capital of 5 Lakh.

• No Nidhi shall issue preference shares. If preference shares had already been issued by a NIDHI company before the commencement of this act, such preference shares are to be redeemed in accordance with the terms of issue of such shares.

• Every company incorporated as Nidhi shall have the last words "Nidhi Limited" as a part of its name.

• They are only allowed to take deposits from their own members and lend the money to only their own members.

• There should be no objective of Nidhi other than to cultivate the habit of thrift and savings amongst its members and receive deposits from lending to its members only, for their mutual benefit.

Post-incorporation requisites: Within a period of one year from the commencement of these rules, every Nidhi shall ensure that it has:

• Not less than 200 members,

• net owned funds of 10 lakhs rupees or more,

• a ratio of net owned funds to deposits of not more than 1:20,

• unencumbered term deposits of not less than 10% of the outstanding deposits as specified in rule 14

General Prohibitions: Every NIDHI shall adhere to following restrictions:

• carry the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by any body corporate;

• issue preference shares, debentures, or any other debt instrument;

• open any current account with its members;

• acquire any other company or control the composition of the Director Board.

After the completion of one year, every NIDHI shall ensure that its membership is not reduced to fewer than 200 members at any given time.

NIDHI can open up to 3 branches within the district only if it has earned net profits after tax continuously during the preceding three financial years. Prior approval of the regional director is required for the opening of more branches. No branches can be opened outside the state where its registered office is located.