Nidhi Company FAQs – Complete Guide

Introduction

Nidhi Companies have gained popularity in India as an easy and trusted way to promote savings and provide loans among members. However, many entrepreneurs, directors, and depositors are often confused about the rules, registration process, compliances, and risks related to Nidhi Companies.

To clear this confusion, here is a complete FAQ guide that answers the most frequently asked questions about Nidhi Companies.

General FAQs

Q1. What is a Nidhi Company?
A Nidhi Company is a type of NBFC (Non-Banking Financial Company) incorporated under the Companies Act, 2013 and governed by the Nidhi Rules, 2014. Its objective is to encourage savings and provide loans only to its members.

Q2. Is RBI approval required for Nidhi Companies?
No. Nidhi Companies are exempted from RBI approval. They are regulated by the Ministry of Corporate Affairs (MCA).

Q3. Can a Nidhi Company accept deposits from the public?
No. Deposits can only be accepted from members. Non-members are not allowed.

Q4. How many members are required to form a Nidhi Company?
At least 7 members are required at incorporation, with 3 directors. Within one year, the company must have a minimum of 200 members.

Q5. What is the minimum capital requirement?
The minimum paid-up share capital is ₹5 lakh at incorporation (with amendments requiring Net Owned Funds of at least ₹20 lakh for recognition).

Registration FAQs

Q6. How do I register a Nidhi Company?

Apply online through the SPICe+ form with the ROC.
Draft MOA & AOA stating the objective of Nidhi activities.
Minimum 7 members and 3 directors required.
Must include “Nidhi Limited” in the name.

Q7. Can an individual form a Nidhi Company alone?
No. A minimum of 7 members is mandatory.

Q8. How much time does registration take?
Generally, it takes 15–30 days depending on document readiness and MCA approval.

Compliance FAQs

Q9. What are the main compliance requirements of a Nidhi Company?

NDH-1: Return of statutory compliances.
NDH-2: Application for extension (if not meeting requirements).
NDH-3: Half-yearly return.
NDH-4: Declaration to be recognized as a Nidhi Company.
ROC filings like AOC-4, MGT-7A, ADT-1 are also mandatory.

Q10. What happens if a Nidhi Company does not have 200 members within a year?
The company must file NDH-2 to seek extension from the Regional Director. Otherwise, it cannot accept deposits.

Q11. Can a Nidhi Company advertise for deposits?
No. Public advertising for deposits is prohibited.

Deposits & Loan FAQs

Q12. What kind of deposits can a Nidhi Company accept?

Fixed deposits (FD).
Recurring deposits (RD).
Savings deposits.

Q13. How much deposit can a member make?
Deposits are subject to rules — not exceeding 20 times the Net Owned Funds of the company.

Q14. Can a Nidhi Company issue preference shares or debentures?
No. They cannot issue any debt instruments like debentures or preference shares.

Q15. Who can take a loan from a Nidhi Company?
Only members can take loans. Non-members are not eligible.

Q16. What is the maximum loan a member can get?
Loan limits depend on deposits:

If deposits < ₹2 crore → Loan limit ₹2 lakh.
If deposits ₹2–20 crore → Loan limit ₹7.5 lakh.
If deposits > ₹20 crore → Loan limit ₹12 lakh.

Prohibited Activities FAQs

Q17. Can a Nidhi Company run a chit fund?
No. Nidhi Companies cannot run chit funds, hire-purchase, leasing finance, insurance, or securities trading.

Q18. Can a Nidhi Company open current accounts for members?
No. Only savings and deposit accounts are allowed.

Q19. Can a Nidhi Company operate outside India?
No. Nidhi Companies can only operate within India and for their members.

Penalty & Risk FAQs

Q20. What happens if a Nidhi Company fails to comply with rules?
MCA can impose penalties, restrict business, or even strike off the company.

Q21. Is a depositor’s money safe in a Nidhi Company?
Deposits are safer than informal chit funds, but not as safe as banks, because Nidhis are not regulated by RBI.

Q22. What should I do if a Nidhi Company does not return deposits?
Depositors can:

File a complaint with MCA/ROC.
Approach the Consumer Forum.
Seek remedy under the Companies Act, 2013.

Tax & Benefit FAQs

Q23. Do Nidhi Companies get tax exemptions like NGOs?
No. They are treated like normal companies for taxation.

Q24. What are the advantages of starting a Nidhi Company?

Easy to incorporate.
No RBI license required.
Encourages savings.
Low cost of operation.

Q25. Is it profitable to run a Nidhi Company?
Yes, but profits are limited due to restrictions. It’s best for small communities, not for large-scale commercial operations.

Q26. Can a Nidhi Company accept cash deposits?
Yes, but deposits must be properly recorded in the books and within the prescribed limits. Most companies prefer bank transfers for transparency.

Q27. Can Nidhi Companies charge processing fees on loans?
Yes, nominal processing fees may be charged, but they should be reasonable and disclosed to members.

Q28. Can a Nidhi Company provide gold loans?
Yes, Nidhi Companies can provide loans against security such as gold, silver, or immovable property, subject to Nidhi Rules.

Q29. Can a Nidhi Company be privately owned?
No. Nidhi must be incorporated as a Public Limited Company.

Q30. Can a Nidhi Company declare dividends to its members?
Yes, but dividends cannot exceed 25% of the paid-up capital and must be approved as per law.

Q31. Can a Nidhi Company issue shares?
Yes, but only equity shares. Preference shares, debentures, or debt instruments are prohibited.

Q32. Can minors become members of a Nidhi Company?
No, minors cannot become members. Membership is restricted to adults.

Q33. How does a Nidhi Company differ from a Chit Fund?
A chit fund collects money in installments and distributes through draws, while a Nidhi Company accepts deposits and lends money under MCA rules.

Q34. Is it mandatory for a Nidhi Company to use the word “Nidhi” in its name?
Yes, every Nidhi must include “Nidhi Limited” at the end of its name.

Q35. What is the maximum deposit tenure in a Nidhi Company?
Deposits can be accepted for a period ranging from 6 months to 60 months (5 years).

Q36. Can a Nidhi Company convert into a bank?
No. Nidhi Companies cannot operate as banks or be converted into banks.

Q37. Can a Nidhi Company operate in multiple states?
Yes, but it must register branches after fulfilling the required compliance conditions.

Q38. Can foreign nationals become members of a Nidhi Company?
No, only Indian residents can become members.

Q39. Can Nidhi Companies accept deposits through online banking?
Yes, subject to proper record-keeping and compliance with MCA norms.

Q40. Can Nidhi Companies issue credit cards?
No, they are not allowed to issue credit cards or similar instruments.

Q41. Can a salaried employee be a director in a Nidhi Company?
Yes, as long as the employment contract does not restrict holding directorship.

Q42. Can Nidhi Companies lend money without security?
Generally, loans are given against security. Unsecured loans are discouraged and may attract regulatory scrutiny.

Q43. What happens if NDH forms are not filed?
MCA may impose penalties, disallow deposit collection, and even strike off the company.

Q44. Can a Nidhi Company accept deposits from companies or partnerships?
No. Deposits can only be accepted from individual members.

Q45. Can a Nidhi Company provide loans for business purposes?
Yes, loans can be provided for business purposes but only to members, subject to security and limits.

Q46. Is audit compulsory for a Nidhi Company?
Yes, Nidhi Companies must conduct a statutory audit like other companies under the Companies Act, 2013.

Q47. Can Nidhi Companies open multiple branches?
Yes, but only if they have made a net profit after tax continuously for 3 financial years.

Q48. What are the penalties for non-compliance by directors of a Nidhi Company?
Directors may face fines ranging from ₹25,000 to ₹5,00,000, depending on the violation.

Q49. Can a Nidhi Company be started in a village?
Yes, it can be incorporated anywhere in India, including villages and small towns, provided compliance is maintained.

Q50. Can a Nidhi Company raise funds from banks or financial institutions?
Yes, Nidhi Companies can borrow from banks, but they cannot raise deposits from the public.

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