Nidhi Companies

About Nidhi Companies:

• A NIDHI Company is recognised under Section 406 of the Companies Act2013 and typically operates in the Non-Banking Financing Sector of India.
• It is formed to borrow and lend money to its members. It inculcates the habit of saving among its members and works on the principle of mutual benefit. 
• It isn’t required to receive the license from Reserve Bank of India (RBI), as these are registered with the companies act.
• Members: Minimum of seven members is required to start a Nidhi Company out of which three members must be the directors of the company.
• Activities Prohibited in a Nidhi Company
  • It can’t deal with chit funds, hire-purchase finance, leasing finance, insurance or securities business.
  • It is strictly prohibited from accepting deposits from or lending funds to, any other person except members.
  • Nidhi companies should not issue preference shares, debentures or any other debt instrument in any manner, name or form.
  • Nidhi companies should not open current accounts with their members.

Q1: What is a Non-Banking Financial Company (NBFC)?

A NBFC is a company registered under the Companies Act, 1956, engaged in the business of loans and advances, the acquisition of shares/stocks/bonds/debentures/securities issued by the Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business.

Source: MCA cracks down on errant Nidhi companies, penalises two dozen in a fortnight