{"id":3433,"date":"2020-02-15T06:40:39","date_gmt":"2020-02-15T06:40:39","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=3433"},"modified":"2022-11-16T15:38:52","modified_gmt":"2022-11-16T10:08:52","slug":"restrictions-on-operating-nidhi-company","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/","title":{"rendered":"Operating Nidhi Company; Know about the Restrictions on Nidhi Company"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In simple words, Nidhi Company means Fund, Finance or Treasure. The main object of Nidhi company incorporation is to grow the habit of savings amongst its members. However, there is no separate <a href=\"https:\/\/corpbiz.io\/nidhi-company-registration\"><strong>Nidhi Company registration<\/strong><\/a> required to be done under RBI regulations, but RBI has imposed certain restrictions over Nidhi Company. <\/p>\n\n\n\n<p><em><strong>&nbsp;Here, we will discuss restrictions imposed by RBI on Nidhi Company. <\/strong><\/em><\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/#What_is_Nidhi_Company\" >What\nis Nidhi Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/#What_is_the_object_of_Nidhi_Company\" >What\nis the object of Nidhi Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/#How_to_add_member_in_Nidhi_Company\" >How\nto add member in Nidhi Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/#What_are_the_general_restrictions_on_Nidhi_Company\" >What are the general restrictions on Nidhi Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/restrictions-on-operating-nidhi-company\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Nidhi_Company\"><\/span>What\nis Nidhi Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>According to subsection 1 of section 406 of companies act, 2013<\/em><\/strong><sup><a class=\"text-primary\" href=\"https:\/\/www.mca.gov.in\/content\/mca\/global\/en\/acts-rules\/companies-act\/companies-act-2013.html\"><strong>[1]<\/strong><\/a><\/sup>, \u201cNidhi Company means a company, incorporated as Nidhi with the object of doveloping the habit of savings and thrift among its members, collecting deposits from, and lending to its member-only, for their mutual benefits, which complies with such rules as are advise by the central government for regulation of such class of companies.\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_object_of_Nidhi_Company\"><\/span>What\nis the object of Nidhi Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Nidhi\ncompanies are having quit clear object that is to develop the habit of saving,\nreceiving and lending amongst its members. Here it\u2019s important to mention that such\nactivities are only allowed between the members of Nidhi Company, no\noutsider\/non \u2013member or the general public is not allowed to participate. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_to_add_member_in_Nidhi_Company\"><\/span>How\nto add member in Nidhi Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Membership\nin Nidhi Company <\/em><\/strong><\/p>\n\n\n\n<p><strong><em>A Nidhi shall: \u2013<\/em><\/strong><\/p>\n\n\n\n<ul><li>Not allow a corporate body or a Trust, or a minor as a member and ensure that its members shall not decrease to less than 200 at any time.<\/li><li>Allotment of minimum deposit holder minimum 10 shares of rupees 10 each, which are equal to Rs. 100 and at least 1 share of Rupees 10 to savings account holder.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">By\nway of allotment of new shares:<\/h3>\n\n\n\n<p>According to the provisions of companies act, Nidhi Company can\nallot new shares to its new members. At present, there is an exemption by which\nsection of the rights issue and private placement does not apply to Nidhi\nCompany. Hence, the share can be directly allotted by the Board of Directors of\nthe company, through passing a board of resolution. Further, this shall be\nnoted that a number of shares allotted should not exceed authorised share\ncapital of the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">By way of transfer of shares of existing members:<\/h3>\n\n\n\n<p>Being as a <a href=\"https:\/\/corpbiz.io\/public-limited-company-registration\"><strong>public limited company<\/strong><\/a>, Nidhi Company may transfer his shares to another person. Hence the person receiving shares becomes a member of Nidhi Company. Also, the name and other details of the new members needed to enter in the register of the member. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Procedure to add members under Nidhi Company<\/h3>\n\n\n\n<ul><li><strong>Choose and divide shares: <\/strong><br>You need to choose any one person\u2019s share and divide his share into a small share certificate which should be equal to either one share or ten shares, depending upon the requirement. <\/li><li><strong>Attach the share certificate with FORM SH \u2013 4:<\/strong><br>Secondly, to give effect to the share transfer Nidhi Company needs to attach FORM SH- 4 with the share certificates being issued to the member.<\/li><li><strong>Attach along with Membership Form: <\/strong><br>The share certificates and the form SH 4 are now required to be attached with the membership form. All the necessary details are needed to be furnished with the share certificate and Form SH-4.<\/li><li><strong>Hand over the share certificate to him: <\/strong><br>After the successful share transfer, the set of all the necessary      documents should be handed over to the applicant.&nbsp; One copy of the documents shall be kept in the company as a record. <\/li><li><strong>Pass board resolution for each entry: <\/strong><br>Its mandatory for a Nidhi Company to pass a board resolution to validate the share transfer happened during the month. The board resolution shall be passed at the every month end.<\/li><li><strong>Enter details in Share Transfer Register: <\/strong><br>Nidhi companies are required to maintain a share transfer register, and every detail concerning share transfer shall be entered in the share transfer register.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-compliances-for-a-nidhi-company-overview\/\">Compliances for a Nidhi Company: A Complete Checklist<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_general_restrictions_on_Nidhi_Company\"><\/span>What are the general restrictions on Nidhi Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li><strong>Carrying a business of chit fund, hire purchase finance, leasing\nfinance, insurance or acquisition of securities from any corporate entity, is\nstrictly prohibited for Nidhi Company.&nbsp; <\/strong><\/li><\/ul>\n\n\n\n<p>In addition to this,\nNidhi Company cannot invest in any securities of any company. Further, if Nidhi\nCompany wishes to carry any business activities, they need to apply for RBI\nlicense.<\/p>\n\n\n\n<ul><li><strong>Nidhi Company is not allowed to issue preference shares,\ndebentures or any debt instruments of any form or under any name whatsoever. <\/strong><\/li><\/ul>\n\n\n\n<p>In addition to this,\nNidhi Company cannot issue securities of any type and can only issue equity\nshares to its members, as they are only allowed to deal with its members. <\/p>\n\n\n\n<ul><li><strong>Nidhi Company is restricted form opening current account of its\nmember.<\/strong><\/li><\/ul>\n\n\n\n<p>Nidhi Company is allowed\nto open a savings bank account, and restricted from opening current account of\nits member, as RBI has exempted Nidhi Company to follow the procedures of\nbanking regulations. <\/p>\n\n\n\n<ul><li><strong>Nidhi Company is restricted to acquire any other company. <\/strong><\/li><\/ul>\n\n\n\n<p>Unlike other form companies, Nidhi\nCompany does not have control over the securities of other companies and board\nof director. Hence, they are restricted to enter into any agreement unless they\nhave passed a special board of resolution in a general meeting of company.\nOther condition can be when they have acquired the approval of regional\ndirector having jurisdiction over that particular Nidhi Company. This is the\nonly reasons Nidhi Companies operates only in their particular state.&nbsp;<\/p>\n\n\n\n<ul><li><strong>Nidhi Company is restricted from carrying a business other than\nlending and borrowing.&nbsp; <\/strong><\/li><\/ul>\n\n\n\n<p>As mentioned above, Nidhi\nCompany cannot run any business by its name other than lending and borrowing.\nNidhi Company can provide a locker facility to its members.<\/p>\n\n\n\n<ul><li><strong>Accepting money and lending money to a person other than its\nmember is strictly prohibited for Nidhi Company<\/strong>. <\/li><\/ul>\n\n\n\n<p>Nidhi Company can only\ntrade with its members if Nidhi Company wishes to deal outside its member than\nNidhi Company has to proceed further for fully-fledged NBFC. <\/p>\n\n\n\n<ul><li><strong>Nidhi Company has restrictions on Pledging assets lodged by its\nmembers as security. <\/strong><\/li><\/ul>\n\n\n\n<p>The said restriction\nprotects the right of the members. The assets deposited by the member of the company,\ncannot be pledged to take a loan from any entity of bank. This act provides\nsecurity to its member for their assets. <\/p>\n\n\n\n<ul><li><strong>No Nidhi company shall enter into any partnership agreement for\nlending or borrowing purpose.<\/strong><\/li><\/ul>\n\n\n\n<p>Nidhi Companies are non\n\u2013commercial companies and work upon the <strong><em>principle of mutuality<\/em><\/strong>. Hence, they\ncannot enter into any partnership agreement for any big finance projects.<\/p>\n\n\n\n<ul><li><strong>Nidhi Company is restricted from any kind of advertisement.<\/strong><\/li><\/ul>\n\n\n\n<p>Nidhi Companies are\nrestricted from advertising their depositing schemes, unlike other financial\ninstitutions. However, Nidhi Company can only advertise between its members only.<\/p>\n\n\n\n<ul><li><strong>Nidhi Company is restricted from paying any brokerage or\nincentives, for deploying or granting loans.<\/strong><\/li><\/ul>\n\n\n\n<p>For the purpose of convening\ndeposits form members, Nidhi Company is not allowed to hire a person for this\npurpose. Else nor can offer any incentives or brokerage.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Nidhi companies shall not be considered as a flexible company, as it works under many restrictions. Since, their deal is with monetary matters, which needs to be approved by RBI, such companies become bound to work under the restrictions. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/incorporation-procedure-nidhi-company-india\/\">What is Nidhi Company? Know it\u2019s Incorporation Procedure\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In simple words, Nidhi Company means Fund, Finance or Treasure. The main object of Nidhi company incorporation is to grow the habit of savings amongst its members. However, there is no separate Nidhi Company registration required to be done under RBI regulations, but RBI has imposed certain restrictions over Nidhi Company. &nbsp;Here, we will discuss [&hellip;]<\/p>\n","protected":false},"author":9,"featured_media":3435,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[31],"tags":[314],"acf":{"service_id":"9"},"authorName":"Shailza Sharma","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/10\/IMG-20190927-WA0001-150x150-22.jpg","authorDescription":"Miss Shailza Sharma, BA. LLB graduate from Himachal Pradesh University. She holds an experience of 2.5 years in various Legal companies and organizations.","postViews":12532,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/3433"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=3433"}],"version-history":[{"count":23,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/3433\/revisions"}],"predecessor-version":[{"id":50772,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/3433\/revisions\/50772"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/3435"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=3433"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=3433"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=3433"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}