How Nidhi Company is different from Sole Proprietorship Company?

Nidhi Company

A Nidhi Company, also known as Mutual Benefit Finance Company, is a type of NBFC, that is formulated for lending and borrowing purposes. It also provides some other facilities that a bank generally offers to the public but with some benefits to the lenders and borrowers. Nidhi Company registration process is an online procedure that does not need RBI’s Approval unlike other banks.It collects fund through Recurring deposits (RD) and Fixed deposit from its members. It is governed by provisions mentioned under Section 406 of the Companies Act, 2013.

Nidhi Company Registration Process

The steps that must be followed are –

          KYC of all the Directors and Shareholders

A minimum 7 Members and 3 Directors are required for the set up of a Nidhi Company. The Directors and Members can be the same individual.

         Digital Signature Certificate (DSC) and DIN Application

Digital signature (DSC) is a necessary requirement without which the individuals cannot continue to the other steps in the registration process as all the forms are submitted should be self-attested.

          Name Reservation

The Proposed name of the Nidhi company should be unique otherwise it can be rejected. It can be reserved through Reserve Unique Name (RUN) facility.

         Final Incorporation – Drafting of Memorandum of Association (MOA) and Articles of Association (AOA)

Along with the incorporation form, another form that is required to be given is Memorandum of Association and Articles of Association of the company. The MOA clearly mentions certain general details of the company such as:

• Name of The Company
• Registered Office of the Company
• The overall capital of The Company
• Liability of The Members/Directors/Shareholders
• The objective of The Company

On the other hand, Articles of Association (AOA) is basically the constitution of the company. MOA and AOA must be duly certified by the company secretary(CS) or a Chartered Accountant(CA) or Cost Accountant(CA)

       PAN & TAN

The application forms of PAN and TAN can be applied along with the Nidhi Company Registration for incorporating Nidhi Company as it is included in the SPICe Form.

On the other hand, Articles of Association (AOA) is basically the constitution of the company. MOA and AOA must be duly certified by the company secretary(CS) or a Chartered Accountant(CA) or Cost Accountant(CA)

Important Documents for the Incorporation

• Proof of Identity of the Directors such as PAN Card, Passport copy
• Aadhaar Card of Directors and shareholders
• Proof of Address of the shareholders and directors such as driving license, Aadhar card, Bank statement, electricity bill,
• Proof of registered office such as a rent agreement, property tax receipt,
• NOC (Non Objection Certificate) from the landlord,
• Photographs that are passport size of Directors as well as the Shareholders,
• Signed Incorporation documents which includes filling up the Digital signature application form which must be signed and submitted along with other incorporation documents.

Restricted Business Activities of a Nidhi Company

• Starting any business of chit fund,
• Hiring purchase finance, leasing finance, insurance or acquisition of securities by any corporation / business,
• Opening up a current account with its member,
• Accept deposits from or lend money to any person other than its members,
• Pledging of assets in the form of security mentioned by its members,
• Accept deposits from or lend money to any Body corporate,
• Enter into any kind of partnership arrangement in its borrowing or lending events,
• Publish any advertisement for any form of deposit etc,
• A Nidhi company should issue equity shares at the nominal value of not less than Rs 10,
• Every Nidhi should provide to all its deposit holders a minimum of 10 equity shares at least or shares equal to the value of Rs 100.

Major objectives of Nidhi Company

• Encourages Savings –A Nidhi Company allows its members to open saving accounts, just like a bank in order to boost the habit of saving money among members,
• Providing Loans – Nidhi Company only lends to its members and does not entertain any individual from the third party.
• Initiates Ease of Fund – Nidhi is the safest and the cheapest way of raising funds from the General public (by registering as members).
• Promotes Micro Banking – It also provides rural banking services to the isolated population of the country where the facility of national banks and NBFCs are not available.

Benefits of Nidhi Company Registration

• Easily available funds – The members of the Nidhi company can borrow money at lower rates from the Company in comparison to borrowings from banks and other NBFCs.
• Better Saving Option – The major objective of a Nidhi company registration is to encourage savings amongst the members of the Company.
• Easy processing method – Lending and borrowing to only members of the company makes the processing of loans easier and less complicated unlike banks. Also, lower interest rates make it easier for the members.
• Less Requirements for Capital – Ministry of Corporate Affairs(MCA)instructs the minimum capital requirement of Rs 5 Lakhs. On the other hand, within one year, the capital shall be increased to at least Rs 10 lacs.
• Nidhi Company Registration Fees –A Nidhi company is government by Nidhi company rule–Government Fees, DSC and other Expenses for setting up a Nidhi company comes around Rs. 8000. Government fees differs from state to State. CA Fees is around Rs. 12,000 and the total Cost is around Rs 20,000.

Difference between Nidhi Company & Sole Proprietorship

A Nidhi company has the following features

•  Promotes small savings among middle and lower middle class.
• Accepts deposits for timely returns.
• Easy source of loan to members against collateral.
• Secured means of investment due to rigid membership structure.

Whereas

Sole Proprietorship Company has the following features that differentiates it from a Nidhi Company

• Single Ownership –The business is owned by him and only him.
• Common Identity – The identity of the business and the owner is the same. The business does not have an identity of itself.
• Capital of the business is bought in by the owner and belong to only him.
• Unlimited Liability
• One Man Control
• Profits earned and Losses incurred belongs to the sole owner of the business whereas a Nidhi company there is no such thing as profit or loss.
• No Special Legislation