HOW TO DO FINANCING BUSINESS WITHOUT RBI APPROVAL

HOW TO DO FINANCING BUSINESS WITHOUT RBI APPROVAL

 

HOW TO DO FINANCING BUSINESS WITHOUT RBI APPROVAL?


 

The first thing that needs to be selected at the time of starting of the business is the activity or the business that will be carried by the businessman.

 

There are various industries in which people run their business but these days the popular type of business is Financing business as each person or Company needs Fund to meet their personal needs or run their business.

 

A Financing can be done by 2 major sectors i.e. Banks which are regulated by Banking regulation act, 1949, and  NBFCs regulated by Reserve Bank of India Act, 1934, and regulation, therefore.


 

WHAT IF A FINANCER DON’T WANT TO GO FOR RBI APPROVAL NOR UNDER BANKS REGULATION


 

There are more compliances required under the above-maintained method, but RBI regulation provided some of the companies which are exempted from the certain regulations of RBI, NIDHI COMPANY is one of them.

 

What is Nidhi Company


 

A Nidhi Company is as defined under section 406 of the Companies Act, 2013.[1] Their core business is borrowing and lending money to its members only. They are also known as Benefit Funds, Mutual Benefit Funds, and Mutual Benefit Company. They are regulated by the Ministry of Corporate Affairs. Reserve Bank of India is authorized to issue directions to them in matters relating to their deposit acceptance activities. Nidhi means a company which has been incorporated with the object of developing the habit of thrift and reserve funds amongst its members and also receiving deposits and lending to its members only for their mutual benefit.


 

WHICH RULES APPLY ON THE NIDHI COMPANY


 

Nidhi Company Incorporated and governed under the Companies Act, 2013 and as per chapter XXVI Nidhi Rules, 2014. RBI approval is not required for this as RBI exempted this type of NBVFC from the net owned fund requirement and certain other requirements by circular no  RBI/2013-14/38 DATED 01, July 2013 from the provision of Section 45-IA, 45-IB, and 45-IC.


 

WHAT ARE THE REQUIREMENT OF NIDHI COMPANY

 

1. A Nidhi Company shall be a public company and shall have a minimum paid-up equity share capital of five lakh rupees.

2. Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.

3. Nidhi shall have an object in its Memorandum of Association of cultivating the habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only, for their mutual benefit.

4. A Nidhi shall not admit a body corporate, trust, and Minor as a member.

5. Director shall be a Member of Nidhi and shall hold office for 10 consecutive years and eligible for re-appointment after expiration of 2 years of ceasing to be a Director.


 

WHO CAN NOT BE THE MEMBER OF NIDHI COMPANY

 

1. Body Corporate

2. Trust

3.Minor( deposit can be accepted in the name of a minor, if it is made by a legal guardian who is a member of the Company.


 

WHAT ARE THE RESTRICTIONS ON  NIDHI COMPANY

 

 Below are the reasons for Nidhi Company restrictions

 

1. Carry on the business of chit fund, hire purchase finance, leasing finance, insurance or acquisition of securities issued by anybody corporate;

2. Issue preference shares, debentures or any other debt instrument by any name or in any form whatsoever;

3. Open any current account with its members;

4. Acquire another company by purchase of securities or control the composition of the Board of Directors of any other company in any manner whatsoever or enter into any arrangement for the change of its management, unless it has passed a special resolution in its general meeting and also obtained the previous approval of the Regional Director having jurisdiction over such Nidhi;

Explanation.- For the purposes of this sub-rule, “control” shall have the same meaning assigned to it in clause (27) of section 2 of the Act;

5. Carry on any business other than the business of borrowing or lending in its own name:

Provided that Nidhis which have adhered to all the provisions of these rules may provide locker facilities on rent to its members subject to the rental income from such facilities not exceeding twenty percent. of the gross income of the Nidhi at any point in time during a financial year.

6. Accept deposits from or lend to any person, other than its members;

7. Pledge any of the assets lodged by its members as security;

8. Take deposits from or lend money to anybody corporate;

9. Enter into any partnership arrangement in its borrowing or lending activities;

10. Issue or cause to be issued any advertisement in any form for soliciting deposit:

Provided that private circulation of the details of fixed deposit Schemes among the members of the Nidhi carrying the words “for private circulation to members only” shall not be considered to be an advertisement for soliciting deposits.

11. Pay any brokerage or incentive for mobilizing deposits from members or for the deployment of funds or for granting loans.


 

WHAT ARE THE DOCUMENTS REQUIRED FOR INCORPORATION OF NIDHI COMPANY


 

  • Minimum 7 subscribers, out of which 3 should be a director.

  • Mandatory pan card of all the subscribers and directors.

  • Voter id/driving license/passport as an id proof for all subscribers/members.

  • Bank statement of last 3 months as address proof for all subscribers/directors.

  • The electricity bill for premises not older than 2 months.

  • If a property is owned: electricity bill, ownership documents, and NOC (if required).

  • If a property is rented: electricity bill, rent agreement, and NOC.

 

WHY THELEGALBANK?

 

  • We perform an exhaustive search of the Name of the Company

  • We prepare the MOA, AOA, and all other required documents in the minimum time.

  •  We  will provide COI, MOA, AOA, DIN, DSC

  • We provide consultancy until the registration process is complete and after that if required.

 

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