Financial Company

Everything You Need to Know About Financial Company Formation in India

Obtaining a license for a financial company registration is a very daunting task in India. Simply by adding the word “finance” to your firm’s name, you could land with a bad reputation for your business. The government scrutiny for such companies is tremendous. They’re even suspicious in granting you a finance license.

This write-up aims to tell you more about company formation in India, especially investment company, and the best possible options for you.

Available options for setting up a finance company in India:

Finance business can be carried out under the following forms of businesses:

  • Non-Banking Finance Companies (NBFC)
  • Trust and Societies (Credit cooperative)
  • Nidhi Companies – BEST AVAILABLE OPTION
  • Microfinance via Section 8 route
  • Producer companies
  • Local Finance License

Non-Banking Financial Companies (NBFC)

Registering a non-banking financial company (NBFC) in India will require you to go through the Reserve Bank of India (RBI) with a minimum capital of Rs.2 crore (5 crores in case of microfinance). Obtaining the RBI license is a daunting challenge, and it could take up to six months for the entire process to complete. Worse still, there is no guarantee that RBI will even grant you a financial license.

Advantages Of NBFC Registration   

  • Most authentic finance company option
  • Proper licensing through RBI
  • Can operate from anywhere in India
  • Will be able to accept foreign investment up to a limit 

Disadvantages Of NBFC Registration

  • Capital intensive
  • Obtaining the RBI license is very difficult
  • Very high cost of compliance

Trust and Societies (Credit cooperative)

It is one of the popular types of finance business in India. If you want to start up investment business on a lower scale, this the best option to go for. But these days, getting the license for Trust and Societies is becoming increasingly difficult to owing to several reported fraud cases.

Advantages Of Trust And Societies

  • Lower cost of registration
  • Lesser compliances
  • Can accept deposits

Disadvantages of Trust and Societies

  • Can work up to district level
  • Change of ownership may occur through election
  • Provides finance to members only

Nidhi Company Registration

One of the best ways to form a finance company in India is the Nidhi Company Registration. It requires a capital of about 5 lakh and can be registered within 15-20 days. Under you could grant loans and accept deposits.

Basic Requirements For Nidhi Company Registration

Minimum capital: You need a minimum capital of Rs.5 lakh to register a Nidhi Company which would be raised to 10 lakh within a year.

Minimum persons required: To start a Nidhi Company in India, you will need a minimum of 7 persons. Of these 7, three would be elected as directors of the company.

Documents required for registration: The materials needed for Nidhi Company registration are as follows:

For directors and shareholders:

  • PAN Card
  • Photo
  • Identity proof (Aadhar card, Voter ID card)
  • Address proof (Mobile bill/ Bank statement)

For Registered office

  • Electricity bill
  • NOC
  • Rent agreement (in case premises are registered).

License and Procedure to register Nidhi company: Nidhi companies are a unique business entity, and they are governed by the Nidhi Rules 2014. They do not require a separate license to set up.

To register a Nidhi company in India, the following are the procedures you must follow:

Step 1: Arrange documents and apply for Digital Signature: The first step is to organize the documents and apply for digital signature for all seven members.

Step 2: Apply for three DINS: On completion of the digital signatures, you will have to apply for three Director Identification Number (DIN) for the three directors.

Step 3: Get the company Name approved: Get the company name approval from the Ministry of Corporate Affairs (MCA). After the name approval is granted, the next step is an application for incorporation.

Step 4: Apply for company incorporation: After the company name has been approved, all the necessary documents are prepared and submitted to the Ministry of Corporate Affairs. If all the documents are okay, you will be issued a GST registration certificate by the MCA.

Micro Finance Company Registration through Section 8 

Though it is an attractive form of finance business in India, companies barely get approval for this kind of investment business. Both legally and technically, a microfinance company does not require RBI approval for its registration. It instead requires the MCA to approve the business. And only on rare occasions does MCA authorizes a microfinance company. So, it is advisable to consider other business options rather than a microfinance company in India.

Producer Companies 

Such kind of business is best suited for farmers or producers of agro based products. The minimum number of people required to start up this type of company is 10. Incorporating a producer company in India is quite similar to a setting up a Nidhi company with a Nidhi company offering more flexibility.

Local Finance License under State law 

Some states offer local finance license to establish the business in that particular state or district. Kerala and Maharashtra are two such states in India that offer local finance licence.


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