How to register a Chit Fund Company?

Introduction

Chit Fund Company is another type of finance company in India which does not require Reserve bank of India (RBI)’s approval. Chit Fund Companies are governed by Chit Fund Act 1982 and RBI has specifically exempted from its core provisions. Chit Fund Companies are widely famous with their name known as ‘committee’.

Let us understand how the chit fund companies or the committee works and will then proceed to how the company is registered in terms of Chit Fund Act, 1982.

 

Basic terms to understand Chit Funds

To understand how the Chit Fund companies work, we must understand few terms which will be used during the process.

• Foremen: Foremen are the person who manages all the chit fund activities and against which he charges a monthly commission which is around 5% of the total chit value.
   
• Members: Members are the person who contributes to the Chit on a monthly basis a fixed sum.
   
• Bid Amount: Bid amount is sum of money which is proposed by the members to be forgone. The highest bid is selected and pool is disbursed to the member.
   
• Dividend: Dividend is the sum forgone by the members to collect the bid amount offered less the commission charged by the foremen.

Let us now understand how the chit fund company works.

How does Chit Fund Company work?

Let us understand the whole concept with the help of an example. Suppose, there are 20 members who will contribute 20 equal installment for Rs.5000 each which makes a monthly pool of Rs.100,000/-. Let us draw a table and understand the first five installments.

Let us understand the above table and the figures one by one.

For the first month, the 20 members will pay a sum of Rs.5000 each and collectively the sum will be Rs.100,000/-. Now, the members who need the fund shall bid for the amount forgone. Suppose, one member chose to forgone Rs.25,000, then Rs.75,000 shall be disbursed to him.

Now, the remaining amount left is Rs.25,000/-. The foremen shall charge his commission of Rs.5,000 and the remaining amount is treated as a dividend. Now the amount remaining after commission is Rs.20,000/-. Now, this Rs.20,000 shall be distributed as dividend equally, i.e. Rs.1,000/-. Now, Rs.1,000/- shall result into reduction of installment of the next month which you can see over next month.

This above cycle goes on and on until the last installment. Let us move and understand how the Chit fund company registration works.

 

Documents required for Chit Fund Company registration

Initially, the following documents shall be required for Chit fund company registration:

For every director and member

• PAN card
• ID proof
• Bank statement/Electricity bill/Mobile bill/telephone bill – Anyone.
• Other documents as per Chit registrar.

For registered address

• Ownership document or rent agreement
• Electricity bill
• Copy of NOC

Apart from above, there are various other documents required for chit fund registrar.

 

Chit Fund Company registration procedure

Chit Fund Company registration procedure is a bit complex procedure and is governed by state Chit registrar. Let us understand the complete procedure in the following steps:

1. Apply for Digital Signature and DIN numbers

The first steps is to incorporate a Chit Fund Company, is to apply for DSC and DIN numbers. This is the prime and foremost requirement to register any company in India.

 

2. Apply for Name approval of Chit Fund Company

The second step is to choose a company name. Choosing a company name is a very important task because it is the name which reflects your business identity. However, before choosing the company name make sure you keep the following things in mind:

• The name should be unique and should not match with any existing company name.
• The name should not match with any existing registered trademark.
• The Company should include “Chit Fund” in the company name.

 

3. Prepare all the documents according to Chit Fund Company objectives

Once the company name is approved, all the incorporation documents are prepared in accordance with Chit Fund Act, 1982 and Companies Act, 2013 and rules made thereunder. The most important documents to be prepared which are also to be registered with the chit fund registrar are the Memorandum of Association (MOA) and Articles of Association (AOA).

 

4. Minimum Capital Requirement for Chit Fund Company

The minimum capital requirement for Chit fund company registration is Rs.1 lakh. In other words, if you want to start a Chit fund company, then you must register a company with Rs.1 lakh capital. RBI capital requirements are not applicable to Chit Fund Company in India.

 

5. Apply for Chit Fund Company registration

Once you are set with all the required documents, the next step is to file for chit fund company registration. Here the ROC will not give you the approval until and unless he is satisfied with all your submission.

 

6. Apply for chit registration with Chit Registrar

Once the company is registered as a private limited company, the next step is to file for chit registration with the chit registrar. Please note, until and unless you are registered with the Chit registrar you cannot commence your chit fund company business in India.

 

Conclusion

We have tried to explain you about the chit fund company registration. In case you have any problem, please email us at info@hubco.in