Loans are the major source of funding for most of the Companies apart from their Share Capital. Companies borrow from various sources like banks and various other financial institutions. Where public limited companies borrow from mass public by accepting public deposits private companies are strictly prohibited from accepting any loan or deposits from the public. The Companies Act,1956 permitted private companies to borrow from directors, shareholders and relatives of directors. However the Companies Act 2013 has brought a major change in the borrowing provisions for private companies and removed shareholders and relatives of directors from the list of lenders. Going forward the private companies can borrow only from directors apart from banks and financial institutions provided the director gives a declaration that the amount that he is giving is not out of borrowed funds.
Let us analyze the various provisions pertaining to loans given and accepted by the Companies as per Companies Act 2013
Provisions pertaining to loans /deposits accepted by the company.
1) Section 73: It states that No company whether public or private can accept deposit from anybody without complying with the provisions mentioned in Section 73. Clause (viii) of Rule 2(c) specifically excludes loans from directors from the purview of deposit definition if the director gives a declaration that the amount he is lending is not out of borrowed funds. Clause (vi) of Rule 2(c) excludes loans received from any other company from the definition of Deposits.
To sum up any company whether public or private can accept loan or deposit from directors (subject to obtaining a declaration) and any other company whether private or public (subject to the restrictions imposed by S.180(1)(c),of the Act) apart from banks and financial institutions. If any company is desirous of obtaining loan from any other person then they have to comply with the Deposit rules which include obtaining credit rating, issuing circular, creating deposit repayment reserve account, etc.
2) Section 180(1)(c) : This sections corresponds to S. 293 of the Companies Act,1956 which was applicable only to public companies and private companies which are subsidiaries of public companies. The provision which is now applicable to private companies as well, states that if the amount to be borrowed by the company along with the amount already borrowed by the company exceeds the aggregate of its paid up share capital and free reserves then consent of the company by means of a special resolution shall be taken. The borrowings exclude temporary loans taken by the company i.e. loans repayable on demand or within 6 months from the date of such loan.
To sum up even though companies are permitted to borrow from companies, directors and financial institutions they have to obtain the consent of the company prior to obtaining further loans if the aggregate of such loans exceed the aggregate of its paid up share capital and free reserves. Obtaining temporary loans are excluded from the purview of this section.
Provisions pertaining to giving loans by the company
3) Section 185:- The section provides that no company shall directly or indirectly advance any loan to its director or to any other person in whom the director is interested or give any guarantee or provide security in connection with the loan taken by the director or any such other person. The term “any other person in whom the director is interested” includes firm in which director or his relative is partner and private companies in which the director may be director or shareholder.
To sum up advancement of loan to any individual or company or firm in whom the director of the lending company is related is strictly prohibited.
4) Section 186: – No company shall directly or indirectly give any loan to any other person or body corporate exceeding 60% of its paid up share capital, free reserves and share premium or 100% of its free reserves and securities premium whichever is more. If the company proposes to advance any such loan exceeding its limits then prior approval by means of a special resolution passed at a general meeting shall be required. Prior approval of the public financial institution shall also be required if there is any default in repayment of instalment or interest on the term loan.
To sum up prior approval of the shareholders shall be obtained by the company if any loan is advances exceeding the given limits.
Checklist for Lender Company
a) The borrower is in no way related to the director of the lender company.
b) The loan advanced is not in excess of the limits specified. If it is then prior approval of shareholders is obtained by means of a special resolution.
Checklist for Borrower Company
a) The lender is the director, bank or any other approved financial institution. For any other lender deposit rules are followed prior to acceptance of such deposit.
b) Prior approval of shareholders is taken if the borrowings exceed the aggregate of paid up share capital and free reserves.
(CA Namrata Gupta, Jaipur, Email – Namrata.airen@gmail.com)
CAN PRIVATE COMPANY GIVE LOAN TO ANY PERSN MORE THAN ITS SHARE CAPITAL
Can a company avail loan from a Bank against Fixed Deposit Receipt which is in the name of another Company ? For example, ABC Co. Ltd. wants to secure loan against Deposit Receipt belonging to XYZ Co. Ltd ?
Can board of directors of a company provide loan to its company ? hay may be the conditions for the same?
A pvt ltd company take loan from NBFCas co borrower with one of the director. What will be the accounting treatment in the books of the company. NBFC release loan in the bank account of director
IS PARTNESHIP FIRM CAN GIVE THE GUARANTEE TO PRIVATE LIMITED FOR BANK LOAN
I get the drift though I am lost here, basically if the company needs funding and cannot get in the financial arena no director can source funds from a friend or relative exceeding the capital shares etc. Example I am in Botswana and I have a friend in Europe who can inject say a million which is way above our shares and is loaning the company for more than 5 years this would violate the law….in laymans terms??
Nicely explained the entire provisions in detail along with check to be made by both borrower and lender while taking and lending money.
Question: A company received loan an other person (vikram) Rs-500000, after one month this person make a director(vikram) that company then company received the loan rs-250000 from vikram.
a:- How to treat in financial BS
b:-how to allot share
Pleasse Specify
Very cleverly put up. Thank you
I need a personal loans required for business used and business management and business growth making in marketing compositions.
Suppose same person have directorship in 2 different company than it is possible they can accept & given loan by both company under company act.2013
Maximum limit for giving loan to member
all my accounts are NPA. Due to Agitation of Andhra Pradesh Movement. Now are plan to takeover loans, please inform what is possibilities.
Can a Pvt. Ltd. company can seek loans from public in general. If yes than what are the parameters to raise loans .
Pl check your bank statement, if the cheque is cleared then you have really GAVE Rs 500000, or else the entry will be standing in BRS
In furtherance to mITESH’s query, i wish to know that if my fathers name is private and my surname is limited, does companies act apply on me? I am an individual, pls help
Dear Friends,
Can you help me to give a draft declaration under Rule 2(c)(viii) of Companies (Acceptance of Deposits) Rules, 2014.?
Hi, Can India Public Ltd. Company get/ eligible for private finance ??? carmine
Can Company Takes Loan From Director Loan Type Securd Or Unsecurd
sir, i want to know that if an NBFC coleect money through security premium, can he allocate that whole amount for giving loan to outsider.
Can Loan taken/ given to Pvt ltd interestfree loan ?
if related party or nor?
if director or not?
MY NAME IS DIRECTOR, NOW DIRECTOR WANTS A LAON IN A COMPANY BUT NOT THE DIRECTOR OF THE DIRECTORE THE NAME IS DIRECTOR WHAT I SHOULD DO AND IF DIRECTOR BECOMES THE DIRECTOR THEN THE PROVISION IS APPLIED ON THE DIRECTOR OR ON THE NAME OR THE PERSON AS A DIRECTOR
I have taken loan from private limited company . What is the provission related to this issue under the companies act 2013. Further inform you that I and my family is not having any interest and not related to the company.
Dear Sir,
I propose to lend Rs. 5,00,000/- to a Private Limited Company (Owned by Husband and Wife) for short term. What are the documents I need to take from the borrowing Company/& Directors to enforce my claim legally if the company fails to return my money? Kindly enlighten me.
Thanks.
what are the Consequences if a Private company does not comply with deposit Rules?
What is the consequence if Private company does not follow Deposit Rules?
how is it possible in real life to avail loan from only directors and to run company successfully according to new companies act????
Can any shareholder/director give collateral for money borrowed by compnay
Whether Loan from Directors also subject to the limit imposed by S.180(1)(c),of the Act. even if the Director give declaration that the loan is not from the borroed fund.
If a person is director and also share holder in the company and he infuses money into the company and term it as loan to the company, which argument will prevail? For getting a loan from him, his position will be considered as a share-holder or director? – See more at: https://taxguru.in/company-law/provisions-companies-act-2013-pertaining-acceptance-giving-loans-company.html#comment-991647
RESPECTED SIR\MEDAM
I HAVE GAVE RS .500000 TO COMPANY.I AM NOT A DIRECTOR OR NOT A SHAREHOLDERS.SO REALY I GAVE OF RS .500000 ?
PLE REPLY
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There is a doubt please.
If a person is director and also share holder in the company and he infuses money into the company and term it as loan to the company, which argument will prevail? For getting a loan from him, his position will be considered as a share-holder or director?
Anyone please reply. Request you to be firm on reply. Please do not assume.
sir
Can a Director give a collateral against a loan to be borrowed by a company? Will it violate any sections of companies act 2013?
Thanks a lot. Nice compilation it is.
I have a question in this regard.
What about the existing loans taken from Members of the company.
Whether it can continue till the term of the loan? or if it does not specify the term.