Can a Private Limited Company Accept a Loan From a Partnership Firm?

Summary: Under the Companies Act, 2013 and the Companies (Acceptance of Deposits) Rules, 2014, a private limited company cannot accept a loan from a partnership firm as an exempt borrowing merely because the firm’s partners are also directors of the company. Rule 2(1)(c) treats amounts received by way of loans as deposits unless they fall within specified exemptions, such as loans from directors in their individual capacity or inter-corporate loans. Since partnership firms are not included in the exempted categories, loans received from them are deemed public deposits. Consequently, acceptance of such loans without complying with Section 73 requirements may amount to unauthorized acceptance of deposits, exposing the company and officers in default to penalties under Sections 75 and 76A. If such amounts remain outstanding, they should be reported in Form DPT-3 as deposits with the requisite auditor’s certificate, rather than being disclosed as exempt transactions.

Frequently Asked Question in Seminars & Professional Groups:

“If a Private Limited Company takes a loan from a partnership firm, and all the partners of that firm are directors in the company, where should this be reported in Form DPT-3? Is it a loan from directors or a loan from other companies?”

This question frequently makes the rounds among corporate practitioners, company secretaries, and chartered accountants. However, it completely skips a vital regulatory step.

Before looking at the DPT-3 webform to decide which check-box or option to tick, we must address a more fundamental legal question: Is a Private Limited Company legally permitted to accept a loan from a partnership firm in the first place?

Once this foundational legal question is answered, the exact reporting mechanism in Form DPT-3 becomes instantly clear.

1. The Legal Baseline: The Position Under Companies Act, 2013

Under the provisions of the Companies Act, 2013, the short and unequivocal answer is No, a private company cannot accept a loan from a partnership firm without it being classified as a deposit.

To understand why, we look at the definition of a “Deposit” provided under Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014. The framework of the law dictates that any money received by a company by way of a loan, advance, or credit is deemed a public deposit by default, unless it explicitly falls into one of the exempted categories listed within that rule (commonly known as “exempted borrowings”).

While the rules explicitly list various valid exemptions—such as inter-corporate loans (loans from another company) or loans received from an individual who is a Director of the company at the time of giving the loan—partnership firms are completely omitted from this exempted list.

Does having “Common Directors” bypass this rule?

Absolutely not. Even if 100% of the partners in that firm serve as directors on the board of the receiving private company, the loan originates from the partnership firm as a distinct commercial entity, rather than from the directors in their individual capacity.

The law strictly evaluates the source entity, not the individuals behind it. Therefore, a loan advanced from a partnership firm’s bank account to a Private Limited Company cannot be masqueraded or treated as an exempted director’s loan.

2. The Impact: Reclassification as an Illegal Deposit

Because a loan from a partnership firm fails to qualify for an exemption under Rule 2(1)(c), the regulatory framework automatically reclassifies this money as a Public Deposit from day one.

Accepting a public deposit without strictly adhering to the rigorous procedures layout under Section 73 of the Companies Act (which involves creating a charge on assets, maintaining liquid deposit repayment reserves, and obtaining credit ratings) amounts to a serious non-compliance.

3. The Rectification: How to Correctly Disclose in Form DPT-3

If a private company has already accepted such a loan, and it remains outstanding on the balance sheet as of March 31st, it must be declared. Attempting to mask it as an exempted transaction is a fraudulent filing risk.

Because it is a deemed public deposit, you cannot file it under Option 2 (Particulars of transactions by a company not considered as deposit). Instead, execute the following steps:

• Select the Correct Radio Button: You must choose either Option 1 (Return of Deposit) or Option 3 (Both Return of Deposit and Particulars of transactions not considered as deposit) depending on whether the company has other actual exempted loans on its books.
• Disclose Under Deposit Columns: The entire outstanding balance from the partnership firm must be keyed into the specific schedules meant for reporting Deposits.
• Mandatory Auditor Certificate: Selecting Option 1 or 3 means you can no longer skip the statutory auditor’s validation. A formal Auditor’s Certificate must be digitally attached to the webform submission.

The Clean Workaround for Future Transactions

To protect your clients or employers from compliance audits and penalties going forward, advise them to restructure how the funding is routed:

1. Step 1: The partners should formally withdraw or borrow the respective funds from their partnership firm into their personal, individual bank accounts.

2. Step 2: The individuals will then transfer the money from their personal bank accounts to the Private Limited Company as a personal Loan from Director.

3. Step 3: Obtain a signed written declaration from the Director stating that the advanced funds are provided from their own personal source and are not accumulated by borrowing or accepting loans/deposits from others.

By doing this, the transaction remains cleanly exempted under Rule 2(1)(c). It can then be confidently and safely reported under Option 2 in Form DPT-3 as an exempted borrowing, protecting the corporate entity from any unexpected statutory penalties.

*****

Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).