Acceptance of Deposits by a private company:
A private company has limited sources of funds available, unlike public and listed companies. Deposits are one of the major sources of liquidity for any private company because raising deposits is an easy, quick, and economical way of raising funds as compared to other sources of finances for example a public issue.
However, before raising deposits it is of utmost importance for all private companies to ensure compliance with all the applicable regulations of the Companies Act, 2013. Section 73(2) governs the raising of deposits by a private company. The author has tried to provide the best possible summary of all of those provisions for educational purposes.
Acceptance of deposits by a private company (Section 73)
Concerned Section: Section 73 of the Companies Act, 2013.
Sources:- A Pvt. Co. can accept deposits from its members, directors, and their relatives
- Limit on acceptance of deposits from members: Upto 100% of PUC+ FR+ Sec Prem. However certain private companies can accept deposits from their members in excess of the above limit subject to fulfillment of certain conditions specified below.
- Limit on acceptance of deposits from directors and their relatives:- No limit. However, the director and their relatives have to give a declaration that the amount advanced by them as deposits is not borrowed by them from any other person.
Non-applicability of Limits on borrowing from members if the company satisfies any of the following criteria:-
- A Private Company that is a startup for 10 years.
- A Private Company that is not an associate or subsidiary of any other company and the borrowings of such company from banks, Financial institutions, or any body corporate is less than twice its PUC or Rs. 50 Cr. (whichever is less).
Conditions for accepting deposits from members:- Section 73(2)
1. Pass Resolution in General Meeting.
2. Other conditions:
3. Issuance of circular to its members in form DPT-1
4. File circular with ROC atleast 30 days before the issuance of circular to its members
5. Create deposit repayment reserve & deposit on or before 30th April each year an amount which shall not be less than 20% of the amount of deposits maturing during the current year
6. Certificate from the company’s auditor that the company has not defaulted in repayment of deposits or interest thereon (attached with DPT-1)
7. Creation of charge in case of secured deposits within 30 days.
Companies which are not required to comply with the conditions specified above in section 73(2)(ii) (a to e):
1. A private company that accepts money from its members not exceeding 100% of its PUC+FR+Sec Premium. (or)
2. A private company that is a startup for 5 years from the date of its incorporation. (or)
3. A private company that is not an associate or subsidiary of any other company and the borrowings of such company from banks, FIs, or any body corporate is less than twice its PUC or Rs. 50 Cr. (whichever is less).
Tenure of deposits: Minimum 6 months maximum 36 months. However, a company may accept deposits for less than 6 months but not less than 3 months, and the amount of such deposits shall not exceed 10% of the PUC+FR+Sec. Prem., for meeting short-term funds requirements.
Interest Rate: Not more than the rate prescribed by RBI for acceptance of deposits by NBFC.
Appointment of deposit Trustee: If a company is inviting secured deposits. Execute the trust deed atleast 7 days before issuance of circular in form DPT-2.
Issuance of Deposit Receipt: Within 21 days of receipt of money or realization of cheque.
Important forms:
- DPT-1 = Circular to members for inviting deposits
- DPT-2= Deposit Trust Deed
- DPT-3= Return of deposits
Procedure for acceptance of deposits from members:
- Pass board resolution.
- Pass a resolution in general meeting. (Ordinary Resolution will serve the purpose)
- Appoint trustee and execute trust deed in DPT-2 atleast 7 days before issuance of circular to members (for secured deposits).
- File circular in Form DPT-1 with RoC along with auditors certificate.*
- After 30 days of filing with RoC, issue circular to members along with application form.*
- Issue deposit receipts within 21 days from the receipt of money/realization of cheques.
- Create a Deposit Repayment Reserve (DRR) & deposit such sum in it as specified above, on or before 30th April each year.*
- Submit the Return of deposits in form DPT-3 on or before 30th June every year.
* Exempted for following private companies:
1. A private company that accepts money from its members not exceeding 100% of its PUC+FR+Sec Premium. (or)
2. A private company that is a startup for 5 years from the date of its incorporation. (or)
3. A private company that is not an associate or subsidiary of any other company and the borrowings of such company from banks, FIs, or any body corporate is less than twice its PUC or Rs. 50 Cr. (whichever is less).
Use of Deposit Proceeds: No specific restrictions on the use of deposit proceeds are provided under the Act; however we can check the objective clause in MOA to ensure its compliance. If a company wishes to make a further investment in any type of government or other securities or wishes to carry out any type of financial services by using the proceeds of the deposits then it must first register itself as an NBFC.
Abbreviations used:
PUC= Paid-up Capital
FR= Free Reserves
Sec. Prem.= Securities Premium
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The author can be reached at vpasrija93@gmail.com .
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL, OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF, OR IN CONNECTION WITH THE USE OF THE INFORMATION
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