Loan From Director Or Shareholders In Private Limited And Public Limited Under Companies Act 2013

LOAN FROM DIRECTOR or SHAREHOLDERS UNDER COMPANIES ACT 2013

There is a common question which revolves around is can the director or Shareholder give loan to company? Can it be a private company or unlisted public Company? If Company accepted loan from an Individual and such individual is Director as well as shareholder of the Company. Whether loan from such person shall be considered as Loan from Shareholder of Loan from Director?

Here author tries to clear all the doubts regarding the Loan from Director or Shareholder under the Companies Act 2013.

FOR PRIVATE COMPANIES:

  • LOANS FROM DIRECTORS/ RELATIVES: Yes, it is allowed.

(Section 73(2) of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014)

As per the definition of Deposit under the Deposit Rules, “Loan received from the Directors of the Company shall be considered as Exempted Deposit.”

Under loan it is important to determine whether the loan given by the director or his relative is out of his/their own funds and the declaration is received by the company to that effect.

If the amount given by the director or his relative is out of borrowed funds, and declaration is received by the company to that effect then the transaction would fall under the category of “Deposits” and the company must comply with Deposit Rules.

INTERPRETATION: Loan accepted by a private limited company from its directors or their relatives is allowed (out of own fund) and is considered as an exempt category deposit.

  • LOAN FROM SHAREHOLDER: Yes,

As, per Rule 3 of Chapter V (Terms & conditions of acceptance of deposits), Companies Act restrict company accept or renew deposit from its members if the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance or renewal of such deposits exceeds 35% [thirty-five per cent] of the aggregate of the Paid-up share capital, free reserves and securities premium account of the company.

For PRIVATE LIMITED restriction of maximum 35% doesn’t apply (MCA issue Exemption notification for Private Limited Companies on 13th June, 2017) and they can accept beyond maximum limit if following conditions are satisfied:

i. a private company which is a start-up, for ten years from the date of its incorporation;

ii. a private company which fulfils all of the following conditions, namely:-

(a) Which is not an associate or a subsidiary company of any other company;

(b) the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is less ; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73

Provided also that all the companies accepting deposits shall file the details of monies so accepted to the Registrar in Form DPT-3.

Exemption to private companies for compliance of Sec 180 (1)(c) of companies act 2013 to pass a special Resolution,
If Proposed + Existing borrowings (exclude temporary borrowings) > (paid up capital +Free Reserves + Securities Premium account), the Company shall have to pass Special Resolution in General Meeting.

PUBLIC LIMITED COMPANIES

  • LOANS FROM DIRECTORS/ RELATIVES: Yes, it is allowed.

(Section 73(2) of the Companies Act, 2013 read with Companies (Acceptance of Deposits) Rules, 2014)
As per the definition of Deposit under the Deposit Rules, “Loan received from the Directors of the Company shall be considered as Exempted Deposit.”

Under loan it is important to determine whether the loan given by the director or his relative is out of his/their own funds and the declaration is received by the company to that effect.

If the amount given by the director or his relative is out of borrowed funds, and declaration is received by the company to that effect then the transaction would fall under the category of “Deposits” and the company must comply with Deposit Rules.

Loan From Director or Shareholders Under Companies Act

  • LOAN FROM SHAREHOLDER: Yes, can accept, but subject to the condition specified in Deposit Rules:

A company (Ineligible public company) can accept a maximum 35% of (paid up capital + Free reserves+ Securities Premium account).This limit is for existing and proposed deposits.

*Eligible Public company

(a net worth of not less than one hundred crore rupees or a turnover of not less than five hundred crore rupees and which has obtained the prior consent of the company in general meeting by means of a special resolution and also filed the said resolution with the Registrar of Companies before making any invitation to the Public for acceptance of deposits

Provided that an eligible company, which is accepting deposits within the limits specified under section 180(1) (c) {Proposed + Existing borrowings (exclude temporary borrowings) > (paid up capital +Free Reserves + Securities Premium account} may accept deposits by means of an ordinary resolution)

Eligible Company shall not accept or renew deposit from its members, if:

i. The deposit accepted/ renewed exceeds 10% of the aggregate of the Paid-up share capital, free Reserves and securities premium account of the company;

ii. If the amount of other deposit(other than members), other than the deposit referred in point (i) above exceeds the 25% of the aggregate of Paid-up share capital, free Reserves and securities premium account of the company.

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