The table below outlines the entities or persons from whom a Private Limited Company may borrow funds :-

Sr. No. Entity/ Person Allowability of the Loan
1 Director Allowed, provided a declaration is furnished by the director that the amount has not been given out of funds acquired by him by borrowing or accepting loans or deposits from others
2 Relative of Director Allowed as Ministry of Corporate affairs vide its notification dated 15.09.2015 has provided that w.e.f. 15.09.2015 a private company can  accept unsecured loans apart from director also from a relative of Director  provided that relative of director from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report.  The relative need not be a shareholder of the company
3 Shareholders Where money accepted from members exceeds 100% of the Paid up share capital and free reserves. Where money accepted from members does not exceed 100% of the Paid up share capital and free reserves.
Not allowed Allowed subject to:  Passing a members resolution,n  Making provision for security, ifn any for due repayment of the amount of deposit accepted and interest thereon (not less than 12.5% at present) including creation of charge (Form CHG1) on the property or assets of the Company.  Filing the details of the moneyn accepted with the registrar.
4 Relative of Shareholders Not allowed as such a borrowing may take place nevertheless, subject to the fulfillment of conditions as prescribed in Section 73 of the Companies Act, 2013.
5 A person who is Director& Shareholder Both Allowed, provided a declaration is furnished by the director that the amount has not been given out of funds acquired by him by borrowing or accepting loans or deposits from others.
6 Employee Allowed The Amount borrowed must not exceed the employees’ annual salary in the nature of interest free security deposit.

(For any further queries, feel free to call or mail: on Mob: 8130379444 or at Email: cspriyanka30@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 a professional advice and is subject to change without notice. I assume no responsibility for the consequences of 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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Tags : Companies Act (2511) Companies Act 2013 (2283)

6 responses to “Persons from whom a Private Limited Company may borrow funds”

  1. Saurabh Agarwal says:

    1. Can a private company take loan from its members who is individual.
    2. Can a private company take loan from its member if such member is Body Corporate.
    Please answer for loan not for deposit.

  2. pradeep says:

    as per notification dated 13.06.2017, private limited company can accept deposit without any limit, if it fulfils 3 criteria and file DPT 3 every year.

  3. Irfana Illiyas says:

    can the company borrow from a related entity ie apartnership firm in which the director is a partner

  4. mona says:

    what is the position if shareholder who is a relative of director?

  5. Jack Hock says:

    Can you please tell me which section tells about it

  6. Dhaval123 says:

    Nice article. Simple to be understood.

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