Can a Private Company Accept Deposits from Its Shareholders? A Practical Look at Section 73 Exemptions
The ability of a company to accept deposits from its own shareholders is governed by Section 73 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014 and related MCA notifications. Initially, the MCA notification dated 5 June 2015 provided limited procedural relief to eligible private companies, permitting acceptance of deposits from members up to 100% of the aggregate of paid-up share capital and free reserves, subject to conditions. However, the notification dated 13 June 2017 significantly liberalised the framework by introducing three alternative exemption categories. A private company can claim exemption if it accepts deposits from members within the prescribed financial limit, qualifies as a start-up within five years of incorporation, or satisfies specified financial and structural conditions, including borrowing thresholds and absence of repayment defaults. The shift reflects a regulatory move toward facilitating genuine business funding needs while maintaining safeguards to ensure financial discipline, transparency, and structured compliance.
Recently, I came across an interesting and frequently debated question: Can a company accept deposits from its own shareholders?
The answer lies in understanding Section 73 of the Companies Act, 2013 read with the Companies (Acceptance of Deposits) Rules, 2014, along with the key exemption notifications issued by the Ministry of Corporate Affairs (MCA).
The notification dated 05 June 2015 granted procedural relief enabling eligible private companies to accept deposits from members without complying with certain requirements, but the relief was controlled and the acceptance of deposits from members was capped at 100% of the aggregate of paid-up share capital and free reserves.
The subsequent notification dated 13 June 2017 changed the landscape significantly. Instead of a single restricted route, it introduced three alternative categories under which a private company could avail exemption from clauses (a) to (e) of Section 73(2):
I. Which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or
II. Which is a start-up, for five years from the date of its incorporation; or
III. Which fulfils all of the following conditions, namely:
i. Which is not an associate or a subsidiary company of any other company;
ii. If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
iii. Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under the section.
The journey from the 2015 exemption to the 2017 amendment reflects a clear regulatory shift from a tightly controlled relief to a more pragmatic and liberalised framework. While private companies today enjoy greater flexibility in accepting funds from members, the exemptions continue to operate within a structured compliance environment. In essence, the law has moved towards enabling genuine business funding needs while ensuring that transparency and financial discipline remain at the core of the regime.
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