Loan to director & shareholder

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 October 2016 Dear Seniors,
Pls guide me can A pvt. Ltd. Company provide the loan to its directors who is also shareholder if yes what is the procedure of loan given to director/shareholder

Also tell me weather full loan amount will be treated as deemed dividend in the hand of directors/shareholders,
Pls clarify the same.

Regards
Amit Rathi

Jatin Bajaj

Jatin Bajaj (Expert)
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27 October 2016 According to section 185 of the companies act 2013, a private company can give loan to directors if the following conditions are satisfied.
in whose share capital no body corporate has invested the money
borrowing from banks or public financial institution does not exceed 50 crore rupees or twice the paid up share capital, wichever is lower
Company has no default in repayment of borrowing subsisting at time of making transaction.
if the all the above conditions are satisfied then pvt company can provide loan to Directors.
such loan amount shall be considered as deemed dividend if shareholder is holding more than 10% of the voting in the company or more than 20% of the income in any concern at any time but subject to accumulated profits

Querist : Anonymous

Querist : Anonymous (Querist)

27 October 2016 Sir what do you means by in whose share capital no body corporate has invested the money borrowing from bank or public financial institute does not exceed 50 crore rupees or twice the paid up share capital,

Pls clarify the above line in details if with example possible then pls with example,

Thanks in Advance.

Jatin Bajaj

Jatin Bajaj (Expert)
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28 October 2016 Suppose Your Private Company has borrowed Rs. 1 crore
paid up capital of the Company : 5 crore
twice the paid capital is 10 crore.
Now Compare borrowing with twice of paid up share capital , i.e 1 crore or 10 crore whichever is lower.
1 crore is lower which is less than 50 crore, so it means private company can give loan to Director. if Loan amount exceeds 50 crore , then private Company cannot give Loan to Director

Jatin Bajaj

Jatin Bajaj (Expert)
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28 October 2016 in whose share capital other body corporat has invested the money.
Suppose another Company A holds 25% of the Shares of your Company
And Company B also holds 15% shares of your Company.
In both these cases other Body Corporate has shareholding in your Company.
So Private Company in this case cannot give Loan to Directors

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Querist : Anonymous

Querist : Anonymous (Querist)

28 October 2016 Ok and what does that means borrowing money from bank or public financial institute or twice the share capital whichever is lower,

Pls clarify this also with an example

Thanks in Advance