Neha Redekar
Quick Summary
Section 186(2) of the Companies Act, 2013 provides that no company shall directly or indirectly Give any loan to any person or other body corporate; Give any guarantee or provide security in connection with a loan to any other body corporate or person; and Acquire by way of subscription, p
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FAQ :
Companies cannot give loans, guarantees, or security exceeding 60% of their paid-up share capital, free reserves, and securities premium account, or 100% of their free reserves and securities premium account, whichever is greater. Investments in securities are also subject to these limits.
A special resolution passed in a general meeting is required if the aggregate of loans, guarantees, or investments proposed, along with existing ones, exceeds the limits specified in Section 186(2).
Yes, the special resolution requirement does not apply if the loan, guarantee, or security is provided to a wholly-owned subsidiary or a joint venture company, or if a holding company acquires securities of its wholly-owned subsidiary.
A company can make investments through a maximum of two layers of investment companies, meaning a holding company can invest in a subsidiary, which can then invest in another subsidiary.
Companies must disclose full particulars of loans given, investments made, or guarantees/securities provided, along with the purpose of their utilisation, in their financial statements and board's report.
Non-compliance can result in a fine for the company ranging from Rs. 25,000 to Rs. 5,00,000, and imprisonment for up to 2 years along with a fine for every defaulting officer.
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