Advances to related party

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Anu (Querist)

24 October 2026 A private limited company's director owns a property along with his sisters. The company wants to eventually move its offices into this property. The company wants to give rental advance towards the property.

The director wants to create a partnership firm/LLP or Private limited company with his sisters who are co owners for this purpose. If it is a partnership firm or LLP, both of which are body corporates, an AGM approval is required. What is the position if agreement is entered by
1. director along with co owners in individual capacity and
2. a private limited company with the coowners as directors.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)

24 October 2026 Scenario 1 (Individuals): Requires Board approval under Section 188 (and shareholder approval if thresholds are breached). Interested director cannot vote. Must ensure the rental advance is genuine, reasonable, and strictly for commercial office use to avoid Section 185 complications.

Scenario 2 (Corporate/LLP/Partnership): Triggers Section 188 related party compliance. If structured as a separate corporate body/LLP receiving advances or loans, Section 185 special resolution requirements or strict related-party governance rules will apply. General meeting approval is only required if monetary thresholds under Section 188 rules are breached, rather than being universally mandated for all body corporate contracts.

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