Borrowing of funds

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Rahul J Sangani (Querist)
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25 February 2013 Can a private limited company established in India,allowed to borrow funds as a loan from any person or unrelated party?

Ajay Mishra

Ajay Mishra (Expert)
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25 February 2013 Hi

No,

Deposits in case of Private Limited Company

Private Company is prohibited to accept any invitation or acceptance of unsecured loans/deposits from the persons other than its members, directors or their relatives. Therefore a private company can accept deposits through private arrangement from its members, directors and their relatives.

Rule 2(b)(ix) exempt any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b)(ix), any amount received from members of a private company limited by guarantee are not exempt.

Rule 3 of Companies (Acceptance of Deposits) Rules, 1975 deal with the limit upto which a company can accept deposits/ loans. Private company exempted this limit.

For any invitation and acceptance of unsecured loan/deposits from relatives of directors and member, the company will have to file a statement in lieu of advertisement in accordance with the provisions of Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975. The company will also have to file annual return of deposits in accordance with Rule 10.

Ajay Mishra

Ajay Mishra (Expert)
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25 February 2013
Consequences of acceptance of deposit by Private Limited Company

If a private company acceptance an amount, which may be classified as deposit under section 58A read with Companies (Acceptance of Deposits) Rules, 1975, it will cease its status of a private company and has to make all the compliances for such deposits as per the requirement of said rules, as well as to comply with all the provisions as may be applicable on public limited company such as section 58A, 58AA, 58AAA, 81, 256, 257, 198, 268, 269, Schedule XIII, 274(i)(g), 295, 297, 300, 301, 372A, etc

Rahul J Sangani

Rahul J Sangani (Querist)
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25 February 2013 so it means private limited company can accept loan from, Shareholders, director and their relatives without any limit and without any default in sections 58A,58AA,58AAA..... etc

Ajay Mishra

Ajay Mishra (Expert)
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25 February 2013 Yes,

Check, definition of private limited company.

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