This query is : Resolved 

18 July 2009

One of my client going to borrow some amount from a proprietorship firm, providing finance. My client is a company. My question is that whether the company can borrow from proprietorship firm without affecting the provision 58A if yes how to comply with that.
What are the procedure for such compliance.

Kinjal Shah (Expert)
18 July 2009


No, since your client company status is Private Limited Company, therefore it can not borrow any amount from any individual.

Borrowing from individual will violate provision contained under Section 3(1)(iii)(d) of the Companies Act, 1956.

As per the definition of Private Limited Company:-

The private limited company can borrow only from its members and directors and relatives of directors. For relatives please refer definition given under Section 6 read with Schedule IA of the Companies Act, 1956.

Solution: Make the individual as a shareholder of the private limited company; thereafter they can borrow any amount from the said individual running proprietary concern.

To meet the requirement under the Companies Act, the said individual is requires to hold only one equity shares.

Private limited company is free to borrow amount from any other company registered under the Companies Act, 1956. But if the lending and borrowing companies are inter-related then provision contained under Section 295 should be taken care before lending any amount to private limited company.

After complying with the provision stipulated under Section 58A of the Act, only public limited company can borrow. The private limited companies are bar to borrow any money from the public.

Thanks & Regards,
Kinjal Shah

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