Huf loan/ director loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2014 Dear Respected Team Member

we have few Query
1. can HUF give loan to Pvt. Ltd. Co./Ltd. Co.as per new company amendment rule July-14.?

2. Can Proprietor/Partnership give loan to Pvt ltd/ Ltd.co.?

3. Can director loan to company ? if yes what is appropriate rate of intt. ?

Deepak Shah
9911247808

Querist : Anonymous

Querist : Anonymous (Querist)

18 October 2014 Dear Ajay sir
kindly give me advice on my mail

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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28 July 2024 Here are the detailed answers to your queries regarding loans from HUFs, proprietorships/partnerships, and directors to private or public limited companies:

### **1. Loan from HUF to Private Limited Company / Limited Company**

**HUF Loan to Company:**

- **General Rule:** Historically, there were no specific prohibitions against an HUF giving a loan to a private limited company or a public limited company. However, under the Companies Act, 2013 and its amendments, there are specific provisions and regulations regarding loans and advances from entities.

- **New Regulations (July 2014 Amendment):**
- As per the Companies Act, 2013, and the Companies (Acceptance of Deposits) Rules, 2014 (amended in July 2014), there are stringent rules regarding the acceptance of loans and deposits by companies.
- Companies are generally prohibited from accepting loans or deposits from non-shareholders, which would include HUFs, unless the loan is provided under specific conditions or exemptions.

- **Compliance:** If an HUF wishes to provide a loan to a company, it must ensure that it adheres to the relevant provisions of the Companies Act and other regulations. This often involves compliance with rules on related party transactions and deposit regulations.

### **2. Loan from Proprietorship/Partnership to Private Limited / Limited Company**

**Proprietorship/Partnership Loan to Company:**

- **Proprietorship:** A proprietorship can technically lend money to a company as it is not a separate legal entity from the proprietor. However, the loan should be properly documented, and the terms should be clear and compliant with the law.

- **Partnership Firm:** A partnership firm can lend money to a private limited or limited company. The partnership agreement should include terms for such loans, and proper documentation should be maintained.

- **Compliance and Documentation:** All loans from proprietorships or partnerships to companies should comply with company law requirements, and proper documentation should be maintained. The loan terms should be clear, and any related party transaction regulations should be followed.

### **3. Director Loan to Company**

**Director Loan to Company:**

- **Legality:** Directors can lend money to their own company. However, such loans must be documented and comply with the provisions of the Companies Act, 2013.

- **Interest Rate:** The Companies Act, 2013 does not prescribe a specific rate of interest for loans from directors to companies. The interest rate should be determined based on a fair market rate and should be clearly documented in the loan agreement. It should also be approved by the board of directors and disclosed in the financial statements of the company.

- **Disclosure and Compliance:**
- **Disclosure:** Loans from directors must be disclosed in the financial statements of the company as related party transactions.
- **Board Approval:** Such transactions typically require board approval and compliance with provisions related to related party transactions under the Companies Act.

### **Summary**

1. **HUF to Company:** Loans from an HUF to a company must comply with the Companies Act, 2013, and related regulations. It’s crucial to ensure adherence to the rules regarding deposits and related party transactions.

2. **Proprietorship/Partnership to Company:** Loans from proprietorships or partnerships to companies are allowed but should be documented properly and comply with legal and regulatory requirements.

3. **Director Loan to Company:** Directors can provide loans to their company, but the terms, including interest rates, should be documented and comply with the Companies Act, 2013. Disclosure in financial statements and board approval are required.

For precise compliance and to address specific legal and regulatory requirements, consulting with a legal advisor or chartered accountant is recommended.

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