Intercompany loan

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

05 June 2014 PLZ ADVICE,
WE HAVE A SMALL PVT. LTD COMPANY.WE HAVE FOUR PROPRITORSHIP COMPANIES ALSO IN WHICH DIRECOR IS A PROPRIETOR. FOR ANY AMOUNT NECESSARY FOR OUR PVT LTD COMPANY TAKE LOAN FROM PROPRIETORSHIP COMPANY AND PAID WITHIN THAT YEAR OR SUBSEQUENT YEAR..
A NEW AMENDMENT HAS COME IN COMPANIES ACT,1956.
CAN YOU PLZ ADVICE ME WE ARE DOING SO IS RIGHT OR AS PER NEW ULES WE HAVE TO STOP IMMEDIATELY.

PLZ ADVICE.................

ALSO TELL US THE CLAUSE NO IN WHICH THE LAW HAS MENTIONED.

Amol S Joglekar

Amol S Joglekar (Expert)
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05 June 2014 The new act is notified with effect from 01/04/2014. So pls stop doing the same with that effect.

Querist : Anonymous

Querist : Anonymous (Querist)

07 June 2014 CAN YOU SIR PLZ TELL ME THE SECTION NO IN WHICH IT HAS PROHIBITED ....PLZ SIR PLZ

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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01 August 2024 Under the Indian Companies Act, 1956, and its subsequent amendments, intercompany loans between a private limited company and its proprietor or other entities are subject to certain regulations. However, the regulations have evolved significantly with the enactment of the Companies Act, 2013.

### **Key Considerations:**

1. **Companies Act, 1956:**
- This Act has been largely replaced by the Companies Act, 2013. The earlier provisions related to loans and advances were found in Sections 295 and 372A. These sections regulated loans to directors and related parties, including the necessity for shareholder approval and disclosure in financial statements.

2. **Companies Act, 2013:**
- **Section 185:** Prohibits a company from giving loans to its directors or to any other person in whom the director is interested. This section also covers loans to entities where the director is a partner or holds substantial interest.
- **Section 186:** Deals with loans and investments by a company. It requires approval from the board of directors and, in certain cases, the shareholders. This section mandates that loans should not exceed the limits specified without proper approval.

### **Intercompany Loans under Companies Act, 2013:**

- **Prohibition on Loans to Directors (Section 185):**
- As per **Section 185**, a private company cannot give loans or advances to its directors or to any other entity in which the directors have an interest, except in certain circumstances which require special resolution and compliance with provisions.

- **Approval Requirements (Section 186):**
- **Section 186** requires that any loan, guarantee, or investment made by a company should be approved by the board of directors and, in some cases, by the shareholders. This includes loans to entities where directors have a substantial interest.

### **Action Steps:**

1. **Review Existing Loans:**
- Assess all existing intercompany loans and ensure they comply with the provisions of the Companies Act, 2013. Verify that any loans or advances made to the proprietorships are not in violation of the new regulations.

2. **Compliance Check:**
- Ensure that any loans or advances are properly documented and comply with the required approvals from the board of directors and shareholders, if applicable.

3. **Legal Consultation:**
- Consider consulting with a company secretary or legal expert to ensure full compliance with the Companies Act, 2013, and avoid any legal issues.

### **Relevant Clauses:**
- **Section 185**: Prohibits loans to directors and entities where directors have an interest.
- **Section 186**: Regulates loans, guarantees, and investments by a company.

If you are unsure about specific amendments or need detailed advice tailored to your situation, it is highly recommended to consult with a professional legal advisor or company secretary. They can provide precise guidance based on the most current laws and regulations.

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