Latest circular & clarification
This query is : Resolved
04 April 2015
Dear Friends
Pl let me know about the latest clarification and changes in refund / allotment of Share application and loans from director and members in a Pvt. Ltds. company.
Thanks
Pl let me know about the latest clarification and changes in refund / allotment of Share application and loans from director and members in a Pvt. Ltds. company.
Thanks
04 April 2015
1. Share application money pending allotment - company shall either allot shares or return the money by June 1,2015.
2. Loan from members - company shall disclose such amounts in the 'notes on accounts 'but renewal/fresh acceptance shall be in accordance with the Companies Act,2013.
2. Loan from members - company shall disclose such amounts in the 'notes on accounts 'but renewal/fresh acceptance shall be in accordance with the Companies Act,2013.
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11 April 2015
Sir Just in continuation, Please clarify me what is provision of Com Act, 2013 for private Ltd company if unknowingly further loan has been taken after 31.03.2014 from director and the members.
02 August 2024
Under the Companies Act, 2013, borrowing from directors and members is governed by various provisions to ensure transparency and proper management. If a private limited company has unknowingly taken a further loan from directors or members after March 31, 2014, the following provisions are relevant:
### Provisions Relating to Loans and Advances
1. **Section 185 – Loans to Directors:**
- **Restriction on Loans:** Section 185 of the Companies Act, 2013, prohibits companies from giving loans or advances to directors or their relatives, except in certain cases. The section also covers loans to firms or private companies in which a director or their relative is a partner or member.
- **Exceptions:** Loans may be given under specific circumstances, such as:
- Loans given in the ordinary course of business and on terms that are not more favorable than those offered to the public.
- Loans to a company for the purpose of providing securities or guarantees on behalf of another company where the director is not a shareholder or member.
- **Penalties:** Non-compliance with Section 185 can lead to penalties. Directors and companies may face fines if the provisions are violated.
2. **Section 186 – Loans and Investments by Company:**
- **General Restrictions:** Section 186 imposes restrictions on loans, investments, and guarantees given by a company. It includes requirements for board resolutions and, in some cases, shareholder approval.
- **Loans to Directors or Relatives:** Any loan or advance to directors or their relatives must comply with the provisions of Section 185 and Section 186. The company needs to disclose such loans in its financial statements and obtain necessary approvals.
- **Limits and Approvals:** The total amount of loans and investments should not exceed the limits specified in the section, and appropriate resolutions and disclosures are required.
3. **Section 188 – Related Party Transactions:**
- **Approval and Disclosure:** Transactions with related parties, including loans to directors or members, need to be approved by the Board of Directors and, in certain cases, by shareholders. Disclosure of such transactions must be made in the financial statements and in the board report.
- **Penalties:** Non-compliance with the provisions can attract penalties.
### Actions to Take
If a company has taken a loan from directors or members unknowingly after March 31, 2014, it should take the following steps:
1. **Review Compliance:** Assess the company's compliance with Sections 185, 186, and 188. Ensure that any loans or advances made adhere to the provisions of these sections.
2. **Obtain Approvals:** If required, obtain the necessary approvals from the Board of Directors and, if applicable, from the shareholders. Document these approvals properly.
3. **Disclose Transactions:** Ensure that all related party transactions, including loans from directors and members, are properly disclosed in the company's financial statements and board report.
4. **Rectify Non-Compliance:** If any non-compliance is identified, take corrective measures to comply with the provisions of the Companies Act, 2013. This may include obtaining retrospective approvals, amending financial statements, and addressing any penalties.
5. **Consult Professionals:** Seek advice from a company secretary or legal expert to navigate the compliance requirements and address any potential issues.
### Conclusion
Under the Companies Act, 2013, loans from directors and members are regulated to ensure transparency and prevent misuse. If loans have been taken unknowingly, it is essential to review compliance with the relevant sections, obtain necessary approvals, and make required disclosures to rectify any non-compliance.
### Provisions Relating to Loans and Advances
1. **Section 185 – Loans to Directors:**
- **Restriction on Loans:** Section 185 of the Companies Act, 2013, prohibits companies from giving loans or advances to directors or their relatives, except in certain cases. The section also covers loans to firms or private companies in which a director or their relative is a partner or member.
- **Exceptions:** Loans may be given under specific circumstances, such as:
- Loans given in the ordinary course of business and on terms that are not more favorable than those offered to the public.
- Loans to a company for the purpose of providing securities or guarantees on behalf of another company where the director is not a shareholder or member.
- **Penalties:** Non-compliance with Section 185 can lead to penalties. Directors and companies may face fines if the provisions are violated.
2. **Section 186 – Loans and Investments by Company:**
- **General Restrictions:** Section 186 imposes restrictions on loans, investments, and guarantees given by a company. It includes requirements for board resolutions and, in some cases, shareholder approval.
- **Loans to Directors or Relatives:** Any loan or advance to directors or their relatives must comply with the provisions of Section 185 and Section 186. The company needs to disclose such loans in its financial statements and obtain necessary approvals.
- **Limits and Approvals:** The total amount of loans and investments should not exceed the limits specified in the section, and appropriate resolutions and disclosures are required.
3. **Section 188 – Related Party Transactions:**
- **Approval and Disclosure:** Transactions with related parties, including loans to directors or members, need to be approved by the Board of Directors and, in certain cases, by shareholders. Disclosure of such transactions must be made in the financial statements and in the board report.
- **Penalties:** Non-compliance with the provisions can attract penalties.
### Actions to Take
If a company has taken a loan from directors or members unknowingly after March 31, 2014, it should take the following steps:
1. **Review Compliance:** Assess the company's compliance with Sections 185, 186, and 188. Ensure that any loans or advances made adhere to the provisions of these sections.
2. **Obtain Approvals:** If required, obtain the necessary approvals from the Board of Directors and, if applicable, from the shareholders. Document these approvals properly.
3. **Disclose Transactions:** Ensure that all related party transactions, including loans from directors and members, are properly disclosed in the company's financial statements and board report.
4. **Rectify Non-Compliance:** If any non-compliance is identified, take corrective measures to comply with the provisions of the Companies Act, 2013. This may include obtaining retrospective approvals, amending financial statements, and addressing any penalties.
5. **Consult Professionals:** Seek advice from a company secretary or legal expert to navigate the compliance requirements and address any potential issues.
### Conclusion
Under the Companies Act, 2013, loans from directors and members are regulated to ensure transparency and prevent misuse. If loans have been taken unknowingly, it is essential to review compliance with the relevant sections, obtain necessary approvals, and make required disclosures to rectify any non-compliance.
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