Loan from director

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 April 2015 A private limited company with 1 lacs paid up capital wants to take loan from director to meet its short term financial requirements. The amount required as loan is more than paid up capital and free reserves of the company so a special resolution needs to be passed.

My query is - whether we need to mention the amount of loan required to be taken from director in the special resolution or we may pass a general special resolution to authorize the company to take loan from directors to meet short term financial requirements.

Arpit Shah

Arpit Shah (Expert)
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16 April 2015 http://taxguru.in/company-law/provisions-companies-act-2013-pertaining-acceptance-giving-loans-company.html

Querist : Anonymous

Querist : Anonymous (Querist)

16 April 2015 Thanks for reply Arpit,

In the present case, the company proposed to take Rs. 5 Lacs loan from one of its directors. Paid up capital and free reserves are only Rs. 1 lacs. No doubt, Special resolution is required to be passed. My query is - do we need to mention the amount of proposed loan of Rs. 5 lacs in the Special resolution? or we can authorise the company via Special resolution to take loan from director in excess of agreegate of paid up capital and free reserves

Thanks in advance...

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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03 August 2024 In the context of a private limited company wishing to take a loan from a director, especially when the loan amount exceeds the company's paid-up capital and free reserves, it's important to follow the legal requirements as set out in the Companies Act, 2013. Here's a detailed explanation of how to proceed with the special resolution and the requirements:

### **Special Resolution for Taking Loan from Director**

#### **1. **Requirement for Special Resolution:**

**Section 180(1)(c) of the Companies Act, 2013:**
- Under this section, a company is required to pass a special resolution to borrow money if the borrowing exceeds the aggregate of its paid-up share capital and free reserves.

**2. **Details to be Mentioned in the Special Resolution:**

**Specific vs. General Authorization:**
- **Specific Authorization:**
- **Amount Mentioned:** It is generally prudent to mention the exact amount of the loan in the special resolution. This provides clarity and ensures that the authorization is specific and precise. In your case, mentioning the amount of ₹5 lakhs would be appropriate.
- **Resolution Example:**
```
"Resolved that pursuant to the provisions of Section 180(1)(c) of the Companies Act, 2013, the consent of the members be and is hereby accorded to borrow an amount not exceeding ₹5,00,000 (Rupees Five Lakhs Only) from [Director's Name], a director of the company, to meet the short-term financial requirements of the company."
```

**General Authorization:**
- **Without Specific Amount:** While it is possible to pass a general resolution to authorize borrowing up to a certain limit, it is less common and may not provide the same level of clarity. This approach may be used if the company anticipates taking multiple loans or varying amounts over time. However, in practice, specifying the amount is usually preferred for transparency and compliance purposes.
- **Resolution Example:**
```
"Resolved that pursuant to the provisions of Section 180(1)(c) of the Companies Act, 2013, the consent of the members be and is hereby accorded to borrow from time to time from [Director's Name], a director of the company, an amount not exceeding ₹5,00,000 (Rupees Five Lakhs Only), to meet the short-term financial requirements of the company."
```

#### **3. **Additional Considerations:**

**Disclosure and Compliance:**
- Ensure that the details of the loan are disclosed in the financial statements and that the transaction is compliant with the requirements of the Companies Act, including any applicable rules under the Act.
- **Form MGT-14:** File the special resolution with the Registrar of Companies (ROC) in Form MGT-14 within 30 days of passing the resolution.

**Interest and Terms:**
- Clearly define the terms of the loan, including interest rates (if any), repayment terms, and any security provided, in the agreement with the director.

#### **Conclusion:**

To ensure compliance and clarity, it is generally advisable to mention the specific amount of the loan in the special resolution. This approach avoids ambiguity and ensures that the authorization is precise and transparent. Passing a special resolution with the exact amount of ₹5 lakhs will provide a clear mandate for the company to proceed with the loan from the director.

For specific guidance tailored to your company's situation and compliance, consulting with a legal advisor or company secretary is recommended.

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