Loan from share holders / directors
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
18 November 2012
Regards !
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }. If the above rules applies do v have to take any Declaration from the Share holder.
Do the same rule applies for a Director also - Please advise.
Thanking you with best regards
Aparajeet
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }. If the above rules applies do v have to take any Declaration from the Share holder.
Do the same rule applies for a Director also - Please advise.
Thanking you with best regards
Aparajeet
18 November 2012
Yes, a declaration has to be obtained from the member / director concerned ,as per rule 2(b(ix) of Companies (Acceptance of Deposits) Rules, 1975.
Querist : Anonymous
Querist :
Anonymous
(Querist)
19 November 2012
Sri Chakrapani Warier ji - Regards !
Thank you sir - recd your reply.
Sir our query is :
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }. If the above rules applies do v have to take any Declaration from the Share holder.
Do the same rule applies for a Director also - Please advise.
Thank you sir - recd your reply.
Sir our query is :
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }. If the above rules applies do v have to take any Declaration from the Share holder.
Do the same rule applies for a Director also - Please advise.
Querist : Anonymous
Querist :
Anonymous
(Querist)
19 November 2012
Regards !
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }.
Do the same rule applies for a Director also - Please advise.
Thanking you with best regards
Aparajeet
One of our friend told that a Pvt Ltd company can take loans from the share holders but to the maximum extent of their own Capital { ie : they cannot give Loan from Borrowed Funds }.
Do the same rule applies for a Director also - Please advise.
Thanking you with best regards
Aparajeet
03 August 2024
In a Private Limited Company, the rules governing loans from shareholders and directors are outlined under the Companies Act, 2013. Here’s a detailed look at these rules:
### **Loan from Shareholders**
1. **General Provisions:**
- **Loans from Shareholders:** A private limited company can take loans from its shareholders. There is no specific restriction on the maximum amount of loan based solely on the shareholder's capital contribution. However, the company must ensure compliance with other provisions of the Companies Act, 2013 and any applicable regulations.
2. **Loan Documentation:**
- **Declaration or Agreement:** It is prudent to have a formal loan agreement in place specifying the terms of the loan, including the amount, interest rate (if any), and repayment schedule. This helps in maintaining clarity and legal documentation of the transaction.
- **Board Resolution:** A resolution by the Board of Directors authorizing the loan and detailing its terms should be passed.
### **Loan from Directors**
1. **Provisions Under the Companies Act, 2013:**
- **Restrictions on Loans to Directors:** The Companies Act, 2013 imposes restrictions on loans to directors. Section 185 of the Companies Act, 2013 prohibits a company from providing loans to its directors or to any other person in whom the director is interested, unless it is in the ordinary course of business.
- **Exceptions:** Loans can be provided if they are in compliance with Section 185 and if they fall under specific exceptions such as loans to managing or whole-time directors with the approval of shareholders.
2. **Loan Documentation:**
- **Declaration:** A declaration from the director regarding their interest in the loan transaction is generally required. This ensures transparency and compliance with legal requirements.
- **Approval:** Any loan to a director must be approved by the Board of Directors and, in certain cases, by the shareholders in a general meeting.
### **Additional Considerations**
1. **Borrowing from Borrowed Funds:**
- **Regulations on Borrowed Funds:** The general rule is that a company should not use borrowed funds to provide loans to shareholders or directors unless such transactions are in the ordinary course of business and comply with the provisions of the Companies Act, 2013.
2. **Compliance with Financial Regulations:**
- **Documentation and Reporting:** Ensure proper documentation of the loan transactions, including board resolutions, loan agreements, and declarations, and report such transactions in the financial statements as required.
3. **Audit and Disclosure:**
- **Disclosure Requirements:** Disclose any loans to shareholders or directors in the financial statements and ensure compliance with auditing and regulatory requirements.
### **Summary**
- **Loans from Shareholders:** A private limited company can take loans from shareholders without specific limits related to the shareholder’s capital, but proper documentation and board approval are necessary.
- **Loans from Directors:** Loans from directors are subject to stricter regulations under the Companies Act, 2013. They require proper documentation, board resolution, and in some cases, shareholder approval.
Consulting a legal or financial advisor is recommended to ensure compliance with all applicable regulations and to handle specific scenarios effectively.
### **Loan from Shareholders**
1. **General Provisions:**
- **Loans from Shareholders:** A private limited company can take loans from its shareholders. There is no specific restriction on the maximum amount of loan based solely on the shareholder's capital contribution. However, the company must ensure compliance with other provisions of the Companies Act, 2013 and any applicable regulations.
2. **Loan Documentation:**
- **Declaration or Agreement:** It is prudent to have a formal loan agreement in place specifying the terms of the loan, including the amount, interest rate (if any), and repayment schedule. This helps in maintaining clarity and legal documentation of the transaction.
- **Board Resolution:** A resolution by the Board of Directors authorizing the loan and detailing its terms should be passed.
### **Loan from Directors**
1. **Provisions Under the Companies Act, 2013:**
- **Restrictions on Loans to Directors:** The Companies Act, 2013 imposes restrictions on loans to directors. Section 185 of the Companies Act, 2013 prohibits a company from providing loans to its directors or to any other person in whom the director is interested, unless it is in the ordinary course of business.
- **Exceptions:** Loans can be provided if they are in compliance with Section 185 and if they fall under specific exceptions such as loans to managing or whole-time directors with the approval of shareholders.
2. **Loan Documentation:**
- **Declaration:** A declaration from the director regarding their interest in the loan transaction is generally required. This ensures transparency and compliance with legal requirements.
- **Approval:** Any loan to a director must be approved by the Board of Directors and, in certain cases, by the shareholders in a general meeting.
### **Additional Considerations**
1. **Borrowing from Borrowed Funds:**
- **Regulations on Borrowed Funds:** The general rule is that a company should not use borrowed funds to provide loans to shareholders or directors unless such transactions are in the ordinary course of business and comply with the provisions of the Companies Act, 2013.
2. **Compliance with Financial Regulations:**
- **Documentation and Reporting:** Ensure proper documentation of the loan transactions, including board resolutions, loan agreements, and declarations, and report such transactions in the financial statements as required.
3. **Audit and Disclosure:**
- **Disclosure Requirements:** Disclose any loans to shareholders or directors in the financial statements and ensure compliance with auditing and regulatory requirements.
### **Summary**
- **Loans from Shareholders:** A private limited company can take loans from shareholders without specific limits related to the shareholder’s capital, but proper documentation and board approval are necessary.
- **Loans from Directors:** Loans from directors are subject to stricter regulations under the Companies Act, 2013. They require proper documentation, board resolution, and in some cases, shareholder approval.
Consulting a legal or financial advisor is recommended to ensure compliance with all applicable regulations and to handle specific scenarios effectively.
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