LOAN TO DIRECTORS

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JAI (Querist)
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06 November 2007 A DIRECTOR WANTS TO TAKE LOAN FROM A PVT LTD COMPANY WHERE HE IS A DIRECTOR. IS THERE ANY RESTRICTION

QUESTION NO 2: CAN A DIRECTOR MAINTAIN A CURRENT A/C IN THE COMPANY WHERE IS A DIRECTOR (IE GIVING AND TAKING MONEY IN THE COMPANY)

Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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08 November 2007 LOAN TO DIRECTORS BY A PRIVATE LIMITED
COMPANY*
139.1 Background note
A company is permitted to make loans to its directors subject to certain
restrictions and fulfilment of conditions. These restrictions are imposed in
order to protect the interests of the shareholders. A private limited company
which is not a subsidiary of a public company has the authority to make loans
to directors since the restrictive conditions of section 295 are not applicable to
it.
139.2 Board Resolution
A Board Resolution (Annex 139.1) should be passed for making the loan, for
approving the terms and conditions and for authorising completion of formalities.
139.3 Making loan
All formalities relating to the making of loan or guarantee or security like
execution of documents, etc., should be completed.
139.4 Secretarial Compliance Certificate
In case of companies with a paid-up capital of Rs. 10 lakhs or more but up to
Rs. 2 crores the compliance certificate obtained from the practising company
secretary should contain a statement affirming compliance (non-applicability)
with provisions relating to loan to the director.
*RELEVANT PROVISION :
u Companies Act, 1956 : Sections 295, 296.
APPLICABILITY : PRIVATE LIMITED COMPANY
ANNEX 139.1
(Refer Para 139.2)
BOARD RESOLUTION FOR MAKING LOAN TO DIRECTOR
RESOLVED that sanction be and is accorded for making a loan of Rs. 10 lakhs to Shri X,
Managing Director of the company as per terms and conditions contained in the loan
agreement placed before this meeting and initialled by the Chairman for the purpose of
identification.
Shri X, managing director did not participate in the transaction of this item of business.
RESOLVED FURTHER that the Secretary of the company be authorised to comply with
the necessary formalities in this regard.

JAI

JAI (Querist)
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08 November 2007 CAN I GET ANSWER FOR MY SECOND QUESTION

CAN A DIRECTOR MAINTAIN A CURRENT A/C IN THE COMPANY WHERE IS A DIRECTOR (IE GIVING AND TAKING MONEY IN THE COMPANY)IN DEBIT OR CREDIT BALANCE

JAI

JAI (Querist)
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08 November 2007 I AM NOT ABLE TO SEE THE ANSWER FOR MY SECOND QUESTION

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