Loans from huf
This query is : Resolved
05 April 2014
Can A Listed Company take loan from a HUF in which one of its director is karta?
05 April 2014
a public company can not take loans form any person w/o issue prospectus
08 April 2014
it means a public company wants to take loan from bank then it has to issue prospectus.
03 August 2024
A listed company considering borrowing from a Hindu Undivided Family (HUF) where one of its directors is the Karta needs to adhere to several legal and regulatory requirements. Here’s how the scenario can be managed:
### **1. Loans from HUF to a Company**
**A. Legal Framework for Loans:**
1. **Provisions under the Companies Act, 2013:**
- **Section 185 - Loans to Directors and Their Relatives:** Under the Companies Act, 2013, Section 185 prohibits loans to directors or their relatives. This includes loans from entities where a director or their relative is interested. An HUF where a director is the Karta is treated as a relative for the purpose of this section.
2. **Section 186 - Loans and Investment by Companies:**
- **Approval and Disclosure:** Section 186 of the Companies Act, 2013, requires a company to obtain approval from the board of directors and, in certain cases, from the shareholders if the loan amount exceeds specified limits. The transaction must be disclosed in the financial statements.
**B. Specific Provisions:**
1. **Loans from HUF:**
- If a director is the Karta of an HUF, the loan from such an HUF is generally not allowed under Section 185, as it is considered a loan to a related party (the director in this case). The company must comply with all legal provisions and ensure no contravention of the Companies Act, 2013.
2. **Compliance:**
- **Board Resolution:** Any loan transaction, including one from a related party, requires a resolution by the board of directors.
- **Disclosure:** Proper disclosure in the financial statements and compliance with related party transaction norms are mandatory.
### **2. Borrowing from Banks and Issuance of Prospectus**
**A. Prospectus Requirement:**
1. **Public Companies:**
- When a public company wants to borrow from banks, it does not necessarily need to issue a prospectus unless it is making a public issue of securities. The issuance of a prospectus is primarily required for public offers of shares or debentures to the public, not for loans from banks.
2. **Private Companies:**
- Private companies are not required to issue a prospectus for borrowing. However, they must comply with the Companies Act, 2013, and other relevant regulations, including obtaining board and shareholder approvals if necessary.
### **3. Summary**
- **Loans from HUF (where a director is the Karta):** Generally prohibited under Section 185 of the Companies Act, 2013. Compliance with Sections 185 and 186 is mandatory.
- **Borrowing from Banks:** Public companies do not need to issue a prospectus for borrowing from banks. A prospectus is required for public offerings of securities.
### **Recommendation**
- **Legal Advice:** Given the complexities involved, especially with related party transactions and compliance with the Companies Act, 2013, consulting with legal and financial experts is advisable to ensure that all regulatory requirements are met and to avoid potential legal issues.
### **1. Loans from HUF to a Company**
**A. Legal Framework for Loans:**
1. **Provisions under the Companies Act, 2013:**
- **Section 185 - Loans to Directors and Their Relatives:** Under the Companies Act, 2013, Section 185 prohibits loans to directors or their relatives. This includes loans from entities where a director or their relative is interested. An HUF where a director is the Karta is treated as a relative for the purpose of this section.
2. **Section 186 - Loans and Investment by Companies:**
- **Approval and Disclosure:** Section 186 of the Companies Act, 2013, requires a company to obtain approval from the board of directors and, in certain cases, from the shareholders if the loan amount exceeds specified limits. The transaction must be disclosed in the financial statements.
**B. Specific Provisions:**
1. **Loans from HUF:**
- If a director is the Karta of an HUF, the loan from such an HUF is generally not allowed under Section 185, as it is considered a loan to a related party (the director in this case). The company must comply with all legal provisions and ensure no contravention of the Companies Act, 2013.
2. **Compliance:**
- **Board Resolution:** Any loan transaction, including one from a related party, requires a resolution by the board of directors.
- **Disclosure:** Proper disclosure in the financial statements and compliance with related party transaction norms are mandatory.
### **2. Borrowing from Banks and Issuance of Prospectus**
**A. Prospectus Requirement:**
1. **Public Companies:**
- When a public company wants to borrow from banks, it does not necessarily need to issue a prospectus unless it is making a public issue of securities. The issuance of a prospectus is primarily required for public offers of shares or debentures to the public, not for loans from banks.
2. **Private Companies:**
- Private companies are not required to issue a prospectus for borrowing. However, they must comply with the Companies Act, 2013, and other relevant regulations, including obtaining board and shareholder approvals if necessary.
### **3. Summary**
- **Loans from HUF (where a director is the Karta):** Generally prohibited under Section 185 of the Companies Act, 2013. Compliance with Sections 185 and 186 is mandatory.
- **Borrowing from Banks:** Public companies do not need to issue a prospectus for borrowing from banks. A prospectus is required for public offerings of securities.
### **Recommendation**
- **Legal Advice:** Given the complexities involved, especially with related party transactions and compliance with the Companies Act, 2013, consulting with legal and financial experts is advisable to ensure that all regulatory requirements are met and to avoid potential legal issues.
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