Promotors loan
This query is : Resolved
29 May 2013
A Private Limited Company want to bring money from Promotor Company (Promotors Loan) which is situated outside India. Now is it legally viable? Alos if yes, can money utilised for Working Capital Management?
Kinldy reply as soon as oossible.
Thanks in anticipation of Reply.
Kinldy reply as soon as oossible.
Thanks in anticipation of Reply.
30 May 2013
you have to take permisson/intimation to RBI that we getting loan/sahe application
from which co. country name'
after that you can take
pls take care reading intt. on loan and repayment time also
thanks
from which co. country name'
after that you can take
pls take care reading intt. on loan and repayment time also
thanks
30 May 2013
Thank you very much for the reply.
Can you just clarify that it can utilised for working capital and whether it need to inform RBI?
It is just Loan form promotor company and not the share capital.
Further is it require to repya interest and or Instalment regularly or at the end of certain period?
Can you just clarify that it can utilised for working capital and whether it need to inform RBI?
It is just Loan form promotor company and not the share capital.
Further is it require to repya interest and or Instalment regularly or at the end of certain period?
10 August 2024
Yes, a private limited company in India can receive loans from a promoter company situated outside India, but several regulatory requirements need to be met. Here’s a detailed guide on the legality, usage, and compliance aspects of such a loan:
### **1. Legal Viability**
#### **1.1 Approval and Compliance**
- **Foreign Exchange Management Act (FEMA)**: Under FEMA, any loan from a foreign entity must comply with the regulations set by the Reserve Bank of India (RBI).
- **FEMA Regulations**: Specifically, you will need to adhere to the **Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000**, and the **Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004**.
### **2. Utilization of Loan**
#### **2.1 Working Capital Management**
- **Permissible Use**: Yes, the loan can be used for working capital management, including operational expenses, inventory purchases, and other day-to-day expenses.
### **3. Reporting and Compliance**
#### **3.1 Reporting to RBI**
- **RBI Approval**: The loan must be reported to the RBI through the **Form FC-GPR (Foreign Currency-Gross Provisional Report)** if the loan is classified as foreign direct investment (FDI) or through the **Form FC-TRS (Foreign Currency-Transfer of Shares)** if applicable.
- **Form ECB (External Commercial Borrowing)**: If the loan is considered an External Commercial Borrowing (ECB), it must comply with the ECB guidelines issued by the RBI. The company must file necessary documentation as per the ECB policy.
#### **3.2 Documentation**
- **Loan Agreement**: A formal loan agreement detailing the terms, including interest rates, repayment schedule, and other conditions, should be executed.
- **Legal and Regulatory Filings**: Ensure that all required filings are done, and approvals are obtained.
### **4. Repayment Terms**
#### **4.1 Interest and Repayment**
- **Interest Payment**: The company is required to pay interest on the loan as per the terms specified in the loan agreement. The interest rate should be commercially reasonable and comply with RBI guidelines.
- **Repayment Schedule**: Repayment terms, including the schedule and frequency, should be clearly defined in the loan agreement. Repayment can be done periodically (monthly, quarterly, annually) or at the end of the loan term, as per the agreement.
### **5. Additional Considerations**
#### **5.1 Legal Advice**
- **Consultation**: It is advisable to consult with a legal expert or a financial advisor specializing in foreign investments to ensure compliance with all legal and regulatory requirements.
#### **5.2 Tax Implications**
- **Tax Compliance**: Ensure that all tax implications, including withholding tax on interest payments, are considered and complied with.
#### **5.3 Documentation**
- **Record Keeping**: Maintain thorough documentation of all transactions, agreements, and compliance reports for audit and regulatory purposes.
By adhering to these guidelines, you can legally and effectively utilize a loan from a promoter company situated outside India for your company's working capital needs. Ensure all regulatory requirements are met to avoid any legal issues.
### **1. Legal Viability**
#### **1.1 Approval and Compliance**
- **Foreign Exchange Management Act (FEMA)**: Under FEMA, any loan from a foreign entity must comply with the regulations set by the Reserve Bank of India (RBI).
- **FEMA Regulations**: Specifically, you will need to adhere to the **Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000**, and the **Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004**.
### **2. Utilization of Loan**
#### **2.1 Working Capital Management**
- **Permissible Use**: Yes, the loan can be used for working capital management, including operational expenses, inventory purchases, and other day-to-day expenses.
### **3. Reporting and Compliance**
#### **3.1 Reporting to RBI**
- **RBI Approval**: The loan must be reported to the RBI through the **Form FC-GPR (Foreign Currency-Gross Provisional Report)** if the loan is classified as foreign direct investment (FDI) or through the **Form FC-TRS (Foreign Currency-Transfer of Shares)** if applicable.
- **Form ECB (External Commercial Borrowing)**: If the loan is considered an External Commercial Borrowing (ECB), it must comply with the ECB guidelines issued by the RBI. The company must file necessary documentation as per the ECB policy.
#### **3.2 Documentation**
- **Loan Agreement**: A formal loan agreement detailing the terms, including interest rates, repayment schedule, and other conditions, should be executed.
- **Legal and Regulatory Filings**: Ensure that all required filings are done, and approvals are obtained.
### **4. Repayment Terms**
#### **4.1 Interest and Repayment**
- **Interest Payment**: The company is required to pay interest on the loan as per the terms specified in the loan agreement. The interest rate should be commercially reasonable and comply with RBI guidelines.
- **Repayment Schedule**: Repayment terms, including the schedule and frequency, should be clearly defined in the loan agreement. Repayment can be done periodically (monthly, quarterly, annually) or at the end of the loan term, as per the agreement.
### **5. Additional Considerations**
#### **5.1 Legal Advice**
- **Consultation**: It is advisable to consult with a legal expert or a financial advisor specializing in foreign investments to ensure compliance with all legal and regulatory requirements.
#### **5.2 Tax Implications**
- **Tax Compliance**: Ensure that all tax implications, including withholding tax on interest payments, are considered and complied with.
#### **5.3 Documentation**
- **Record Keeping**: Maintain thorough documentation of all transactions, agreements, and compliance reports for audit and regulatory purposes.
By adhering to these guidelines, you can legally and effectively utilize a loan from a promoter company situated outside India for your company's working capital needs. Ensure all regulatory requirements are met to avoid any legal issues.
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