Unsecured loan

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Vikash Agarwal (Querist)
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10 March 2012 WHAT ARE THE REGULATIONS REGARDING PAYMENT OF INTEREST ON UNSECURED LOAN RAISED FROM SHAREHOLDERS BY A PRIVATE COMPANY?

Ajay Mishra

Ajay Mishra (Expert)
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10 March 2012 Hi

A private company is free to payment of interest, it can pay higher than prime lending rate (PLR) decided by RBI, time to time.

But, in case of public company, the follow RBI rate.

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Vikash Agarwal

Vikash Agarwal (Querist)
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12 March 2012 Dear Ajayji,

Thanks for your valuable input.

I would like to know if a single member can demand interest legally on unsecured loans whereas the company has not paid interest to other members till date

Ajay Mishra

Ajay Mishra (Expert)
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12 March 2012 Hi

I think loan agreement will mention the payment of interest terms. If you are paying interest as per terms of payment to single lender then no issue. But the interest payment to other unsecured loan is due but you are not paying in that case you are contravening the loan terms.

Vikash Agarwal

Vikash Agarwal (Querist)
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12 March 2012 Dear Ajayji

No loan agreements were executed with any of the members and since the company was not making enough profits neither interest nor dividend were paid any year..

Ajay Mishra

Ajay Mishra (Expert)
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12 March 2012 Ok...

Please read also following carefully:

1. Deposits in case of Private Limited Company

Private Company is prohibited to accept any invitation or acceptance of unsecured loans/deposits from the persons other than its members, directors or their relatives. Therefore a private company can accept deposits through private arrangement from its members, directors and their relatives.

Rule 2(b)(ix) exempt any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b)(ix), any amount received from members of a private company limited by guarantee are not exempt.

Rule 3 of Companies (Acceptance of Deposits) Rules, 1975 deal with the limit upto which a company can accept deposits/ loans. Private company exempted this limit.

For any invitation and acceptance of unsecured loan/deposits from relatives of directors and member, the company will have to file a statement in lieu of advertisement in accordance with the provisions of Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975. The company will also have to file annual return of deposits in accordance with Rule 10.

2. Consequences of acceptance of deposit by Private Limited Company

If a private company acceptance an amount, which may be classified as deposit under section 58A read with Companies (Acceptance of Deposits) Rules, 1975, it will cease its status of a private company and has to make all the compliances for such deposits as per the requirement of said rules, as well as to comply with all the provisions as may be applicable on public limited company such as section 58A, 58AA, 58AAA, 81, 256, 257, 198, 268, 269, Schedule XIII, 274(i)(g), 295, 297, 300, 301, 372A, etc

Regards

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