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Acceptance of deposits by a private company

Sowmya.S.Balan (Paid Assistant) (745 Points)

19 April 2011  

Dear Friends

Can a private limited comapny can accept deposits from relatives of shareholders


 18 Replies

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 19 April 2011

No. But if the shareholder is a Director, then deposits can be taken from relative of such director. 

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 19 April 2011

Deposits from shareholders is permissible but not from relatives of shareholders.

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17821 Points)
Replied 19 April 2011

Deposit rules does not apply on private companies....

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17821 Points)
Replied 19 April 2011

As per section 3(1)(iii) a Private Company can take deposit only from its directors, shareholders and their relatives.


As per rule 2(b)(ix) any amount received from a person who, at the time of receipt of the amount, was a director of the Company or any amount received from a relative of a director or its members by a private Company.


Company = both private and public

 

Therefore exempted deposit:-

For Public Companies = Deposit from Directors

 

For Private Companies = Deposit from Directors, Shareholders and their relatives.

 

 

Therefore, it would be considered as exempted deposit, and will be categorised as unsecured loan.

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 20 April 2011

"deposit" means any deposit of money with, and includes any amount borrowed by, a company, but does not include

any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member:

Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others

The above extract from rules, does not contradict the act i guess. it says deposit does not include amount received from a director/his relatives or member. The same is in the act also.

However if the private company has borrowed loan from a person, it can certainly be argued that ''deposit'' is different from ''loan'', hence no violation (there are interesting case laws also). But the query raised is ''Can a private limited comapny accept deposits from relatives of shareholders'' , certainly NO.

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 20 April 2011

Therefore, Exempted Deposits for a Private Limited Company are

- Deposits from Director and his/her relatives

- Deposits from a shareholder

S.CHANDRA (business) (21 Points)
Replied 22 April 2011

i wish to start a firm to take public deposits in the shape of FIXED DEPOSIT RECEIPTS.

WHAT TYPE OF CO.SHOULD BE,

WHAT ARE THE PERMISSIONS REQUIRED,

HOW MUCH TIME WILL IT TAKE

PRAVEEN

 

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17821 Points)
Replied 22 April 2011

Originally posted by : sunny pursuing CA , CS

"deposit" means any deposit of money with, and includes any amount borrowed by, a company, but does not include

any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member:

Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others

The above extract from rules, does not contradict the act i guess. it says deposit does not include amount received from a director/his relatives or member. The same is in the act also.

However if the private company has borrowed loan from a person, it can certainly be argued that ''deposit'' is different from ''loan'', hence no violation (there are interesting case laws also). But the query raised is ''Can a private limited comapny accept deposits from relatives of shareholders'' , certainly NO.

The above rule has been changed as under:-

 

any amount received from a person who, at the time of receipt of the amount, was a director of the Company or any amount received from a relative of a director or its members by a private Company.

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 22 April 2011

Originally posted by : CS Ankur Srivastava

Deposit rules does not apply on private companies....
 

 To my knowledge, deposit rules are  not applicable only to Banking Companies and financial companies.

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 22 April 2011

Question is whether the private company can accept deposits from relatives of their shareholders. My answer is NO. 

PLease can somebody elaborate on this matter... 

Jayashree S Iyer (Company Secretary) (3224 Points)
Replied 23 April 2011

That question is solved by saying that acceptance of deposits from relatives of shareholders is not permissible.

 

Originating from the above, a relative query is raised as to whether deposit rules are applicable to private companies or not?

 

Please clarify.

1 Like

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17821 Points)
Replied 23 April 2011

As per section 3(1)(iii) a Private Company can take deposit only from its members, directors and their relatives.

So private companies can take deposits from above mentioned persons.


However, as per rule 2(b)(ix) the deposit accepted by the Private Company from the above mentioned persons are categorised as exempted deposit

1 Like

CA Sandeep Kumar (Audit Assistant) (804 Points)
Replied 23 April 2011

Rule 1 expressly provides that deposit rules are not applicable only to banking and financial companies. Therefore deposit rules are certainly applicable to other companies incuding a private limited company. However as per the rules, deposit does not include deposits accepted by a private limited company, from shareholders, directors and his/her relatives. 

Since a private limited company can accept deposits from only those mentioned above, and such deposits being exempted from coverage of rules, it can said that rules not applicable to private company as far as private company does not accepts deposits from general public (which it would not do so)!!! 

1 Like

CS Ankur Srivastava (Company Secretary & Compliance Officer)   (17821 Points)
Replied 23 April 2011

Agree...


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