Loan given to proprietor company, should i take interest

Originally posted by : vikas
	pvt ltd company, a firm required some financial support, so i gave him(proprietorship firm) 2lakh rs by cheque, he returned me after 8 months, how much intertest should i take in company account. what is the rule for pvt ltd company for giving loan

Here before giving loan to any individual, we need to take care of some important points as per the Companies Act 2013.

As per Section 185 of the Companies Act, 2013 - A Company CANNOT give any loan to a director or any other person in whom such director is interest (may be relative, partner, Any firm in which its director is a partner, Any firm in which relative of its director is a partner etc.). 

In your case, first you have to determine who is that Individiaul and if that individual is somehow related to the Directors of the Company. If that Individual is not related to any director or is not the person in whom any director is interested, then the Company can give loan to that Individual.

After that we need to look the provision of Section 186 of the Companies Act, 2013.

As per Section 186 of the Companies Act 2013 -   No company shall directly or indirectly give any loan to any other person or body corporate exceeding 60% of its paid up share capital, free reserves and share premium or 100% of its free reserves and securities premium whichever is more.

If the company proposes to advance any such loan exceeding its limits then prior approval by means of a special resolution passed at a general meeting shall be required.

Prior approval of the public financial institution shall also be required if there is any default in repayment of instalment or interest on the term loan, if any taken by the Company.

Further the Company has to enter details (purpose of loan, time period, rate of interest etc.) of such loan in form MBP-2.

Regarding Interest charge  - The Company should charge Interest at a rate NOT lower than the prevailing yield of 1 year, 3 year, 5 year or 10 year government security closest to the tenor of the loan.

I Hope the above explanation clears your doubt.

Other Suggestions are kindly welcome.