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Loan to shareholders?

SANJAY (CHARTERED ACCOUNTANTS) (938 Points)

02 May 2014

Dear Members,

Can a private limited company give loan to its shareholders as per companies Act 2013? If yes, Please share the details and section as per companies Act 2013.

Thanks in advance

Sanjay Verma

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10 Replies

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 02 May 2014

Pl go through following provisions:

- Section 185

- Section 186

- Section 188

- Section 179

- Form MGT.14 to be filed with Board resolution for loan

- Section 2(22)(e) of Income Tax Act 1961

- RBI Act (for provisions relating to NBFC)

SANJAY (CHARTERED ACCOUNTANTS) (938 Points)
Replied 02 May 2014

But agarwal ji, As per above section i didn't find that there is a prohibition on loan to shareholders? am i right? if not please reply in detail?

caaspirant (349 Points)
Replied 02 May 2014

Yes it can give loan to its shareholders under companies act. But same becomes taxable under income tax act as deemed dividend in hands of shareholders

C.A Basant Raj kabra (no) (59 Points)
Replied 03 May 2014

Sec 2 (22) e is applicable only on closely held company.

AKASH HAMIRBASIA (student) (35 Points)
Replied 03 May 2014

But only if the shareholder is holding 10% or more shares of the company.............there is a scope of planning.

AKASH HAMIRBASIA (student) (35 Points)
Replied 03 May 2014

Further the section does not apply to NBFC which has lending of money its business.......so if the co is a NBFC CO we can lend d money saying in the normal course of business

caaspirant (349 Points)
Replied 03 May 2014

Closely held companies means private limited companies and unlisted public companies broadly.

SANJAY (CHARTERED ACCOUNTANTS) (938 Points)
Replied 09 May 2014

Big thanks to all of you..

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 10 May 2014

Hi Sanjay,

As per my understanding, if the shareholders are in any way connected as mentioned in sec 185 of the CA 2013, the same is completely prohibited....otherwise yo wil have to comply with section 186 of the Act.

Regards

anonymous II (director) (60 Points)
Replied 13 May 2014

Respected Sir,

Please solve this query:

AN NBFC takes inter corporate loan from a private limited/limited concern say company no. 1 @ 12% p.a. and gives it to another private limited/limited say company no. 2 @ 15.30 p.a. Suppose company no. 2 is associate/subsidiary/holding company of No. 1 company or any director of company No.1 is interested in company no. 2 or vice versa. Now query no. 1. is there any violation of rules according to companies act 2013 in giving loan to company no 2 by NBFC by taking loan from company no. 1 ? Now query no. 2 is there any violation of rules according to companies act 2013 if NBFC takes guarantee also from company No. 1 for giving loan to company no. 2?

Thanks in advance,