loan to shareholders

Loan to Shareholders:

In respect of loan to shareholders, section 185 of the Companies Act 2013 needs to be looked into.

Section 185 will not apply to a private limited company provided,

-No body corporate has invested in the shares of such private limited company,

-Borrowings is less than twice its paid up capital or Rs.50 Crores whichever is lower.

-There are no defaults in repayment of loans or borrowings.

If section 185 is applicable(i.e the company satisfy the above conditions or is a public limited company), then check if the share holders to whom the loan is given is holding either individually or along with any directors of the Company more than 2% of the shares of the Company.

185 restricts providing loan to directors of a company, but there is no restriction in giving loan to share holders...however if the shareholder who recieves the loan has a substantial interest in the company then such loan shall be considered as deemed dividend.