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PRIVATE COMPANIES RESTRICTION ON ACCEPTANCE OF DEPOSITS

Mansi (Article) (61 Points)

25 August 2010

Hello Friends,

Plz can ny 1 let me know that if a private company having itz authorized capital of Rs. 1 Crore, has been adviced by the bank to increase funds in the company by acceptance of deposits, so from which sources can a private company accept the deposits? and till what extent (i. e. amount) it can accept deposits.

Pl let me know asap

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7 Replies

Ashish Sharma (Service) (1028 Points)
Replied 25 August 2010

hi,

go through below link

/forum/use-of-share-application-money-by-private-limited-company-9502.asp

Ajay Mishra (Company Secretary) (74332 Points)
Replied 25 August 2010

Dear Ms. Mansi

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.

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

Cs Ajay Mishra

1 Like

vivek (CS) (751 Points)
Replied 25 August 2010

A private limited company can not invite Public Deposit (i.e. Unsecured) but it can accumulate money as deposit from the members, directors and their relatives and that will not be treated as Deposit within the meaning of Section 58A. Further it can take deposit that is secured one like secured debentures can be issued by Pvt. Ltd. company. Regards,

CA. BIJENDER KR. BANSAL (ACA, B.COM) (8143 Points)
Replied 25 August 2010

AGREED WITH EXPERTS.

THE SIMPLE WAY TO ARRANGE FUNDS FROM OUTSIDER , IS ISSUE 1 SHARE TO EACH PERSON

AND MAKE MEMBER THEM OF THE COMPANY. AND GET FUND FROM THEM.

COMPANY CAN TAKE UNSECURED DEPOSIT FROM COMPANY ALSO.

BECAUSE A COMPANY CAN ACCEPT UNSECURED DEPOSITS FROM MEMBERS OR CORPORATE.

Priyanka (CS) (40 Points)
Replied 26 August 2010

Yes I am agreed too.. with the opinions of Experts but for taking the deposits the Undertaking signed by the persons that the loan is not given out of the borrowed fund is requird to be taken by the Company.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17848 Points)
Replied 27 August 2010

Agreed with the learned members.....

Bhalchandra (Article Clerk) (21 Points)
Replied 26 August 2011

As per Section 3(1) (iii) (d) a Private Company is prohibited to accept any invitation or acceptance of 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) of Companies (Acceptance of Deposits) Rules, 1975exempts any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b) (ix), deposit under Companies (Acceptance of Deposits) Rules, 1975 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;

If a private company accepts 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.

In my opinion a simple way to arrange funds from outsider for a Private Company is to issue share to such outsider and make that outsider a member of Company and then get fund from them.