Hello everyone, We are a newly incorporated IT company and we do not hold any corporate credit card as if now. There are lots of expense in our business which are paid in USD using only credit card. for example purchase server space from Amazon. We use Directors personal credit card for all these expense and later on we pay the bill for the entire credit card. This may include some personal expense as well. My question, is it allow to do this practice or the personal expense of director paid by company will be treated as Loan to director. or Please suggest me how to overcome this problem. Thanks in advance. Looking for a prompt reply.
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Pvt ltd cpmany pays credit card bill of director
Replies (7)
There are 2 questions as I see
1. Accounting of business expenses done by director; repaid later.
2. Personal Expenses are paid off along with business expenses.
The prior shall be treated as short term loan from director until paid off.
The latter if paid with the intension of receiving it back is a loan to director.
Generally, No company is allowed to give any loan to a director or his relative.
However since yours is a private company it may be covered under exemptions of Sec 185 (Loan to Director)
Please refer to June 2015 notification for Private company relaxation
The only way to overcome this is to separately account for business expenses and pay only that portion of it. Remaining may be expensed out as directors salary/commission (if it isn't supposed to be received back)
1. Accounting of business expenses done by director; repaid later.
2. Personal Expenses are paid off along with business expenses.
The prior shall be treated as short term loan from director until paid off.
The latter if paid with the intension of receiving it back is a loan to director.
Generally, No company is allowed to give any loan to a director or his relative.
However since yours is a private company it may be covered under exemptions of Sec 185 (Loan to Director)
Please refer to June 2015 notification for Private company relaxation
The only way to overcome this is to separately account for business expenses and pay only that portion of it. Remaining may be expensed out as directors salary/commission (if it isn't supposed to be received back)
Hi Anaadi,
One of the share holder of the company is a Body Corporate due to which we cannot claim exemption under Section 185. Now the question arise that whether personal expense paid by company will be treated as Loan to Director.
If the personal expenses are borne on a temporary basis, I.e. it will have to be returned back to the Company, then it will be deemed as a Loan to Director.
Loan can be defined under the act as a financial assistance upon the understanding that it shall be paid back
This can not be considerd as loan as the expenses can be reimbursed on showing valid invoices/proofs. However, you should ALWAYS try to avoid such practice as it may lead to have misinterepreation for government. Auditor will also raise issues in this. But, it won't be considered as Loan in case if the expenses are reimbused from such director within reasonable time.
it would not be considered as Loan to Director. If you are paying some personal expenses of Director and no reibursement is taken , then it will cover under section 197 of companies Act, it means you are paying Salary to Director and question is that weather Director will pay intrest on the personal expense payable by Company. If he will pay intrest it will considered as deemed to be Loan to Director but if not then it is not considered as Loan to Director.
Hi!
I think that purchasing an asset through a director is a violation as a non- cash transaction covered u/s 192 of CA 2013. It is also a qualified opinion in 15th point in the CARO report.
Thanks!
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