{"id":1038,"date":"2024-11-25T13:40:23","date_gmt":"2024-11-25T08:10:23","guid":{"rendered":"https:\/\/www.caclubindia.com\/guide\/?p=1038"},"modified":"2025-06-26T15:56:40","modified_gmt":"2025-06-26T10:26:40","slug":"section-185-of-companies-act-2013","status":"publish","type":"post","link":"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/","title":{"rendered":"Section 185 of Companies Act 2013: Restrictions on Director Loans"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"538\" src=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Loan-To-Directors-1024x538.jpg\" alt=\"\" class=\"wp-image-1041\" srcset=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Loan-To-Directors-1024x538.jpg 1024w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Loan-To-Directors-300x158.jpg 300w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Loan-To-Directors-768x403.jpg 768w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Loan-To-Directors.jpg 1200w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Section 185 of Companies Act 2013 prohibits companies from giving loans. According to Section 184(1) of the Act, a company may not directly or indirectly make an advance loan, make an advance loan that is expressed by a book debt, give a guarantee or security in conjunction with any borrowed money &#8211;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>To its Director<\/li>\n\n\n\n<li>To its holding company&#8217;s Director<\/li>\n\n\n\n<li>To Director&#8217;s Relatives<\/li>\n\n\n\n<li>To the business partner, if the Director is a partner<\/li>\n\n\n\n<li>To the partnership firm in which the company&#8217;s Director or holding company is Partner.<\/li>\n<\/ul>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\r\n<div class=\"ez-toc-title-container\">\r\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\r\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\r\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/#Exceptions_of_Section_185_Providing_Loans_To_its_Directors\" >Exceptions of Section 185: Providing Loans To its Directors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/#Remuneration_to_Director_us_197\" >Remuneration to Director u\/s 197<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/#Remuneration_to_Director_under_Schedule_V\" >Remuneration to Director under Schedule V<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/#Penalty_Provisions\" >Penalty Provisions<\/a><\/li><\/ul><\/nav><\/div>\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exceptions_of_Section_185_Providing_Loans_To_its_Directors\"><\/span>Exceptions of Section 185: Providing Loans To its Directors<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>1.Companies that provide business loans to its Managing Directors or full time Directors are required to do so with the following terms:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Conditions of service provided to all of their workers, or<\/li>\n\n\n\n<li>In accordance with a plan approved by special resolution.<\/li>\n<\/ul>\n\n\n\n<p>2.Companies offering loans , guarantees and securities in the regular course of business charge interest that is at least as high as the current yield on government securities with terms of one year, three years, five years or ten years.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Remuneration_to_Director_us_197\"><\/span>Remuneration to Director u\/s 197<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"980\" height=\"598\" src=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-director-under-section-197.png\" alt=\"\" class=\"wp-image-1039\" srcset=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-director-under-section-197.png 980w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-director-under-section-197-300x183.png 300w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-director-under-section-197-768x469.png 768w\" sizes=\"auto, (max-width: 980px) 100vw, 980px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Remuneration_to_Director_under_Schedule_V\"><\/span>Remuneration to Director under Schedule V<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"980\" height=\"598\" src=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-Director-under-Schedule-V.png\" alt=\"\" class=\"wp-image-1040\" srcset=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-Director-under-Schedule-V.png 980w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-Director-under-Schedule-V-300x183.png 300w, https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/11\/Remuneration-to-Director-under-Schedule-V-768x469.png 768w\" sizes=\"auto, (max-width: 980px) 100vw, 980px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Penalty_Provisions\"><\/span>Penalty Provisions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Penalties may attract if a company contravenes the provisions of Section 185 of Companies Act 2013 regarding loans, guarantees, or securities to directors or related parties:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Company:<\/strong> Fine of Rs 5 lakhs to Rs 25 lakhs.<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Director\/Recipient:<\/strong> Fine of Rs 5 lakhs to Rs 25 lakhs or imprisonment up to 6 months, or both.<\/li>\n<\/ul>\n\n\n\n<p><strong><a href=\"https:\/\/www.caclubindia.com\/articles\/remuneration-to-directors-of-company-50707.asp\">Click here<\/a> to know more about Remuneration of Directors<\/strong>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Section 185 of Companies Act 2013 prohibits companies from giving loans. According to Section 184(1) of the Act, a company [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":1041,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center 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center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[13],"tags":[],"class_list":["post-1038","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-companies-act-2013"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\r\n<title>Section 185 of Companies Act 2013: Restrictions on Director Loans - Tax Guide<\/title>\r\n<meta name=\"description\" content=\"Section 185 of Companies Act 2013 governs loans to directors, restricting direct\/indirect financial assistance.\" \/>\r\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\r\n<link rel=\"canonical\" href=\"https:\/\/www.caclubindia.com\/guide\/section-185-of-companies-act-2013\/\" 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