Provision for Loan Taken by Private Companies As Per Companies Act, 2013

Permissible Loan by Private Companies from Shareholders, Directors and Their Relatives

In this editorial author discusses about Provisions of loan from directors, shareholders and their relatives by Private Limited Company, limit in accepting loans and Process of acceptance of loan from shareholder.

PRIVATE LIMITED COMPANIES

• Under Companies Act, 1956 it was allowed to accept loan from the Shareholders and such loan considered as non-deposit.

• Under Companies Act, 2013 since 01st April, 2014 it was not allowed to accept deposit from shareholder

• MCA issue Exemption notification for Private Limited Companies on 05th June, 2015 states that:

Chapter V, clauses (a) to (e) of sub-section (2) of section 73, Shall not apply to a private company which accepts from its members monies not exceeding one hundred per cent, of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified i.e. DPT-3.”

• MCA issue Exemption notification for Private Limited Companies on 13th June, 2017 states that:

Chapter V, clauses (a) to (e) of sub-section (2) of section 73, Shall not apply to a private company which fulfils all of the following conditions ; namely-

 (A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or

 (B) which is a start-up, for five years from the date of its incorporation; or

 (C) which fulfils all of the following conditions, namely:-

(a)which is not an associate or a subsidiary company of any other company

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has no default in repayment of such borrowings subsisting at the time of accepting deposits under this section.”

Summary of Notifications concluded as follows:

S. No.	Date From  – To	Provisions
1.	From 01-04-2014 To 05-06-2015	Not allowed to accept loan from shareholders
2.	From 05-06-2015 To 13-06-2017	Allowed to accept loan from shareholders upto 100% of paid up share capital and free reserve (subject to exemption of some compliances)
3.	From 13-06-2017 Till date	Allowed to accept loan from shareholders any limit if fulfill three conditions mentioned above.

This table specifies the entities or individuals from whom a Private Limited Company might borrow funds:

S. No.	Entity or Person	Loan Acceptance
1	Director	It is allowed, provided a declaration is given by the director that the sum has not been given out of funds acquired through him by borrowing or accepting loans or deposits from others
2	Relative of Director	It is allowed as Ministry of Corporate Affairs through its notification dated 15.09.2015 has furnished that a private company could  accept unsecured loans apart from director also from a relative of Director providing the relative of director from whom money is received, provides to the corporation at the time of giving the money, a declaration in writing towards the effect that the sum is not being given out of funds acquired through him by borrowing or accepting loans or deposits from others as well as the corporation shall disclose the details of money so accepted in the Board’s report.  The relative may not be a shareholder of the corporation
3	Shareholders	Where money accepted from members go beyond 100% of the Paid-up share capital and free reserves.	Where sum accepted from members doesn’t go beyond 100% of the Paid-up share capital and free reserves.
		It is not allowed	It is allowed subject to:  Passing a member’s resolution by making provision for security, relating to any for due repayment of the sum of deposit accepted and interest thereon (not below 12.5% at present) which includes the creation of charge (Form CHG1) on the property or assets of the Corporation.  Filing the details of the money accepted with the registrar.
4	Relative of Shareholders	It is not allowed as such a borrowing might take place nevertheless, subject to the fulfilment of conditions as prescribed in Section 73 of the Companies Act, 2013.
5	An individual who is Director and Shareholder Both	It is allowed, provided a declaration is given by the director that the sum has not been given out of funds acquired through him by borrowing or accepting loans or deposits from others.
6	Employee	It is allowed, the sum borrowed should not exceed the employees’ annual salary in the nature of interest-free security deposit.

DISCLAIMER: The information given in this document has been made on the basis of the provisions stated in the Notification. It is based on the analysis and interpretation of applicable laws as on date. Under no circumstances whatsoever, the blogger shall not be responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document. 

By
CS Diwakar Agrawal
Mob: +91-9911746549