For accepting amount of money as Loans which are NOT Deposits, procedures have to be followed under the Companies Act 2013 as discussed further.
Loans which can be accepted by any kind of companies by any of the following:
- Central Government, State Government, Local Authority, Statutory Authority
- Foreign government, foreign nationals or international banks.
- Loan or facility provided by any banking company.
- Loan from any financial assistance from public financial institutions.
- Amount received against commercial paper.
- Bonds, debentures secured by first charge on any assets or convertible into shares within five years.
- Interest free deposits from employees not exceeding his annual salary.
- Interest free deposits in a trust
- Amount brought in by the promotors as unsecured loan.
A company cannot directly or indirectly give any loan or any loan represented by a book debt to the following:
- Director
- Partner of its director
- Relative of its director
- Director of its holding company or his partner or relative
- Any firm in which its director is a partner
- Any firm in which relative of its director is a partner
- Any Private Company in which its director is a director
- Any Private Company in which its director is a member
- Any company in which its director individually or along with one or more of its director’s exercises or controls not less than 25% of its voting rights; or
- Any company whose Board of Directors, MD or Manager is accustomed to act in accordance with
- the directions or instructions of the Board, or any director or directors of the lending company.
Loan from directors:
Amounts received from directors are loans and not deposits if the directors give the amount out of his own sources and not borrowed funds and give a certificate to that effect to the company. In such case a company may accept loans from directors without interest too.
Loan from friends and relatives:
Loans from directors and friends from directors are not allowed for a company to accept.
Loans from shareholders:
Amount received by shareholders are deposits same limits and documents shall be applicable.
Loan from companies:
Public Company
A Public Company can accept loan / deposit from any other company and would NOT be deposits under the Companies Act 2013, however, it cannot accept monies from another company (other than its wholly owned holding company) if:
- The lending company’s director individually or along with one or more of its directors exercises or controls not less than 25% of its voting rights; or
- It’s Board of Directors, MD or Manager is accustomed to act in accordance with the directions or instructions of the Board, or any director or directors of the lending company
Private Company
- A Private Company can accept loan / deposit from any other company and would NOT be deposits under the Companies Act 2013, however, it cannot accept monies from another company (other than its wholly owned holding company) if:
- The lending company’s any director is a director or member of the company. However, if the lending company is a private company then with effect from 5th June 2015 it can give loan to another private company even if its director is the director or member of the recipient company if:
- In the lending company’s capital, no other body corporate has invested any money i.e., its shareholder does not include any body corporate;
- If the borrowings of the lending company from banks or financial institutions or anybody corporate is less than twice its paid up capital or Rs. 50 crores, whichever is lower; and Lending company is not in default in repayment of such borrowings subsisting at the time of giving such loan.
- The lending company’s director individually or along with one or more of its directors exercises or controls not less than 25% of its voting rights; or
- It’s Board of Directors, MD or Manager is accustomed to act in accordance with the directions or instructions of the Board, or any director or directors of the lending company.
Penalty for default section 185 -loans to directors
- Minimum 5 lakhs
- Maximum 25 lakhs
Penalty to director in default under section 185
- Imprisonment up-to 6 months
- Penalty of minimum Rs. 5 lakhs
- Penalty of maximum Rs. 25 lakhs
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