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Can Private Company take Loan from Outsiders |Companies Act 2013 |

Permissible Loan by Private Companies - The Companies Act 2013

Looking for a loan for your private limited company? Get answers to all your questions regarding unsecured loans in private limited companies, and who can give loans to private limited companies, here at Lawyered.

Loans are the major source of funding in most of the Companies apart from their Share Capital. And can a private company borrow funds from various sources like banks and various other financial institutions to run their investments. Where public limited companies are allowed to borrow from the mass public by accepting public deposits  and selling of its shares to the public, Private Limited companies are strictly prohibited from accepting any loan or deposits from the public. The Companies Act,1956 permitted private companies to borrow funds from directors, shareholders and relatives of directors.The Companies Act 2013 has brought a major change in the borrowing provisions and compliances for private companies and removed shareholders and relatives of directors from the list of lenders. Going forward the private companies can borrow only from directors apart from banks and financial institutions provided the director gives a declaration that the amount that he is giving is not out of borrowed funds.

In this article, we will discuss on issues such as can a private limited company take loan from outsiders, can private limited company take loan from individual, who can give loan to private limited company, can pvt ltd company take unsecured loan from outsiders, can a private limited company give loan to another private limited company etc.

Can a private limited company borrow funds from outsiders?

Now talking about the loan in private limited companies, the very first question that arises to one’s mind is, can a private company borrow funds from outsiders? Or can a private limited company take loans from outsiders? Or who can give loan to private limited company?

In terms of accepting loans, can a private company borrow funds? Or can a private limited company take loans from outsiders? Or who can give loan to private limited company?

No, a Private Limited company cannot acknowledge loans from outsiders. Furthermore, a Private Limited Company also cannot acknowledge credit from its investors. Notwithstanding, it could acknowledge credit from its directors. But if the Private Limited Company acknowledges any sum from an outsider, at that point, it would be dealt with as deposit as per the Companies Act, 2013( but no unsecured loans in private limited company companies act, 2013) and the company is then required to confirm every one of the store's rules. Also, in the event that a company has taken funds from the family, then the company shall first be able to acknowledge the funds in their own record and after that, they could invest into the corporation as a director.

In addition, keeping aside Bank Finance, a private limited company is reliant on internal sources (which are its shareholders, directors as well as a relative of directors) for its investment and fund necessities. Therefore, can a private company borrow funds? Or can a private limited company take loans from outsiders? The answer to this question is they cannot be introduced and companies cannot borrow funds from outsiders.

Also, private companies, contrasting with public companies, are prohibited from accepting deposits from the public as well.

Though the new Companies Act, 2013 has provided a major change in the borrowing provisions and removed the shareholders as well as relative of directors from the list of qualified lenders but after amendment in Rule dated 15.09.2015, a few relaxation has been given towards private companies, that is, now private company could accept money from relatives of the director. Therefore no unsecured loans in private limited company companies act, 2013.

From the above study you must get your answer to the question: can a private limited company take loans from outsiders? Still not clear, try to clear it out by yourself. Can a private limited company take loans from outsiders? Or who can give loan to private limited company? And further in the article we will also study about can pvt. ltd company take unsecured loan from outsiders?

Loans by Private Limited Company

Relating to Loans to Private Limited Company, 3 categories of loans were suggested under the Companies Act, 2013, they are;

• Loans which could be accepted, for example, Loan from Directors, Loan from any other corporation, banking institutions and so forth.

• Loans which could be accepted subject to conforming with Deposit Rules, The Deposit Rules are very complex, and it needs a lot of compliance and almost difficult to be followed. In case these rules are followed, the corporation could take a loan from shareholders and so forth.

Loans which could not be accepted, for example, Private Company are not eligible to accept loans from any Partnership Firm, HUF and so forth

However, for accepting the Loans or Deposits from above-mentioned parties, a Private Limited company is required in the direction of following the conditions which are specified under Sec 180(1)(c), that states; 

1. In case Proposed +Existing borrowings (excluding temporary borrowings) > (paid-up capital +Free Reserves), the Corporation shall have to pass Special Resolution in General Meeting.

2.  Deposit Rules: In order to accept deposits from shareholders as well as relatives of directors:

• The Private Limited Company could accept a maximum of 25% of (paid-up capital + free reserves). However, this limit has been given for existing and proposed deposits.

• The Private Limited Company is required to follow the process like issuance of circular, depositing insurance, credit rating, the appointment of trustee etc.

But after Notification made on dated 05/06/15, the corporation could accept 100% of (Paid-up capital + Free Reserves) without fulfilling the conditions as stated in section 73(2) clause (a) to (e) that is the issuance of circular, depositing insurance, credit rating, the appointment of trustee etc.

3. Section 186: A Private Limited Company cannot give loan towards any other individual or body corporate which is beyond

60% of its Paid-up Capital + Free Reserves + Security Premium, or

100% of Free Reserve + Security Premium

In case this limit is exceeded, prior approval by means of special resolution in the general meeting is needed. 

Though in case a loan or guarantee is given through a company towards its wholly-owned subsidiary company or a joint venture corporation then special resolution is not necessary. But there shouldn't be unsecured loans in private limited company companies act, 2013. We will also be seeing can a private limited company give loan to another private limited company?

Can a private company borrow funds from Individuals? or can a private limited company take loans from individuals?

This table specifies the entities or individuals from whom a Private Limited Company might borrow funds or from whom can private limited company take loan from individual: -

So, did you get the answer to your question: can private limited companies take loans from individuals? Or who can give loan to private limited company? What are your points on it? You can share your points to us that, according to you, can private limited companies take loans from individuals?

Can a Private limited company give loan to another private limited company?

Answer to the question Can a Private limited company give loan to another private limited company is covered under Section 186 of the Companies Act, 2013. However, a loan from one private company to another with Common Directors are covered under Section 185 (Loan to Directors).

A company can give a loan, guarantee or security to any person or to a body corporate in excess of 60% of its paid-up share capital. If the aggregate of inter-corporate loans is not above the specified limit, then incorporating loan and investment will be processed by passing board resolution.

A Private Company can accept loans from any other private company and would NOT be deposits under the Companies Act 2013 because no unsecured loans in private limited company companies act, 2013. 

• The lending company’s any director was a director or member of the company.

• The lending company’s director individually or along with one or more of its directors exercised or controlled not less than 25% of its voting rights; or 

• It’s Board of Directors, MD or Manager was accustomed to act in accordance with the directions or instructions of the Board, or any director of the lending private company. 

However, if the lending company is a private company, then with effect from 5th June 2015 (private company exemption notification) it can give loan to another private company even if the above conditions are not met. From the above discussion, the answer to ‘can a private limited company give loan to another private limited company?’ and related provisions are clear to readers.

can pvt. ltd company take unsecured loan from outsiders

A private limited company can obtain an unsecured loan from its shareholders, directors, and relatives, and the transaction is excluded from section 58A and other deposit regulations under the Deposit Rules of 1975. However, if a private company takes unsecured loans from people other than its shareholders, directors, and relatives, the money is considered a deposit under section 58A of the Companies Act and the Companies (Acceptance of Public Deposit) Rules, 1975, and is considered a serious violation of section 3(1). (iii). In this instance, the penalties set forth in Section 43 will apply.

Conclusion

It is vital to understand the nature of a transaction whether it shall be a loan or a deposit. When it is clarified, the next part must consist of checking on the limitations and compliance necessities by referring towards the corresponding sections of the Companies Act, as well as acceptance of deposit rules.

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