Can A Shareholder Or Their Relatives Give A Loan To The Company? | Semantic Taxgen Pvt Ltd


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Can a Shareholder or Their Relatives Give a Loan to the Company?

June 01, 2024
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√Loan from Shareholder:

Yes, shareholders and their relatives can give a loan to the company. However, there are some important rules to keep in mind.

According to Rule 3 of Chapter V (Terms & Conditions of Acceptance of Deposits) in the Companies Act, a company is restricted from accepting or renewing deposits from its members if the total amount of such deposits exceeds 35% of the company’s paid-up share capital, free reserves, and securities premium account.

loan

√For Private Limited Companies:

The 35% restriction does not apply to private limited companies, thanks to an exemption notification issued by the Ministry of Corporate Affairs on June 13, 2017. Private companies can accept loans beyond this limit if they meet the following conditions:

  1. Start-ups: A private company that is a start-up can accept loans without this limit for ten years from the date of its incorporation.
  2. Other Private Companies: A private company can accept loans beyond the limit if it:

   – Is not an associate or subsidiary of any other company.

   – Has borrowings from banks, financial institutions, or corporate bodies that are less than twice its paid-up share capital or fifty crore rupees, whichever is less.

   – Has not defaulted on the repayment of existing borrowings at the time of accepting new deposits under Section 73.

Additionally, all companies that accept deposits must report the details of these loans to the Registrar by filing Form DPT-3.

Private companies are also exempt from the requirement to pass a special resolution under Section 180(1)(c) of the Companies Act, 2013, if the proposed plus existing borrowings (excluding temporary borrowings) exceed the sum of their paid-up capital, free reserves, and securities premium account. However, if they do exceed this amount, the company must pass a special resolution in a general meeting.

FAQs (Frequently Asked Questions).

  1. What do we call the loans taken by the company from the shareholders?

Answer: Loans taken by the company from shareholders or their relatives are considered deposits. Because they are treated as deposits, the company must follow different compliance rules compared to regular loans.

      2. Is there any restriction on the quantum of loans or deposits, which must be              taken from shareholders and their relatives?

Answer: Yes there is but it is limited to public companies, and they are also required to prepare and publish their own statements. It should be noted that they are not allowed to accept deposits exceeding 35% their Paid-Up Share Capital, Free Reserves and Securities Premium accounts. But for private companies there are several conditions or situations that may lead to this restriction not being applicable in their situations.

DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990777 or info@semantictaxgen.in. the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.

 


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