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Loan by a Private Limited to its Directors or Guarantee by Private Limited Company for the Loan taken by its Directors or other Company

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Loan by a Private Limited to its Directors or Guarantee by Private Limited Company for the Loan taken by its Directors or other Company

 

  1. Applicable Section 185 (deal with read with Section 186 of the Companies Act,2013

 

  1. A Company can’t advance any loan, directly or indirectly, including any loan represented by any book debt to, or give any guarantee or give any security in the connection with any loan taken by

 

  • Any director of the company or its holding company or any partner or any relatives of any such director
  • Any firm in which any such director or relative is a partner.

 

  1. However there is a relaxation provided by the Companies Act, Section 185 is not applicable to Private Limited Company if the below conditions are satisfied:
    • Private Company’s borrowing from Public financial Institutions/ Bodies Corporate/ banks is
      • Less than twice of its Paid Capital.

Or

      • 50 crore, whichever is lower
  • Any Body Corporate has not invested in the Share Capital of such Company.
  • Private Company has not defaulted in Repayment of any such outstanding borrowing at the time of transaction.

 

  1. No investment, loan or guarantee or security given by the company unless it is passed and get approved at the meeting of all present directors and prior approval of Public Financial Institution.

 

  1. A Company can’t give any loan or Guarantee or provide any security in connection with the loan to any other bodies corporates or person

 

      • Exceeding 60% of its paid up share capital, free reserves and securities premium account

Or

      • 100% of its free reserves and securities premium accounts, whichever is more.

 

  1. After complying these term and conditions, company can advance loan to the director or give guarantee to the bank taken by the director of such Private Company.