Maximum limit of giving loans by companies to NRI directors as per Companies Act, 2013
Section 185(1) of the Act states that a company cannot –
- Advance loan directly or indirectly, or
- Advance loan which includes a loan represented by a book debt, or
- Give guarantee or provide security with connection to any loan taken
to a director, director of its holding company, partner or relative of any director, or any firm in which a director is a relative or a partner.
As per section 185 of the Companies Act, 2013, money accepted from directors and relatives of the directors of the company, is not considered as deposits.
Maximum limit of giving loans by companies to directors as per Companies Act, 2013
In case of a Private Company, if all the following conditions are satisfied, Loans may be given to Directors or Director’s relatives.
- No other Company has invested any money towards the share capital of the Private Company.
- If the Company has borrowing from Banks or Financial Institutions or any other company, it should be less than twice of its paid up Share Capital or Rs. 50 Crores, whichever is lower.
- The Company has not defaulted in repayment of such borrowing anytime.
Loan may be given to Directors or Directors’ Relatives or any other person specified in the above slide up to the higher of following limits:
60% of Share Capital + Free Reserve + Security Premium
OR
100% of Free Reserve + Security Premium
However, the company can give loans to its directors as a part of the conditions of service extended to all its employees or in the ordinary course of its business or to its wholly-owned subsidiary company provided other conditions as stated in the act are satisfied.
Maximum limit of giving loans by companies to directors & other persons as per Companies Act, 2013
- Nothing in the above shall be applied to any transactions entered into by the company in its ordinary course of business other than transactions which are not on an Arm’s Length basis.
- Loans can be granted to any persons other than directors or their relatives (including shareholders) by the company without any limits.
- It is important to note that if shareholders are holding 10% or more of equity capital of the company (in which the public are not substantially interested), and receive any loans or deposits, the same shall be treated as ‘Deemed Dividend’ and shall be taxable in the hands of the shareholder.
