A private limited company is the most accepted and popular business structure in India and is governed by the provisions of the Companies Act and rules made thereunder, to carry out business operations loan from director to company is the main source of debt funding private limited access.
In every type of business structure there are two main sources of funds that an organisation deals with, one is in the form of capital and other is in the form of loan or debt.
In case of a company accepting funds from the capital it has to issue shares, and if the company is accepting funds from loan there should be an agreement with respect to the terms and conditions assigned to the particular loan and the security provided for a given loan.
In this article we will discuss accepting loans from the directors of the company by a private limited company.
Please note that accepting any type of loans or money from any person in a private limited company falls under the provisions of companies acceptance of deposit rules 2014
“deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –
“(viii) any amount received from a person who, at the time of the receipt of the amount, was a director of the company or a relative of the director of the Private company:
Provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report;”
Step by step procedure for accepting loans from directors to Company
- hold Board meeting and pass necessary resolution approving the limit up to which company can accept loans
The company is required to hold the board meeting and pass necessary resolution in this regard for approving the limit of loan up to which company can accept the loans.
- Pass Resolution for Authorising Director to sign Necessary Terms and Conditions /Loan agreement for the loan
- Accept at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others
- Credit of Funds to Company Bank Account
Compliance with Respect to Loan : If the Loan Agreement or Terms of Loan Contains clause relating to the conversion of this loan into equity then the company is required to file form mgt 14 within 30 days from the date of such agreement
Annual Compliance with respect to loan from Director to Company :
As this loan is exempted from the deposit, the company is required to file Form DPT -3 with the amount of loan accepted from Directors of the Company under the column, Items Not considered as Deposits