Loan from shareholder

This query is : Resolved

sandeep (Querist)
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12 June 2012 Mr.X is a share holder in a private Ltd company holding 0.5% of total equity (say 10 nos). Company accepts huge loan (10,00,000 times of his capital investment) from Mr.X for a particular project on a written agreement that they will pay the return on his loan as a percentage of profit from that particular project. (Company is even ready to accept it on a fixed percentage interest).

Is this kind of a transaction valid ???

CA Yasaswy Sarma Veluri

CA Yasaswy Sarma Veluri (Expert)
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12 June 2012 Dear Mr.Sandeep

The Company can accept the loan from the shareholder and it will have to show it under unsecured loans of the balance sheet.

Paying percentage of profit is fine but let it not be in writing, show it in writing as fixed percentage of interest.