15 July 2013
Loan to Directors and the Provisions of the Companies Act Loans to the direcotors of the company given by the company are governed by section 295 of the companies act, 1956. Section 295 put restrictions on a public company or a private company being a subsidiary of a public company intending to make any type of transaction with a director of the company or partner or relative of a director, etc. whether, directly or indirectly to make any loan, or to give any guarantee, or to provide any security in connection with a loan made by any other person to, or to any other person by, and it calls for obtaining the previous approval of the Central Government. This section is applicable to a public company or a private company, which is a subsidiary of a public company.
15 July 2013
Having said that one should be aware of the provisions of Section 2(22)(e).
If such director or relative to whom loan has been given by the Private Limited Company, hold 10% or more share in the company than provisions of section 2(22)(e) will be attracted and such loan will be treated as deemed dividend covered under section 2(22)(e) and will be taxable in the hands of shareholders.
15 July 2013
Ajay Ji this is unsecured loan so there will not be any Loan Agreement. It is a common thing in private limited companies taking loan and giving loan to directors and their relatives. In most cases you will not find any agreement.
In companies act their is no issue. But main issue may arise at the time of Income Tax Assessment.
15 July 2013
As per my understanding, any loan will not be considered as loan and the same will be ont considered as by any authority, unless they have any MOU/agreement that the company has given or taken loan.
Whether it is director or there relative.
How you can justified with Tax authority that it is loan.
So as per my understanding kind of agreement should be with both parties.
15 July 2013
It is common for private companies to take and grant loans to directors and relatives. Complaince u/s 292 of companies act should be seen i. e. at the time of granting loan. Further loans are mostly given without any agreement or MOU between the parties to transaction i. e. what is seen in balance sheets in the revised schedule VI as loans repayable on demand under short term borrowings are mostly loans without any agreements or MOU.
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