08 November 2007
LOAN TO DIRECTORS BY A PRIVATE LIMITED COMPANY* 139.1 Background note A company is permitted to make loans to its directors subject to certain restrictions and fulfilment of conditions. These restrictions are imposed in order to protect the interests of the shareholders. A private limited company which is not a subsidiary of a public company has the authority to make loans to directors since the restrictive conditions of section 295 are not applicable to it. 139.2 Board Resolution A Board Resolution (Annex 139.1) should be passed for making the loan, for approving the terms and conditions and for authorising completion of formalities. 139.3 Making loan All formalities relating to the making of loan or guarantee or security like execution of documents, etc., should be completed. 139.4 Secretarial Compliance Certificate In case of companies with a paid-up capital of Rs. 10 lakhs or more but up to Rs. 2 crores the compliance certificate obtained from the practising company secretary should contain a statement affirming compliance (non-applicability) with provisions relating to loan to the director. *RELEVANT PROVISION : u Companies Act, 1956 : Sections 295, 296. APPLICABILITY : PRIVATE LIMITED COMPANY ANNEX 139.1 (Refer Para 139.2) BOARD RESOLUTION FOR MAKING LOAN TO DIRECTOR RESOLVED that sanction be and is accorded for making a loan of Rs. 10 lakhs to Shri X, Managing Director of the company as per terms and conditions contained in the loan agreement placed before this meeting and initialled by the Chairman for the purpose of identification. Shri X, managing director did not participate in the transaction of this item of business. RESOLVED FURTHER that the Secretary of the company be authorised to comply with the necessary formalities in this regard.
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