Section 185
This query is : Resolved
10 March 2021
we cant give loan to LLP as per section 185(1). can we give loan to LLP under section 185(2)?
11 July 2024
Under Section 185 of the Companies Act, 2013, which deals with loans to directors and other persons, there are certain provisions regarding loans to LLPs (Limited Liability Partnerships):
1. **Section 185(1):** This section prohibits a company from directly or indirectly advancing any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested.
2. **Section 185(2):** This subsection provides an exception to Section 185(1). It states that a company can give a loan to a managing or whole-time director (including a director who is neither a managing director nor a whole-time director) or to any other director, but only with the approval of the company by a special resolution passed in a general meeting.
Regarding loans to LLPs:
- **Prohibition under Section 185(1):** Since an LLP is a separate legal entity distinct from its partners, it is not covered under the definition of "director" or "other person in whom the director is interested" as per Section 185(1). Therefore, the prohibition under Section 185(1) does not directly apply to loans given to LLPs.
- **Section 185(2):** The exception provided under Section 185(2) applies specifically to loans to directors of the company. It does not extend to loans to LLPs or other entities.
Given these points:
- **Loan to LLPs:** As per the strict interpretation of Section 185, there is no explicit provision allowing loans to LLPs under Section 185(2) or any other subsection. Therefore, companies should exercise caution and typically refrain from giving loans to LLPs unless there are specific provisions or approvals under other laws or regulations that permit such transactions.
- **Legal Advice:** It's advisable to seek professional legal advice to explore alternative provisions or exceptions under company law or other applicable laws that may allow a company to provide financial assistance or loans to LLPs without contravening the provisions of Section 185 of the Companies Act, 2013.
1. **Section 185(1):** This section prohibits a company from directly or indirectly advancing any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested.
2. **Section 185(2):** This subsection provides an exception to Section 185(1). It states that a company can give a loan to a managing or whole-time director (including a director who is neither a managing director nor a whole-time director) or to any other director, but only with the approval of the company by a special resolution passed in a general meeting.
Regarding loans to LLPs:
- **Prohibition under Section 185(1):** Since an LLP is a separate legal entity distinct from its partners, it is not covered under the definition of "director" or "other person in whom the director is interested" as per Section 185(1). Therefore, the prohibition under Section 185(1) does not directly apply to loans given to LLPs.
- **Section 185(2):** The exception provided under Section 185(2) applies specifically to loans to directors of the company. It does not extend to loans to LLPs or other entities.
Given these points:
- **Loan to LLPs:** As per the strict interpretation of Section 185, there is no explicit provision allowing loans to LLPs under Section 185(2) or any other subsection. Therefore, companies should exercise caution and typically refrain from giving loans to LLPs unless there are specific provisions or approvals under other laws or regulations that permit such transactions.
- **Legal Advice:** It's advisable to seek professional legal advice to explore alternative provisions or exceptions under company law or other applicable laws that may allow a company to provide financial assistance or loans to LLPs without contravening the provisions of Section 185 of the Companies Act, 2013.
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