Acceptaion of loan from director's proprietary firm

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Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2016 Dear All
Mr. A is director in XYZ pvt. Ltd however Mr. A is also running his proprietary firm. Pls clarify weather XYZ pvt. Ltd can accept the loan from Mr. A's proprietary firm. If so? What it's procedure,

Thanks & Regards
Manoj Kushwah

Pratik Shah

Pratik Shah (Expert)
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04 November 2016 Yes, Company can accept loan from such Sole Proprietory firm.

Querist : Anonymous

Querist : Anonymous (Querist)

05 November 2016 But sir there are restriction on pvt. Companies such as not to accept the loan from any individual (firms etc.)
Pls do clarify the same,

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Pratik Shah

Pratik Shah (Expert)
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05 November 2016 Companies are allowed to accept loan from Directors and their relatives without any restriction. Sole proprietors firm is not considered as separate entity. If company has taken loan from sole proprietor firm, then it is as good as Company has taken loan from director. Individual and his sole proprietor firm is one and the same.

Querist : Anonymous

Querist : Anonymous (Querist)

07 November 2016 Sir No campany can accept the loan even from director if loan is borrowed. So in this scenario weather Director will withdraw his capital from his proprietary concern or if his capital is below the loan amount then......

Pratik Shah

Pratik Shah (Expert)
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07 November 2016 You last sentence is not very clear. Can you please tell me what is your exact scenario? As per your original question, I can say that, Company can accept loan form Director's proprietorship firm (after taking declaration) without any limit. Giving money from sole proprietorship is as good as Director himself is giving money.

And just to tell you, Company is required to take Declaration from Director that he is giving the loan to Company from his Owned Funds. That's the only restriction. In this case, Company can not verify whether Director has given it from owned fund or borrowed funds. It is not Company's liability.

Querist : Anonymous

Querist : Anonymous (Querist)

07 November 2016 Sir,
In proprietary firm director has taken
OD limit that means borrowed money he will trf the loan from his
OD account to company's OD account so as OD limit is the bank loan how it may be treated from his fund. Is it batter for director to withdraw his capital from his proprietary concern and then
Provide the loan to company

Pratik Shah

Pratik Shah (Expert)
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07 November 2016 No...even if he withdraws money from Proprietorship Firm, it will still be considered as Borrowed Funds.
The thing is, if he withdraws money and then give money to Company and even if he gives declaration that it is from Owned Funds, no one will be able to verify that whether it is owned funds or borrowed funds, but this will surely be considered as Borrowed Funds (As I mentioned, Sole Proprietorship and Directors are one and the same, they can not be considered different).

Conclusion: Based on scenario given by you, Company can not take money from such Sole Proprietorship Firm/Director since the Sole Proprietorship Firm/Director has taken loan from Bank, hence it is considered as Borrowed Funds.

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Querist : Anonymous

Querist : Anonymous (Querist)

08 November 2016 Sir his capital consist his own fund & profit whereon the Income tax has been paid so pls clarify if he withdraw his capital then how it will be treat as borrowed fund,

Also clarify if director has given the declare that it was from his own fund. After that No one really ask him what was the exactly sourses of this fund,

Pratik Shah

Pratik Shah (Expert)
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08 November 2016 You are making your query more confusing to me after your each comment. At once, you said, Sole Proprietorship has taken loan (i.e. OD Account). Now you are saying, it is his owned funds.

Please be specific with your query. Else no one will be able to help you properly.

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Querist : Anonymous

Querist : Anonymous (Querist)

15 November 2016 Sir pls clarify on following
(1) can director take the money from his wife and give the same as loan to company weather the wife's money can be clubbed in husband money as per company act. Or not,

(2) suppose i am director in pvt. Company and want to buy the company's 1 Lakh equity share face value 10 per share total Rs. 10 Lakh but as of now i dont have money to buy company's share hence in this scenario i want the company to allot its 1 Lakh equity share Now and after 5 to 6 month i will pay share money of 10 Lakh to the company. Pls guide me is it possible

Thanks in Advance.............