12 June 2013
As per Section 3(1) (iii) (d) a Private Company is prohibited to accept any invitation or acceptance of deposits from the persons other than its members, directors or their relatives. Therefore a private company can accept deposits through private arrangement from its members, directors and their relatives.
Rule 2(b) (ix) of Companies (Acceptance of Deposits) Rules, 1975exempts any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b) (ix), deposit under Companies (Acceptance of Deposits) Rules, 1975 does not include any amount received by a private company from a person who, at the time of the receipt of the amount, was a director, relative of director or member: Provided that the director or member, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others;
If a private company accepts an amount, which may be classified as deposit under section 58A read with Companies (Acceptance of Deposits) Rules, 1975, it will cease its status of a private company and has to make all the compliances for such deposits as per the requirement of said rules, as well as to comply with all the provisions as may be applicable on public limited company such as section 58A, 58AA, 58AAA, 81, 256, 257, 198, 268, 269, Schedule XIII, 274(i)(g), 295, 297, 300, 301, 372A, etc.
In my opinion a simple way to arrange funds from outsider for a Private Company is to issue share to such outsider and make that outsider a member of Company and then get fund from them.
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