Acceptance of Unsecured Loan

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SANJAY VERMA

SANJAY VERMA (Querist)
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27 July 2009 can a limited company accept unsecured loan from its shareholders?

Ankur Garg

Ankur Garg (Expert)
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27 July 2009 Hi,

Kindly appreciate, A private limited company can take unsecured loan from its shareholders and the same would not be covered under section 58A and other deposit provisions as such transaction is exempt by deposit rules 1975.

Kindly appreciate, A public limited company can take loan from other company and body corporate and the same would be covered under section 372A as an inter corporate loan.

A public company can also take loan from Banks/PFIs under the same section 372A as an inter corporate loan.

But if such company take loan from an individual the same would be considered as public deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

As per the definition of deposit given in Rule 2 of the said rules “deposit means any deposit of money with and include any amount borrowed by, a Company but does not include certain amounts.

There are certain amounts which are not considered as deposit as per the rules above and such amount includes inter corporate transaction hence amount taken by company/bank and PFI are not considered as deposit.

On the other hand amount taken by public company from individual is not covered in the exemption given by the said rule, hence amount taken by public company from individual is considered as deposit under section 58A read with Companies (Acceptance of Public Deposit) Rules, 1975.

Regards