Applicability for Private Companies

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2010 hello sir

my query regarding borrowing by Private Company has been resolved and said yes.

now i wanted to know that whether any restrictions apply for borrowing in company name because one of my senior CA
has said not to borrow directly by company , instead he has insisted to accept loans by Managing Director and then give it to company from his account.

Please explain it to me. substantiate it under tne provisions of the act sir.

thank you and its urgent please

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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04 December 2010 The senior CA's view is a clear violation of proviso to rule 2(b)(ix) of the Company's (Acceptance of Deposit ) Rules,1975. So don't exercise that option.

Ajay Mishra

Ajay Mishra (Expert)
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04 December 2010 Dear Friend

1. Deposits in case of Private Limited Company

Private Company is prohibited to accept any invitation or acceptance of unsecured loans/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) exempt any unsecured loan money received from directors and shareholders from the definition of deposits. According to Rule 2(b)(ix), any amount received from members of a private company limited by guarantee are not exempt.

Rule 3 of Companies (Acceptance of Deposits) Rules, 1975 deal with the limit upto which a company can accept deposits/ loans.

For any invitation and acceptance of unsecured loan/deposits from relatives of directors and member, the company will have to file a statement in lieu of advertisement in accordance with the provisions of Rule 4A of the Companies (Acceptance of Deposits) Rules, 1975. The company will also have to file annual return of deposits in accordance with Rule 10.

2. Consequences of acceptance of deposit by Private Limited Company

If a private company acceptance 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

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Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2010 Thank YOu sir for your kind and timely reply. it helped me a lot.

i wanted to know whether your answer is the same if the loan is secured.