Closely Held Public Company and loan to its director(s)

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Ramesh Babu (Querist)
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12 July 2010 Dear Sir/Madam,

Please clarify whether a Closely Held Public Company can make loan to its director(s).

What is the legal position under the Companies Act, 1956, and the Income-tax Act, 1961?

Please kindly clarify.

Thanks.

Rasesh

Rasesh (Expert)
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14 July 2010 Sec 295 of Companies ACt is not applicabe to Private Limited companies. hence giving loans to directors for Private Limited companies is not a problem. The concept of closely held is applicable in INcome Tax Act - 2(22)(e)and not in Companies Act. Whether deemed dividend would be applicable or not at the time of giving loan to director would depend on the facts of the case. But if the transaction gets caught in 2(22)(e), deemed dividend tax would be applicable.