Director relative loan to company

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Murali krishnan (Querist)
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23 January 2024 my private limited company have 9L paid up capital and 15L as authorized capital can i borrow loan from my father 50L after passing resolution because i read on company act it say only 60% of paid capital only can borrow as loan, is there any way to infuse 50L loan from my father to my company

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 In accordance with the provisions of the Companies Act, 2013, private limited companies are indeed restricted in borrowing limits. Here’s how it typically works:

1. **Borrowing Limit**: As per Section 180(1)(c) of the Companies Act, 2013, a private company cannot borrow money in excess of its paid-up capital and free reserves, unless authorized by a special resolution passed at a general meeting.

2. **Specific Provisions**: The Act generally limits the borrowing capacity of a private company to 2 times its paid-up capital and free reserves, or ₹50 lakhs, whichever is higher. This is unless a special resolution is passed allowing for a higher borrowing limit.

3. **Authorized Capital**: The authorized capital of ₹15 lakhs does not directly impact the borrowing limit; it primarily defines the maximum limit up to which the company can issue shares.

4. **Practical Solution**: To infuse ₹50 lakhs from your father into the company as a loan, you have a few options:
- **Issue of Debentures**: If permitted under your company's Articles of Association and approved by shareholders via a special resolution, you may issue debentures to your father. Debentures are treated as a form of loan and can be issued up to the borrowing limits set by law.
- **Special Resolution**: Hold a general meeting and pass a special resolution to increase the borrowing limits beyond the prescribed limits (i.e., beyond 2 times of paid-up capital and free reserves or ₹50 lakhs, whichever is higher). This would require compliance with procedural requirements under the Companies Act.
- **Convertible Loan**: Structure the loan as convertible debt, which could be converted into equity shares in the future, subject to compliance with applicable laws.

5. **Legal and Financial Advice**: It's crucial to seek advice from a company secretary or legal advisor who can guide you through the process of passing resolutions, ensuring compliance with the Companies Act, and structuring the loan in a legally sound manner.

By following these steps and ensuring compliance with the provisions of the Companies Act, you can legally infuse ₹50 lakhs from your father into your private limited company.