Loan from director and members

This query is : Resolved

M.M.SURANA

M.M.SURANA (Querist)
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17 February 2016 Pl highlight me provision of sec 180 of Companies Act, 2013 in respect of loan from director and members of Private Limited company

Thanks

c.bakshi

c.bakshi (Expert)
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18 February 2016 a pvt ltd company can take loan from its directors or relative of directors 60% of its paid up capital & 100% of its free reserve. if such limits exceeds approval of members is required

M.M.SURANA

M.M.SURANA (Querist)
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18 February 2016 apart from director can take loan from shareholder also. thanks

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 Under the Companies Act, 2013, Section 180 deals with the borrowing powers of a company and includes provisions related to borrowing from directors and members. Here's a detailed overview of the relevant provisions:

### **Section 180: Powers of the Board**

#### **Section 180(1): Restrictions on Borrowing Powers**

1. **180(1)(c):**
- This section requires that the board of directors obtain the approval of the shareholders by passing a special resolution if the company intends to borrow money in excess of the aggregate of its paid-up share capital and free reserves.
- **Text:**
```
Section 180(1) - The Board of Directors of a company shall not, except with the consent of the company in general meeting by a special resolution, borrow money where the money to be borrowed, together with the money already borrowed by the company will exceed the aggregate of its paid-up share capital and free reserves.
```

#### **Borrowing from Directors**

- **Provisions:**
- If a company is borrowing money from its directors, it must adhere to the same limits set under Section 180(1)(c). This means the total borrowing from directors and other sources should not exceed the limits specified by the Act, unless a special resolution is passed.
- **Director Loan:**
- **Approval:** Any loan taken from a director must comply with the borrowing limits and also be disclosed in the financial statements.
- **Special Resolution:** Required if the total borrowing exceeds the paid-up capital and free reserves of the company.

#### **Borrowing from Shareholders**

- **Provisions:**
- Similar to loans from directors, loans from shareholders (members) also fall under the provisions of Section 180(1)(c). If the amount borrowed from shareholders exceeds the aggregate of paid-up capital and free reserves, a special resolution is required.
- **Loan Agreement:**
- **Terms:** The terms of borrowing, including interest rates and repayment conditions, must be clearly defined and agreed upon.

### **Other Related Provisions**

#### **Section 180(2):**

- **Text:**
```
Section 180(2) - The powers referred to in sub-section (1) shall not be exercised unless the resolution under that sub-section has been passed by the shareholders of the company in a general meeting.
```

- **Explanation:**
- A special resolution must be passed in a general meeting for the borrowing powers to be exercised. This applies to loans from directors, shareholders, or any other source.

#### **Section 180(3):**

- **Text:**
```
Section 180(3) - Any resolution passed under this section shall be valid for a period of one year from the date of passing of the resolution.
```

- **Explanation:**
- The authorization for borrowing obtained through a special resolution remains valid for one year.

### **Practical Considerations**

1. **Filing Requirements:**
- The special resolution passed to authorize borrowing must be filed with the Registrar of Companies (ROC) in Form MGT-14 within 30 days of the resolution.

2. **Disclosure:**
- Loans from directors and shareholders should be disclosed in the company's financial statements.

3. **Terms and Conditions:**
- Ensure that the terms of the loan agreements are clearly defined and documented.

### **Summary**

Under Section 180 of the Companies Act, 2013, a private limited company must obtain shareholder approval via a special resolution to borrow funds if the total borrowing exceeds the aggregate of its paid-up share capital and free reserves. This applies to loans from directors, shareholders, or any other sources. The approval ensures that borrowing is within the company's financial capacity and provides transparency and control over financial decisions.