Loans by Director to Company

This query is : Resolved

Piyush (Querist)
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21 September 2020 Can Director give Loans to Pvt Ltd Co?

If yes, then loan taken from
the Director who is also a Shareholder or
from the Director who is not a shareholder
is advisable ?

Any compliance to follow in above scenario ?

Deesha Shah

Deesha Shah (Expert)
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21 September 2020 Yes, Directors can give loans to Pvt Ltd Co. In most of the Pvt Ltd Cos, funds are usually provided by the Directors.
Director who is not a shareholder cannot give loans to Pvt Ltd Co, out of borrowed funds. That is allowed to Public Ltd Co only having turnover more than 500Cr or Networth more than 100Cr.
Director, whether he is a shareholder or not ,can provide loans out of their own funds. These are treated as Loans and does not attract compliance with section 73(2) or section76. However, to avail this relief the director must furnish to the company at the time of giving the money, a declaration in writing, that the amount is not being given out of funds gathered or collected by borrowing or accepting loans or deposits from others.
If the Director is the shareholder of the Co, then he can provide loan out of the borrowed funds , however these funds are treated as Deposits from Member and attract provisions of section 73(2) read with Companies (Acceptance of Deposits) Rules 2014.