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Directors taken loan from company

Umesh V Naig (Statutory Analyst) (452 Points)

27 March 2019

when a Director takes a loan from company ,ie Debit balance , will be considered as a Deemed dividend,

but in case of company not declared dividend , can this deemed dividend is considered as disbursement and what is the companies Act violation on the same

Experienced handlers how to deal please

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3 Replies

Sahil Jain (FAFD, DISA, CA) (Practicing Chartered Accountant ) (2476 Points)
Replied 27 March 2019

Loan taken by directors doesn't amount to deemed dividend, because dividend is paid to shareholders and not the directors of the company .

Also note that sec 185 prohibits company from giving any kind of loan to directors.
Loan can only be given to directors in following cases :
1. It is provided to managing or whole time director as a part of their services and such benefit is also provided to all it's employees
2. Company has brought any scheme to provide loan which has been approved by members by a special resolution
3. It is main business of company to provide loan

If any of 3 above mentioned situation is not there, then it is prohibited to give loan to directors.

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Umesh V Naig (Statutory Analyst) (452 Points)
Replied 27 March 2019

closed held private limited companies normally operate without considering the above implications when it is not repaid can it be taken as deemed dividend and taxed accordingly