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Loan from a share holder

RAVI KUMAR D V (ACCOUNTS MANAGER) (24 Points)

28 April 2014

Dear Sirs,

Can a Private Limited Company accepts loan from a Share Holder.

Please explain the rules and positions in respect of Income Tax and Company's Act.

Thanking you,

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4 Replies

CA Ankit Mittal (Charterd Accountant) (118 Points)
Replied 28 April 2014

After the Companies Act 2013 becoming operational, a Private Limited Company cannot accept loan from shareholders.

The Companies Act ,1956 permitted private companies to borrow from directors, shareholders and relatives of directors. However theCompanies Act 2013 has brought a major change in the borrowing provisions for private companies and removed shareholders and relatives of directors from the list of lenders. Going forward the private companies can borrow only from directors apart from banks and financial institutions provided the director gives a declaration that the amount that he is giving is not out of borrowed funds.

As for as Income Tax Act 1961, it doesn't say anything yet. But necessary changes in line with Companies Act 2013 should be coming our way very soon

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Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 28 April 2014

agree with ankit ji.....

With the companies act 2013, loans from shareholders will be treated as deposits and the company have to then comply with additional ROC formalities with respect to deposits...

CA Raj Doshi (Practising CA) (8924 Points)
Replied 29 April 2014

What if the directors and shareholders of a private limited company are same ? ( which is generally the case ) . Will loan from directors who are also the shareholders acceptable or no???

Vandana J Doshi (Practising Company Secretary) (12562 Points)
Replied 29 April 2014

Hi,

As per my understanding, as long as the director holds the directorship, their is no problem in accepting the same since the loan is being given in the capacity of a director. However, if he resigns from directorship and remains a member, then the same will be treated as deposits..

Regards