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Loan from director

11 March 2013

A co. has taken loan from a person and has shown as Long term loan in last year's balance sheet.This year that person has become the Director of the company.Now in financial statements can we show that Loan as Loan taken from director?

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7 Replies

Akanksha Jain (Article) (690 Points)
Replied 11 March 2013

yes.. u have to show the said loan as loan taken from directors

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CA Shruti Gupta (CMA FINAL CS Final) (1434 Points)
Replied 11 March 2013

HI PARUL

YES IN YOUR CASE CO. HAS TO SHOWN THIS AS LOAN TAKEN FROM DIRECTOR. ITS ALSO A LEGAL REQUIREMENT UNDER COMPANY LAW

CA Parul Saxena (CA) (8488 Points)
Replied 11 March 2013

At the time of taking loan that person was not the director of the company......will this make any impact?

CA Shruti Gupta (CMA FINAL CS Final) (1434 Points)
Replied 11 March 2013

NO NOT AT ALL....

THE ONLY REQUIREMENT IS ON DISCLOUSER PART..........

satish kumar (accountant) (38 Points)
Replied 14 March 2013

What are the genenral entries made in our books.

Loan from Drirector A/c Dr.

To Long term Loan.

or any other calirify it

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satish kumar (accountant) (38 Points)
Replied 14 March 2013

Long term Loan (Director or any other perosn )it comes uder Unsecured Loan or any other head?

reply with supporting rule 7 sec.

HARIRAM (Chartered Accountant) (55 Points)
Replied 15 March 2013

Sec 293(1)(d) Implications: There are no implications or restrictions for loan from directors / shareholder, this shall be considered as quasi capital. Section 293(1)(d) Implication: As per Sec 293(1)(d) “(1) the Board of Directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,- (d) Borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company (apart from the temporary loans obtained from the company's bankers in the ordinary course of business), will exceed the aggregate of the paid-up-capital of the company and it's free reserves that is to say, reserves not set apart for any specific purpose;” Hence the applicability is restricted to:- a) Public Limited Company and b) Subsidiary of a public company

Conclusion on Section 293(1)(d) applicationIt can be concluded that the section is not applicable to a private Company and the borrowings of the company can be made by a resolution of the Board of Directors.

With regard to CARO - you need to check as to whether the interest rate is prejudicial to the interest of the company and auditors report needs to be drafted stating that the loan has been obtained from directors stating the number of parties, maximum outstanding amount, amount borrowed etc..

Loan from Shareholder – Implications: Loan from Shareholder is generally considered Deposit under section 58A and 58AA of the Companies Act, 1956.

However based on the company deposit rules Rule 3(i) propounds

“Deposit means deposit of money and includes any amount borrowed by a company, but does not include certain types of borrowings; viz. amount received :

i) from a director in case of any company or from a shareholder in case of a private company out of his own funds (that is not borrowed or accepted from others) including a Company which has become public u/s.43A so long as it retains S. 3(1)(iii) conditions in its Articles. The director/shareholder concerned however has to furnish a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting from others.

Hope this was comprehensive...

Thanks.