Any company whether public or private can accept loan or deposit from directors (subject to obtaining a declaration) and any other company whether private or public (subject to the restrictions imposed by S.180(1)(c),of the Act) apart from banks and financial institutions. If any company is desirous of obtaining loan from any other person then they have to comply with the Deposit rules which include obtaining credit rating, issuing circular, creating deposit repayment reserve account, etc.
The Companies 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.
Section 180(1)(c) :
This sections corresponds to S. 293 of the Companies Act,1956 which was applicable only to public companies and private companies which are subsidiaries of public companies.
The provision which is now applicable to private companies as well, states that if the amount to be borrowed by the company along with the amount already borrowed by the company exceeds the aggregate of its paid up share capital and free reserves then consent of the company by means of a special resolution shall be taken.
The borrowings exclude temporary loans taken by the company i.e. loans repayable on demand or within 6 months from the date of such loan.
To sum up even though companies are permitted to borrow from companies, directors and financial institutions they have to obtain the consent of the company prior to obtaining further loans if the aggregate of such loans exceed the aggregate of its paid up share capital and free reserves. Obtaining temporary loans are excluded from the purview of this section.
Checklist for Lender Company
a) The borrower is in no way related to the director of the lender company.
b) The loan advanced is not in excess of the limits specified. If it is then prior approval of shareholders is obtained by means of a special resolution.
Checklist for Borrower Company
a) The lender is the director, bank or any other approved financial institution. For any other lender deposit rules are followed prior to acceptance of such deposit.
b) Prior approval of shareholders is taken if the borrowings exceed the aggregate of paid up share capital and free reserves.