Oct 03,2019 | 20 min read

Can Private Company take Loan from Outsiders |Companies Act 2013 |


Permissible Loan by Private Companies - The Companies Act 2013


Loans are the major source of funding in most of the Companies apart from their Share Capital. Companies borrow money from various sources like banks and various other financial institutions to run their investments. Where public limited companies are allowed to borrow from the mass public by accepting public deposits  and selling of its shares to the public, Private Limited companies are strictly prohibited from accepting any loan or deposits from the public. The Companies Act,1956 permitted private companies to borrow funds from directors, shareholders and relatives of directors.The Companies Act 2013 has brought a major change in the borrowing provisions and compliances 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.


Can a private limited company take loans from outsiders ?

Now talking about the funds of private limited companies, the very first question that arises to one’s mind is, can a private company take loans from outsiders ?

In terms of accepting loans, a Private Limited company cannot acknowledge loans from outsiders. Furthermore, a Private Limited Company also cannot acknowledge credit from its investors. Notwithstanding, it could acknowledge credit from its directors. But if the Private Limited Company acknowledges any sum from an outsider, at that point, it would be dealt with as deposit as per the Companies Act, 2013 and the company is then required to confirm every one of the store's rules. Also, in the event that a company has taken funds from the family, then the company shall first be able to acknowledge the funds in their own record and after that, they could invest into the corporation as a director.

In addition, keeping aside Bank Finance, a private limited company is reliant on internal sources (which are its shareholders, directors as well as a relative of directors) for its investment and fund necessities. Therefore, loan from outsiders in private company cannot be introduced and companies cannot take loans from outsiders.

Also, private companies, contrasting with public companies, are prohibited from accepting deposits from the public as well.

Though the new Companies Act, 2013 has provided a major change in the borrowing provisions and removed the shareholders as well as relative of directors from the list of qualified lenders but after amendment in Rule dated 15.09.2015, a few relaxation has been given towards private companies, that is, now private company could accept money from relatives of the director.


Loans by Private Limited Company

Relating to Loans to Private Limited Company,  3 categories of loans were suggested under the Companies Act, 2013, they are;

  • Loans which could be accepted, for example, Loan from Directors, Loan from any other corporation, banking institutions and so forth.

  • Loans which could be accepted subject to conforming with Deposit Rules, The Deposit Rules are very complex, and it needs a lot of compliance and almost difficult to be followed. In case these rules are followed, the corporation could take a loan from shareholders and so forth.

  • Loans which could not be accepted, for example, Private Company are not eligible to accept loans from any Partnership Firm, HUF and so forth

However, for accepting the Loans or Deposits from above-mentioned parties, a Private Limited company is required in the direction of following the conditions which are specified under Sec 180(1)(c), that states; 

1. In case Proposed +Existing borrowings (excluding temporary borrowings) > (paid-up capital +Free Reserves), the Corporation shall have to pass Special Resolution in General Meeting.

2.  Deposit Rules: In order to accept deposits from shareholders as well as relatives of directors:

  • The Private Limited Company could accept a maximum of 25% of (paid-up capital + free reserves). However, this limit has been given for existing and proposed deposits.

  • The Private Limited Company is required to follow the process like issuance of circular, depositing insurance, credit rating, the appointment of trustee etc.

But after Notification made on dated 05/06/15, the corporation could accept 100% of (Paid-up capital + Free Reserves) without fulfilling the conditions as stated in section 73(2) clause (a) to (e) that is the issuance of circular, depositing insurance, credit rating, the appointment of trustee etc.

3. Section 186: A Private Limited Company cannot give loan towards any other individual or body corporate which is beyond

60% of its Paid-up Capital + Free Reserves + Security Premium, or

100% of Free Reserve + Security Premium

In case this limit is exceeded, prior approval by means of special resolution in the general meeting is needed. Though in case a loan or guarantee is given through a company towards its wholly-owned subsidiary company or a joint venture corporation then special resolution is not necessary.

Can company take loan from Individuals ?

This table specifies the entities or individuals from whom a Private Limited Company might borrow funds:-

Serial No.

Entity or Person

Loan Acceptance



It is allowed, provided a declaration is given by the director that the sum has not been given out of funds acquired through him by borrowing or accepting loans or deposits from others


Relative of Director

It is allowed as Ministry of Corporate Affairs through its notification dated 15.09.2015 has furnished that a private company could  accept unsecured loans apart from director also from a relative of Director providing the relative of director from whom money is received, provides to the corporation at the time of giving the money, a declaration in writing towards the effect that the sum is not being given out of funds acquired through him by borrowing or accepting loans or deposits from others as well as the corporation shall disclose the details of money so accepted in the Board’s report.  The relative may not be a shareholder of the corporation



Where money accepted from members go beyond 100% of the Paid-up share capital and free reserves.

Where sum accepted from members doesn’t go beyond 100% of the Paid-up share capital and free reserves.

It is not allowed

It is allowed subject to:  Passing a member’s resolution by making provision for security, relating to any for due repayment of the sum of deposit accepted and interest thereon (not below 12.5% at present) which includes the creation of charge (Form CHG1) on the property or assets of the Corporation.  Filing the details of the money accepted with the registrar.


Relative of Shareholders

It is not allowed as such a borrowing might take place nevertheless, subject to the fulfilment of conditions as prescribed in Section 73 of the Companies Act, 2013.


An individual who is Director and Shareholder Both

It is allowed, provided a declaration is given by the director that the sum has not been given out of funds acquired through him by borrowing or accepting loans or deposits from others.



It is allowed, the sum borrowed should not exceed the employees’ annual salary in the nature of interest-free security deposit.

Can a Private limited company give a loan to another private limited company ?

Loans from one company to another company are covered under Section 186 of the Companies Act, 2013. However, a loan from 1 private company to another with Common Directors are covered under Section 185 (Loan to Directors).

A company can give a loan, guarantee or security to any person or to a body corporate in excess of 60% of its paid-up share capital. If the aggregate of inter-corporate loans is not above the specified limit, then incorporating loan and investment will be processed by passing board resolution.


A Private Company can accept loans from any other private company and would NOT be deposits under the Companies Act 2013. 


  1. The lending company’s any director was a director or member of the company.

  2. The lending company’s director individually or along with one or more of its directors exercised or controlled not less than 25% of its voting rights; or 

  3. It’s Board of Directors, MD or Manager was accustomed to act in accordance with the directions or instructions of the Board, or any director of the lending private company. 

However, if the lending company is a private company then with effect from 5th June 2015 (private company exemption notification) it can give loan to another private company even if the above conditions are not met.


It is vital to understand the nature of a transaction whether it shall be a loan or a deposit. When it is clarified, the next part must consist of checking on the limitations and compliance necessities by referring towards the corresponding sections of the Companies Act, as well as acceptance of deposit rules.


Need Free Legal Advice or Assistance Online?

For any Other related matter, please Post Your Requirement anonymously and get free proposals OR find the Best Lawyers and book a free appointment directly.


Employment of Foreign Nationals in India

E-Way Bill and Unintentional Errors

Crypto and Digital Currency Regulation Bill for Prohibiting all Private Cryptocurrencies.


Role of Trade Unions in India

Daughter's claim to father's property

#LexTalkStartups on Establishing a start-up in Canada with Adv. Shashwat Jindal

Adverse Possession of Immovable Property

Different Types of Investment available to Startups


Lawyered Team

Lawyered Team