Oct 03,2019 | 20 min read

Permissible Loan by Private Companies - as per Companies Act, 2013

The Companies Act 2013 has been passed by the Parliament on August 2013 which consolidated and amended the law relating to corporate affairs or simply corporations. A Private Limited Companies which should have a minimum of two members and can go as far as to 200 members have limited liability of its members but has numerous similar characteristics as of a Partnership firm. Private Limited Companies should have a minimum of two directors as well as a maximum of fifteen directors. In Private Limited Companies at least two shareholders is needed for legal registration. A total of 200 shareholders are acceptable in any Private Limited Company but not beyond that. The company lies somewhere amid a partnership firm and a widely owned Public company. Private Limited Company furnishes certain benefits which include stability however it has its own drawbacks too like selling of shares which should first be offered to the members of the corporation itself.

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 his directors. But if the Private Limited Company acknowledge 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 conform towards every one of the store's rules. Also, in the event that company has taken funds from 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.

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 15.09.015, a few relaxation has been given towards private companies, that is, now private company could accept money from relatives of the director.

Relating to Loans by 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 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 than special resolution is not necessary.

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.


It is vital to understand the nature of 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.

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Lawyered Team

Lawyered Team