Unlocking Shareholder Capital: Can Your Private Company Get a Loan From Investors

ABSTRACT:-

In this Editorial, we shall discuss the legal provisions, process, treatment and the penalties for non-compliance on the subject whether a private company can take loan from its shareholders

Legal Provisions:-

1.??? Section 73 (2) of the Companies Act, 2013 ?

??????????????????????????? &

2.??? Section 179(3) of the Companies Act, 2013

Exemption Notifications:-

1.??? MCA Exemption Notification dated 05/06/2015

2.??? MCA Exemption Notification dated 13/06/2017.

What are the different situations where a private company can accept deposits / loans from its members?

Situation 1:-

Law:-

·???????? As per the consolidated reading of Section 73(2) and MCA Exemption Notifications dated 05/06/20215 and 13/06/2017, a private company can accept deposits from its members without complying with the provisions of Section 73(2) (a) to (e) provided it fulfills the following conditions:-

(A) which accepts from its members monies not exceeding 100% of aggregate of the paid up share capital, free reserves and securities premium account; or

(B) which is a start-up, for five years from the date of its incorporation;? or?

(C) which fulfils all of the following conditions, namely:-

?(a) which is not an associate or a subsidiary company of any other company;

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section.

Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.”

Process:-?

a.??? The Private Company shall hold a board meeting approving the availing of deposits in pursuance of Section 73(2) and Section 179(3) and calling the Extra-ordinary General Meeting.

b.??? Passing an Ordinary Resolution in the EGM approving the acceptance of deposits from its members, in line with Notifications.

c.??? Filing of Form DPT-3 with MCA for deposits on or before 30th June of the relevant year.

Treatment:-

????????? The Amounts received by the Private Company from its members shall be treated as Deposits and not loans in its balance sheet.

Situation 2:-

Law:-

·???????? A Private Company can accept loans from its shareholders who are its promoters provided:-

any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the stipulation of any lending financial institution or a bank subject to fulfillment of the following conditions, namely:-

(a) the loan is brought in pursuance of the stipulation imposed by the lending institutions on the promoters to contribute such finance;

(b) the loan is provided by the promoters themselves or by their relatives or by both; and

(c) the exemption under this sub-clause shall be available only till the loans of financial institution or bank are repaid and not thereafter.

Process:-?

a.??? The Private Company shall hold a board meeting, pass board resolution approving the availing of loans from its promoters or their relatives, in pursuance of Section 179(3) and Companies (Acceptance of Deposits) Rules, 2014.

b.??? Filing of Form DPT-3 with MCA for loans on or before 30th June of the relevant year.

?Treatment:-

The Amounts received by the Private Company from its promoters or their relatives shall be treated as loans in its balance sheet.

Situation 3:-

Law:-

·???????? A Private Company can accept loan from its shareholder who is a director / relative of a director of the Company, in the capacity of a director / relative of director, provided that the director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans? or deposits from others and the company shall disclose the details of money so accepted in the Board’s report.

Process:-?

a.? The Private Company shall hold a board meeting, pass board resolution approving the availing of loans from its directors, in pursuance of Section 179(3) and Companies (Acceptance of Deposits) Rules, 2014.

b.? Filing of Form DPT-3 with MCA for loans on or before 30th June of the relevant year.

?Treatment:-

The Amounts received by the Private Company from its directors or their relatives shall be treated as loans in its balance sheet.

What do you mean by deposits?

As per Section 2(31) of the Companies Act, 2013, deposits include any receipt of money by way of deposits or loans or in any other form by a company but does not include such categories of amounts as may be prescribed in consultation with RBI.

?

As per the Companies (Acceptance of Deposits) Rules, 2014 read with amendments, certain amounts received by the Companies have been excluded from the definition of deposits.

?

Whether a private company can take loan from its promoter shareholders and whether DPT-3 filing is required in that case?

?

Yes, a private company can take loan from its promoter shareholders or their relatives, provided it is in compliance with the Companies (Acceptance of Deposits) Rules, 2014.

Further, it will be considered as Loans and form DPT-3 has to be filed for particulars of transactions not considered as deposits.

?

Whether Auditor’s certificate is required while filing form DPT-3?

?

Auditor’s Certificate is required in two cases:-

a.??? Return of Deposits;? and

b.??? Return of Deposits and particular of transactions not considered as Deposits.

?

?

Whether a private Company can take loan from its directors or their relatives and whether form DPT-3 is required in that case?

?

Yes, a private company can take loan from its directors or their relatives. Form DPT-3 is required to be filed under the category:- Particular of transactions not considered as Deposits.

?

Whether a private company can take loan from its shareholders, who are not directors or promoters and whether DPT-3 filing is required in that case?

?

Yes, a private company can take loan from its shareholders, who are not promoters or directors, provided it is in compliance with the MCA Notification dated 13/06/2017.

?

Further, it will be considered as Deposits and form DPT-3 has to be filed for return of deposits.

?

?

?

Whether a private company can take loan from its shareholders, who are not its directors or promoters, in case it does not comply with MCA Notification dated 13/06/2017 and whether DPT-3 filing is required in that case?

?

Yes, a private company can take loan from its shareholders who are not its directors or promoters, in case it does not comply with MCA Notification dated 13/06/2017. In that scenario, the amount taken will be considered as Deposits and the Company shall be required to comply with Section 73(2) of the Companies Act, 2013.

?

Form DPT-3 shall be filed for return of deposits on or before 30th June of the relevant year.

?

What is the penalty for contravention of Section 73 of the Companies Act, 2013?

?

The company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable with fine which shall not be less than?Rs.1 crores or twice the amount of deposit accepted by the company, whichever is less but which may extend to Rs.10 crores; and every officer of the company who is in default shall be punishable with imprisonment which may extend to?7 years and with fine?which shall not be less than Rs.25 lakhs but which may extend to Rs. 2 crores.

What is the Penalty for non-compliance of filing form DPT-3?

?

Rule 21 deals with the penalty for non-filing of form DPT-3. Company and every office of the Company, who is in default, shall be punishable with a fine which may extend to Rs.5000/- and where the Contravention is continuing one, with a further fine of Rs.500/- for every day after the first day during which the contravention continues.

?

Brij Agnihotri and Associates, Company Secretaries, Registered Trademark Agents, Registered Valuers (SFA) are experts in legal matters corresponding to the corporate realm. They can offer you assistance as well as guidance and services such as that of company secretary, as well as in matters pertaining to company incorporation, LLP registration, secretarial matters, Valuations and trademark registrations.