Obtaining a loan for your private company comes with a lot of responsibilities. You need to know the right processes that need to be followed, who is capable of issuing loans, and what rules govern the entire procedure in order to avoid any infringements. In this article, we will highlight the various aspects that you should put into consideration before getting funds for your business and who can lend to you.

What You Need to Know About Managing Loans

While getting a loan, there are various ‘best practices’ that need to be observed in order to steer clear of legal issues, especially with the Income Tax Department or with the Registrar of Companies (ROC)^2. Let us explore some of these issues.

Acceptable Loans: The 20,000 Rule

As per the Income Tax Act provisions, any loan that surpasses the limit of Rs. 20,000 must be received via cheque. This rule was made so as to eliminate the bearing of cash which is prone to manipulation and fraud by dishonest people. The only exception is when cash is used with certain government bodies and authorized lending institutions. Loans above Rs. 20,000 will see greater scrutiny when accepted in cash based scenarios.

Who do you think can exchange cash with a company? Here’s a guess: government entities, post office savings, cooperative banks, and government organizations are definitely partido will and deal with cash. Everything else will undoubtedly have to use a check. Further, transactions exceeding 20000 Rs have to be cheque gated. Banking departments do not have to to worry because anything above 20000 Rs relies on checks, and so rest assured there are no discrepancies for repayment of loans. They can receive funds in cash as long as it is below 20000.

A private firm can source funds from different places. In case of self bidding, it can rely on self lending from any of their directors considering that they follow the law.

The order of operation is simple. A married couple doesn’t get separated amicably. One self wonders if they were flexible with each other what their lives would be 3. However why should anyone ever make it easy for me? The world can be ruthless at times.

So how does one borrow money from directors? If the director is a married man and is capable of separating finances without a fluctuating income, he can blow cash anywhere he wants.

He barely does. The marked amount he files in the form of cash notes can easily be misplaced in the bags used for transport.

When there’s a will, there’s definitely a way for a miracle to happen. A lending director that relies on self ban will and deal to their firm with no merit will consider themselves to have one over a box full of documents to hand over to the Ministry of Corporate Affairs.

The lack of sensitive information is alarming as well as the barrier to cross. A self opening a document demanding reason will cost them a lot more than they asked for 4.

Original Text: Borrowing from Uncle – Mejor Lenders PVT limited example: If a director has borrowed Rs. 4 lakhs from a bank and wishes to lend Rs. 10 lakhs to the company, they can only contribute Rs. 6 lakhs (after reducing the earlier loan). 2. Loans from Relatives of Directors Directors’ relatives can also lend money to the company under the same condition: the money should not be borrowed from another source. The loan should be given from their personal funds. 3. Loans from Shareholders Shareholders can also contribute funds, but there’s a limit to how much they can lend. The loan amount cannot exceed the company’s net worth. Shareholders must inform the Registrar of Companies and obtain approval via a special resolution at a general meeting. Example: If the company’s net worth is Rs. 10 crores, shareholders can only lend up-to Rs. 10 crores in total. 4. Loans from Employees Employees can lend money to the company but the loan amount must equal an employee’s annual salary. For example if an employee earns Rs. 5 lakhs annually they can only lend up-to Rs. 5 lakhs.

Rewritten Text: Borrowing From Uncle – Mejor Lenders PVT Limited example: Directors are also permitted to give out loans, but governors can use the funds only up to a maximum of Rs. 10 crores from a combination of people without exceeding the allocated limit. They will have to make additional detailed changes for any product accounts in case of loans reaching over finances aosperuls, bal registrors and people. For other situations such as helping out with other accounts like tax evasion for whatever purchases or creating new sources to bank tax free, COO and other directors will need to report the limits that they would want to set for loans to get issued. Money that is claimed will also give other banks greater motivation to set loose limits instead of dealing with assets that are supposed to be gathered and kept tightly guarded. If so, all system issues and issues that need to be dealt with will enable the money from funds over textbooks in 2 months after the student’s taxes will be used .

Loans from Other Companies

Inter-corporate deposits (ICD) enable one company to provide loans to another company. However, it requires documentation and follows regulations.

 Loans from Financial Institutions

Private firms are usually loaned to by banks, financial institutions, and even government bodies. These loans are expected to be repaid under formal terms and conditions.

Who Cannot Lend Money?

Certain people and organizations are restricted from lending money to private firms. The circles of loan givers as defined by the Securities and Exchange Board of India (SEBI) are as follows:

Unrelated individuals

Proprietorships

Hindu Undivided Families (HUF)

Public deposits

Loans taken from any of these sources can result legal action against the firm by ROC.

Key Takeaways

Ensure that loans exceeding Rs. 20,000 are paid through cheque transactions, whether payment is being received or paid.

Loans can be obtained from those who have a stake in the company and also from other financial institutions up to a grant of their salary.

Payment in cash for the sum greater than Rs. 20,000 may be given only to the government or to authorized financial institutions.

The company must abide by the regulation set by ROC and SEBI to evade any legal consequences.

Company compliance is indeed complicated. Following these rules is critical for ensuring that your company does not encounter any legal complications. You need to know who the legal lenders for your business are, along with how to go about managing your loans.