Can a Private Limited Company Legally Borrow from Outsiders? Seeking Clarity on Company and Tax Laws

Dear Sir,

Can a private limited company take a loan from individuals who are outsiders? Kindly clarify this for me as per the Company Act and Income Tax Act.

Thanks & Regards,
L. Jha

Dear friends,

Sorry, a private company, by its very definition contained in Sec. 3(1)(iii)(d) of the Companies Act 1956, is prohibited from accepting deposits from persons other than its members, directors, and their relatives unless prescribed in the Companies (Acceptance of Deposits) Rules 1975. Here, the term "deposit" includes loans (Ref. Explanation to Sec. 58A).

Regards,

Section 3(i)(iii) of the Companies Act, 1956 prohibits any invitation or acceptance of deposits by a private company from persons other than its members, directors, or their relatives. This means that there cannot be any public issue by a private company for the acceptance of deposits, debentures, loans, etc., but through private contacts, it can borrow.

Dr. Harpreet Kaur
Associate Professor (Business Laws)
IILM-GSM
Greater Noida

No, Pvt Ltd companies are not allowed to take loans from outsiders, i.e., those who are not members of the company, which is limited to 50 members.

Dear friends, please do not mislead people with incorrect advice given by Siddharth, Avika, and Sajid. A piece of advice: individuals dealing with company law-related issues should preferably seek guidance from a Professional Practicing Company Secretary or at least a Chartered Accountant. They will be able to provide advice and suggest remedies instead of relying on individuals who are not professionals in the specific area. Some of the opinions posted seem akin to a PhD doctor treating a sick person instead of a medical doctor.

Regards,
RJ Nair
988 65 23 182

Yes, the private limited company can take a loan from individuals, but the amount of such loans can never be more than Rs 20,000. Let's consider an example:

- Loan taken: Rs 20,000
- Repaid: Rs 4,000
- Loan taken again: Rs 3,000 (admissible)
- Loan taken again: Rs 3,000 (not admissible as it crosses the Rs 20,000 limit at this point)