Loan from Directors

[THYAGARAJAN KALYANASUNDARAM]

Dear Experts,

One of client's registered as OPC Pvt. Ltd. company under the Companies Act,2013. He got an order for supply of goods from his client's which is worth around ₹ 50 Lakhs. Whereas for the procurement of these goods he needs some funds to execute the order. For this transaction his friend who is in abroad is willing to provide the funds as loan to him and this has to be invested to the company as loan from directors. Once he received the payment from the customers he has to return it to the respective friend.

Now my query is that, as per the companies act, whether the loan can be taken by the company from the directors which is also a borrowed money. If yes, what is the procedure to be adopted by the directors. If not what kind of steps to be taken to route this amount.

[Malay pota]

No, money borrowed by the director can bot be give as loan to the Company.The money to be given as loan should not be borrowed from others.

[THYAGARAJAN KALYANASUNDARAM]

Dear Sir,

Thank you for your valuable reply. When a newly formed (OPC) private limited, which is only 2 years old. When he gets the orders from the customer and there is no support from vendors and financial institutions in the initial stage. Where he will get the money, he can only approach from the known sources. If that too restrict by the Act, then how this private concern would flourish.

[Malay pota]

There are other ways to receive source in the new Company instead of loan.

If you want you my contact me on my cell 9898003013.

AI Summary

Restriction on director loans: a director may not lend to the company funds the director has borrowed from others.
The operative legal point is an on lending prohibition: a director should not provide to the company as a director's loan funds that the director has borrowed from third parties; director loans must originate from the director's own funds, and new companies should seek alternative lawful financing rather than routing borrowed money through a director.