Apart from Bank Finance, a private limited company depends on internal sources ( which are its shareholders, directors and relative of directors) for its investment and fund requirements.
Also, private companies, unlike public companies, are prohibited from accepting deposits from the public.

Regarding Loans by Private Limited Company, in brief, 3 categories of loans have been prescribed under the Companies Act, 2013.

  1. Loans which can be accepted eg. Loan from Directors, Loan from any other company, banking institutions etc.
  2. Loans which can be accepted subject to complying with Deposit Rules, The Deposit Rules are very complicated, demand a lot of compliance and practically difficult to be followed. If these rules are followed, the company can take loan from members etc.
  3. Loans which can not be accepted eg. Private Company cannot accept loans from any Partnership Firm, HUF etc

Below, the provisions of Act have been stated in a more structured manner.
Please be guided that the complex provisions of law have been simplified for easy understanding of stakeholders.

Member: Yes, can accept, but subject to the condition specified in deposit Rules2.
Promoters & Their Relative: Yes, can accept if it is in stipulation of the requirement of any lending Financial Institution (FI) or Bank. This Exemption is available till the loan is not repaid.Yes, can accept, but the director will give a Declaration in writing that money is not given out of borrowed funds and company will disclose it in the Board’s report.

Yes, can accept  up to the employee’s annual salary ( there should be a contract of employment with the company) in the nature of non- interest  bearing security deposit.

Yes, can accept, but subject to the provisions of the Foreign Exchange Management Act, 1999 and rules and regulations made thereunder.

  Loans from Conditions, if any: 
1 Shareholder: 
2 Director/Relatives of Director
3 Employee
4 Any other Individual  Can’t accept 
5 Proprietorship Firm ;  Can’t accept
6 HUF  Can’t accept
7 Partnership Firm  Can’t accept
8 Any Company  Yes, can accept, but also comply with Sec 186 wherein the conditions are specified for the lender
9 Banks  Yes, can accept
10 Any other Financial Institution which are not incorporated as Banks ( eg. Religare, Fullerton, Barclays, Bajaj Finance) Yes, can accept
11 Trust Yes, can accept, but loan received should be non- interest bearing. 
12 Outside India
13 Govt.organisation ( eg. SIDBI) Yes, can accept


Other points :

    1. For accepting the Loans/Deposits from above parties, a company has to follow the conditions laid down u/s 180(1)(c) which is:

      If Proposed +Existing borrowings (exclude temporary borrowings) > (paid up capital +Free Reserves +Securities Premium Account), the Company shall have to pass Special Resolution in General Meeting. But in case of private company – Section 180 shall not apply – Notification dated 5th june, 2015 provided that Interest of Shareholders must be protected.


    1. Deposit Rules: for acceptance of deposits from Members (including subscriber to MOA or shareholder:
      • Company can accept maximum 35% of (paid up capital + Free reserves +Securities Premium Account) – This limit is for existing and proposed deposits.
      • Company has to follow the procedure like issuance of circular, depositing insurance, credit rating, appointment of trustee etc.

      But after The Notification Companies (Acceptance of Deposits) Second Amendment Rules, 2017- Dated 19th September, 2017, a private company can accept 100% of (Paid up capital+ Free Reserves +Securities Premium) without fulfilling the conditions mentioned in sec 73(2) clause (a) to (e) i.e. issuance of circular, depositing insurance, credit rating, appointment of trustee etc. and such company shall file the details of monies so accepted to the Registrar in Form DPT-3.

      Provided further that the maximum limit in respect of deposits to be accepted from members shall not apply to following classes of private companies, namely:-

      1. a private company which is a start-up, for five years from the date of its incorporation;
      2. a private company which fulfils all of the following conditions, namely:-

      i) which is not an associate or a subsidiary company of any other company;
      ii) 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 fiffy crore rupees, whichever is less ; and
      iii) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under section 73:


  1.  Sec 186: A Company (Private or Public) can’t give loan to any person* or body corporate which is more than                   60% of its Paid up Capital + Free Reserves + Security Premium
                       100% of Free Reserve + Security Premium

If this limit is exceeded, prior approval by special resolution in general meeting is required. However, in case a loan or guarantee is given by a company to its wholly owned subsidiary company or a joint venture company than special resolution is not required.
*the word “person” does not include any individual who is in the employment of the company.

Loan by a Private Company


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