Unsecured loans from relative of Directors

Unsecured loans from relative of Directors

In a much awaited and major amendment, Ministry of Corporate affairs vide its notification dated 15.09.2015 has provided that w.e.f. 15.09.2015 a private company can accept unsecured loans from a relative of Directors

However, this is allowable only when relative of director 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.

Further, the relative need not be a shareholder of the company.

Further, notification has also provided that balance securities premium account will also be included in calculation of eligible amount of deposit which a company can raise. Earlier Rule 3 has provided only paid up share capital and free reserves.

This is certainly a welcome change towards ease of doing business and will support small, private businesses in their capital requirements.