Funding from Company to Company

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Reading Time: 2 minutes| (Last Updated On: September 2, 2019)

Funding from Company to Company

funds from another company as per the provisions of Companies Act,2013. Such funds can be raised in the form of Debts and Equity such as debentures and shares respectively. Let us explore the meaning of Debt and Equity funds: Funding from Company to Company

Debt Funds

Debt funds are the funds borrowed from lender by borrowing company. The periodic interest is required to be paid on principle amount borrowed, and the principle amount is also required to be paid back on fixed date or as agreed by the both parties.

Capital Funds

Capital funds can be raised by issuing shares of the company from its authorised capital. In which company sell a portion of its company’s share to its investor. On such investment company needs to pay dividend, which is on the discretion of company.

Let’s discuss the sections and rules applicable on Lender Company

  1. As per Rule 2 sub rule 1 clause c sub clause (vi) of the companies (acceptance of deposits) Rules, 2014, deposit does not include any amount received by company from any other company.
  2. As per section 186(2) of Companies Act, 2013 company can directly or indirectly.
  1. give loan to any person and body corporate.
  2. Give Guarantee and provide security in connection with loan to any other body corporate or person, and
  3. acquire by way of subscription, purchase or otherwise the security of any other body corporate.
  4. 60% of Paid up capital plus Free Reserves plus Security Premium, or
  5. 100% of free Reserves plus security Premium Whichever is more.

As Per sub section 3 of section 186, company can give loan, guarantee or provide any security acquisition beyond specified limit, after obtaining the permission of shareholders in general Meeting. As per the requirement of section 186(4) the lending company needs to disclose the same in their financial statement.

Sections involved in offering Loans to other company:

  • Section 185: restriction on loans to director and other persons include in director.
  • Section 186: Loans and Investment by companies.
  • Section 187: Investment of company to be held in its own name.
  • Section 188: Related Party transaction. ( not apply on Private company).
  • Section 117: Every Special Resolution and resolution passed under section required to be filed.
  • Section 179: Powers to board of director for investment of companies fund. Rules Involved:
  • Rule 10 of the Companies (Meetings of Board and its Powers) Rules, 2014.(185)
  • Refer rules 11, 12 and 13 of the Companies (Meetings of Board and its powers) Rules, 2014. (186)
  • Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014. (187)
  • Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014. (188)
  • Rule 24 of the Companies (Management and Administration) Rules, 2014. [117(3)]

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