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Can Private Limited Company Accept Loan from Outsiders?

Section 180 of the Companies Act 2013 subsection 1- states that “ The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—

(c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business:

Explanation.—For the purposes of this clause, the expression “temporary loans” means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature;

2. Every special resolution passed by the company in general meeting in relation to the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies may be borrowed by the Board of Directors.

5. No debt incurred by the company in excess of the limit imposed by clause (c) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

W.E.F 5.06.2015 under GSR 464 (E) Government of India has exempted the private company from application of the provisions of Sec 180 of the Companies Act,subject to condition that . The private companies, while complying.with such exceptions, modifications and adaptations, as specified in column (3) of thc aforesaid 'l'able, mentioned in the notification, shall ensure that the interests of the shareholders are protected.

Let us assume the term outsiders here are ‘Individuals’, ‘Companies’, ‘Banks/Financial Institution’. A private limited company can accept loans from outsiders, if the company has authority to do so in its Articles. If not then the company shall alter its Articles accordingly.

Then after passing a board resolution by the board of directors in board meeting such a company can accept loan from outsiders on the terms and conditions mutually agreed by them.