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    Intercorporate Loan

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    Mahira Saraf
    Section 186 of the Companies Act, 2013 regulates inter-corporate loans and investments made by companies. It states that a company can provide loans or guarantees to other companies up to 60% of its paid-up share capital and reserves, or 100% of its reserves. Loans above these limits require shareholder approval. A company can only make investments through no more than two layers of other companies, with exceptions for foreign subsidiaries and meeting legal requirements. The inter-corporate loan provisions do not apply to banks, housing finance companies, insurers, infrastructure finance companies, or registered non-banking finance companies focused on securities acquisition.

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    Intercorporate Loan

    Uploaded by

    Mahira Saraf
    29 views1 page
    Section 186 of the Companies Act, 2013 regulates inter-corporate loans and investments made by companies. It states that a company can provide loans or guarantees to other companies up to 60% of its paid-up share capital and reserves, or 100% of its reserves. Loans above these limits require shareholder approval. A company can only make investments through no more than two layers of other companies, with exceptions for foreign subsidiaries and meeting legal requirements. The inter-corporate loan provisions do not apply to banks, housing finance companies, insurers, infrastructure finance companies, or registered non-banking finance companies focused on securities acquisition.

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    Section 186 of the Companies Act, 2013 regulates inter-corporate loans and investments made by companies. It states that a company can provide loans or guarantees to other companies up to 60% of its paid-up share capital and reserves, or 100% of its reserves. Loans above these limits require shareholder approval. A company can only make investments through no more than two layers of other companies, with exceptions for foreign subsidiaries and meeting legal requirements. The inter-corporate loan provisions do not apply to banks, housing finance companies, insurers, infrastructure finance companies, or registered non-banking finance companies focused on securities acquisition.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    29 views1 page

    Intercorporate Loan

    Uploaded by

    Mahira Saraf
    Section 186 of the Companies Act, 2013 regulates inter-corporate loans and investments made by companies. It states that a company can provide loans or guarantees to other companies up to 60% of its paid-up share capital and reserves, or 100% of its reserves. Loans above these limits require shareholder approval. A company can only make investments through no more than two layers of other companies, with exceptions for foreign subsidiaries and meeting legal requirements. The inter-corporate loan provisions do not apply to banks, housing finance companies, insurers, infrastructure finance companies, or registered non-banking finance companies focused on securities acquisition.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 1

    Intercorporate Loans

    A company can give loans and guarantees, acquire securities or make investments in another company or body
    corporate with the consent of the board or shareholders. Such loans given by a company to other companies or
    body corporates are known as inter-corporate loans. When a company invests in another company, it is known
    as inter-corporate investment.

    Section 186 of the Companies Act, 2013 (‘Act’) regulates inter-corporate loans and investments. A company
    can give loans and guarantees, acquire securities or make investments only according to the provisions laid
    down in Section 186 of the Act.

    Inter-Corporate Loans and Investments Under Companies Act, 2013

    Section 186(2) of the Act states how a company can give loans and guarantees to other companies and body
    corporates. It states a company can directly or indirectly:

    ● Give loan to any other body corporate.


    ● Provide security or give a guarantee in connection with a loan given to any other body corporate.
    ● Acquire securities of other body corporates by way of purchase, subscription or otherwise.

    A company can give loans, guarantee and acquire securities of up to 60% of its paid-up share capital, securities
    premium account and free reserves or 100% its securities premium account and free reserves, whichever is
    more. However, a company can give loans, guarantees and securities or make investments above the prescribed
    limit when it is previously authorised by a special resolution passed in a general meeting.

    Section 186(1) of the Act provides that a company can make investments only through more than two layers of
    investment companies, except for the following:

    ● For acquiring any other company incorporated outside India when such other company has
    investment subsidiaries beyond two layers according to the laws of such country.
    ● Subsidiary company from obtaining any investment subsidiary for meeting the requirements
    under law or under a regulation or rule framed under the law for the time being in force.

    Exceptions to Inter-Corporate Loans

    The provisions of inter-corporate loans provided under the Act will not apply to the following:

    ● A banking company, housing finance company or an insurance company in its normal business
    operations.
    ● A company established to provide infrastructure facilities or finance industrial enterprises.
    ● A registered Non-Banking Finance Company (NBFC) concentrates primarily on acquiring
    securities.

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