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Companies Act

(Querist) 21 July 2008 This query is : Resolved 
Dear All,

Kindly advise me whether a pvt. ltd. company can grant loans or advances to its shareholders though the company concerned has not booked any profit? Does Companies Act or any other law for the time being in force prohibits any such transaction?

GOPI KRISHNA (Expert) 21 July 2008
you may go through the memoramdum and articles of association of the company, that will guide your quiry
adv.ranchi (Expert) 21 July 2008
the Companies Act is silent on the issue.

The provisions as contained in the Articles of Association and MOA would be necessary.

Further, even if the company has not attained any profit, still it may tend to grant loan subject to fulfilling of the necessary formalities.

Adv. Ashutosh
Srinivas.B.S.S.T (Expert) 22 July 2008
Yes as my friends said there is no provision in the company law. You may allow the drawings or you can modify your articals as well memorandum of association so as to empower the company.
Manish Singh (Expert) 22 July 2008
it all depends on the factual situation and by the way the Act is not silent on the issue.
if you are advancing the loan which further takes the co. down into financial troubles and also wwhich is bias and partial, then it can be easily challenged by other directors or major shareholders in the CLB and you may have to face the brunt of it.
so look carefully for the purpose.
arunprakaash.m. (Expert) 22 July 2008
private limited companies adherence to rules and regulations of companies act is some what liberal in nature. If you MOA and AOA permits then you can go accordingly.

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