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Intercorporate Loan

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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388 views1 page

Intercorporate Loan

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.

Uploaded by

Mahira Saraf
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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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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