Deposit in Private Limited Company

Taking Deposit in Private Limited Company

Taking Deposit in Private Limited Company

The Companies Act, 2013 and regulations of Reserve Bank of India restrict the acceptance of deposit in a Private Limited Company. The Companies Act, 2013 allows only banking companies, non-banking financial companies, housing finance company and company specified by the Central Government to accept invite, accept or renew deposits from the public. Therefore, private limited companies are strictly prohibited form accepting public deposits. In this article, we look at deposits and those items that are not considered as deposit under Companies Act, 2013.

What is a Deposit?

The Companies Act, 2013 defines “deposit” as any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India.

What is NOT a Deposit?

The following money received by a company are NOT termed or included in the category of deposits:

Money received from bank of financial institutions as loan

Any money that is received from a bank or financial institution as a bank loan or credit facility cannot be termed as a deposit. In addition to Banks and Financial Institutions, any money received as loan from Public Financial Institutions notified by the Central Government or Insurance Companies or Scheduled Bank will also not be termed as deposits.

Money received in the ordinary course of business

Any amount received in the ordinary course of business will not be termed as deposits. The following are a few examples of money received in the ordinary course of business:

  • Advance for supply of goods or services provided that the advance is appropriated against goods or services delivered within a period of 365 days.
  • Advance received in connection with property under an arrangement or contract, provided the advance is adjusted against the property transaction in accordance with the terms and conditions.
  • Advance received as security deposit for the performance of contract for supply of goods or provision of services.
  • Advanced received under long term projects for supply of capital goods.

Money invested by Promoters as unsecured loans

Any money that is invested by the promoters or by their relatives in the company as unsecured loans in stipulation of any bank or financial institution will not be considered as a deposit. The exemption under this clause is provided only until the stipulation of the bank or financial institution exists.

Money received against issue of commercial paper or any other instrument

Money received against issue of commercial paper or any other instrument issued in accordance with the guidelines of Reserve Bank of India will not be termed as deposits.

Share application money for a period of 2 months

Share application money received and held by the Company towards subscription to any securities or advance towards allotment of securities pending allotment will not be termed as deposits. However, such amount of share application money with the company must only be to the extent of allotment and within 2 months. If securities cannot be allotted for the share application money paid within sixty days, then the amount must be returned to the applicant within fifteen days of end of sixty days, failing which the amount will be termed as a deposit.

Inter-corporate loan

Any amount of inter corporate loan received by the company as inter-corporate loan are not termed as deposits.

Money received by issuance of secured bonds and debentures

Any money raised by the company by issue of bonds or debentures convertible into shares within five years secured by a first charge or charge ranking pari passu with the first charge on any assets excluding intangible assets of the company will not be termed as a deposit.

Money received from Directors

Any money received from the Directors of the Company will not be termed as deposits, provided that the Director submits a declaration to the Company in writing that the amount is not being given out of funds acquired by him/her by borrowing or accepting loans or deposits from others.

Money received from Employees as security deposits

Amount received from employees of the company will not be termed as deposits, provided the amount does not exceed his/her annual salary and the security deposit is non-interest bearing.

Money received bearing amount received in trust

Non-interest bearing amount received or held in trust will not be termed as a deposit.

Money received by a Nidhi Company

Nidhi Company is a company with a sole objective of cultivating the habit of thrift and savings amongst its members. Hence, Nidhi companies are allowed to take deposit from its members and lend to its members without the same being termed as deposits.

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