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The art of bringing in and out Money from a Private Limited Company


Modes for Private Limited Company to raise funds


The Companies Act, 2013 provide for various modes by which a private limited company can raise requisite finance within the framework of the Act. Some of the modes of raising finance by a private limited company have been described below.

From whom can a Private Limited Company borrow funds?

A private limited company can borrow funds from following sources:


Relatives of Directors

  1. Promoters
  2. Members,subject to compliance with section 73 and other applicable provisions of Companies Act, 2013
  3. Banks or any other financial institutions including foreign banks or financial institutions
  4. From other body corporates
  5. State and Central Government, etc.

Some modes of raising funds are,

  1. Equity Shares

The Promoters of a company can infuse finance in the company by investing in equity shares of the company at the time of incorporation of the company and at any other time when equity shares are issued by the company either through private placement, rights issue or preferential allotment of shares.

Preference Shares

Preference shares can be issued at pre-determined dividend rate. Preference shares can be convertible i.e. it can be converted to equity shares on a specified date or non-convertible.

  1. Rights issue of shares

In case of rights issue of shares, shares are offered by the company to the people who on the date of the offer are existing equity shareholders of the company and the shares offered are in proportion to their existing shareholding in the company.

  1. Private Placement of securities

As per Section 42 of the Companies Act 2013, “Private Placement” means any offer of securities or invitation to subscribe or issue of securities to select group of persons who have been identified by the Board of the company (other than by public offer) through private placement offer letter and which satisfies the conditions as stipulated in this section.

  1. Sweat Equity Shares

Private companies having scarce funds or startups can issue sweat equity shares, as per Section 54 of the Companies Act, 2013, to its directors or employees for consideration other than cash in lieu of the services or the know-how given by such employees or directors to the company.

  1. Unsecured Loan from Director and his Relatives

A company can accept unsecured loans from a director and their relatives with or without interest. For a private company, there is no limit on the amount that can be borrowed by a company from its directors or their relatives. However, at the time of giving the loan to the company, the director is required to submit a declaration to the company that the amount of loan given by him is from his own funds and is not being given out from the funds borrowed by him by way of loan or deposit from others.

  1. Deposit from Members

Private Companies satisfying following conditions as per Notification Dated 13th June, 2017 can accept money from members as deposit

(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or

(B) which is a start-up, for five years from the date of its incorporation; or

(C) No limitation in amount if fulfils all of the following conditions, namely:-

(a) which is not an associate or a subsidiary company of  any other company;

(b) if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section:

Provided that the companyshall file the details of monies accepted to the Registrar in DPT-3

  1. Debentures

Debenture is a debt acknowledged by a Company whether constituting a charge on the assets of the Company or not, whether convertible into shares at a later stage or not.

  1. Bank Finance

A company can avail term loan and a working capital loan from banks or other financial institutions against the security of its assets, moveable and immovable properties. Companies can obtain fund based and non-fund based credit from banks.

A company must create a charge on its assets in favour of the banks from which they avail loan or other financing facilities by way of pledge, hypothecation or mortgage and file requisite forms with ROC.

  1. Modes for shareholders/owners to take money from Private Limited Company



Dividend means the portion of the profit received by the shareholders from the company’s net profit, which is legally available for distribution among the members.

  1. Loan To Director

Section 185 of the Companies Act, 2013 specifically prohibits loan to Directors. So no Private Company can give loan to Directors. But the giving of any loan to a managing or whole-time director is exempted as per section 185.

  1. Remuneration To Directors

Private Limited Company can pay remuneration to Director without any limit in Companies Act, 2013 as section 197 is not applicable to Private Limited Company.


Finance is important at every stage of the business. At the time of setting up of business and to meet day-to-day funds requirement of the business. Companies require various types of finances at different stages of their growth starting from equity capital, bridge finance, a term loan to working capital finance. Business growth is possible only with adequate financing arrangements. A private limited company can raise the requisite funds by way of equity, debt and deposits. It can avail funds from its promoters, directors or their relatives, banks or financial institutions, from members and by issuing various financial instruments. However, before availing any financial facility a company should ensure that it complies with the Companies Act, 2013 and the rules and statutory modifications made thereof and ensure compliance with other laws like banking regulations, SEBI guidelines, RBI guidelines, etc. wherever applicable.

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