Company · Ownership
We're lending to (or investing in) another company — what limits apply?
The short answer
Loans, guarantees, security, and investments to other companies are governed by Section 186 of the Companies Act 2013. A company can lend up to 60% of paid-up capital plus free reserves plus securities premium, or 100% of free reserves plus premium — whichever is higher — without a special resolution. Beyond that threshold, shareholder approval via special resolution is required and filed through MGT-14 within 30 days. Section 185 director-loan prohibitions sit alongside these limits.
The paperwork nobody tells you about
Statutory formats that never touch the MCA portal — but an ROC inspection or due diligence will ask for every one of them.
Register of loans, guarantees, security and investments
Section 186(9) read with Rule 12, Companies (Meetings of Board and its Powers) Rules, 2014
The sequence
- 1Calculate your Section 186 headroom — 60% of paid-up capital plus free reserves plus securities premium, or 100% of free reserves plus premium, whichever is higher
- 2Check whether the proposed loan or investment exceeds the threshold and needs a special resolution
- 3Pass the required resolution and file MGT-14 within 30 days under Section 117
- 4Maintain the Section 186 register (MBP-2) under Section 186(9) read with Rule 12 of the Board Rules 2014
- 5Confirm the transaction does not fall under Section 185 director-loan prohibitions
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Questions founders actually ask
What is the lending limit under Section 186?
60% of paid-up share capital plus free reserves plus securities premium account, or 100% of free reserves plus securities premium account — whichever is higher. Beyond that, a special resolution is required.
Do we need to file anything when lending to a group company?
If a special resolution is needed because the loan exceeds Section 186 limits, file MGT-14 within 30 days of passing the resolution under Section 117. Maintain the MBP-2 register under Section 186(9).
Are director loans treated the same as Section 186 loans?
No. Section 185 contains separate director-loan prohibitions that sit alongside Section 186 limits. Check both before lending to or investing in another company, including group entities.
Reviewed by Harun Raaj, Chartered Accountant
Founder, Harun Raaj & Associates. Last verified 2026-08-24 against MCA V3 records and ICSI reference material. Form-level deadlines and penalties live on the linked form pages and update there.