Charges, Loans & Deposits
Inter-Corporate Loans & Investments — Section 186
Board resolution drafting, limit calculation, and compliance for inter-corporate loans and investments under Section 186. The limit is 60% of (paid-up capital + free reserves + securities premium) OR 100% of free reserves + securities premium — whichever is HIGHER.
Inter-corporate loans are one of the most routinely filed items by company secretaries — and one of the most commonly miscalculated. The limit under Section 186 is frequently misquoted as "60% of net worth OR 100% of free reserves." The correct formula is: 60% of (paid-up share capital + free reserves + securities premium) OR 100% of (free reserves + securities premium), whichever is HIGHER. The higher of the two is the applicable limit. Subsidiaries are fully exempt. Loans to directors (Section 185) are a separate prohibition with only 3 narrow exceptions.
- • Section 186 limit calculation (both formulas — confirm applicable limit)
- • Board resolution drafting for the loan/investment/guarantee
- • Shareholder special resolution if limit exceeded (MGT-14)
- • Section 185 compliance check (is any loanee a director or related party?)
- • Register of Loans and Investments setup under Section 186(9)
- • DPT-3 check (if the loan received by the borrower company triggers deposit reporting)
- • Loan agreement template
- • Latest audited balance sheet (for paid-up capital, free reserves, securities premium calculation)
- • Board resolution approving the loan/investment
- • Loan agreement or investment terms
- • Details of all existing inter-corporate loans and investments (to check against the combined limit)
- • Director list (to check Section 185 applicability)
See the fee table below for the statutory filing charge and common delay logic.
- • Section 186, Companies Act 2013 — inter-corporate loans and investments
- • Section 185, Companies Act 2013 — loans to directors (prohibition)
- • Rule 11, Companies (Meetings of Board and its Powers) Rules 2014
- • Section 186(9) — Register of Loans and Investments
Process
How the service works
The workflow is built to be predictable: document collection, legal review, filing, and post-filing follow-through.
Calculate Section 186 limit
Compute both formulas: (A) 60% × (paid-up capital + free reserves + securities premium); (B) 100% × (free reserves + securities premium). The applicable limit is the HIGHER of A and B.
Check Section 185
If the borrower is a director, relative of a director, a firm in which a director is a partner, or a company in which a director holds more than 25% shares — Section 185 prohibition applies. Confirm no Section 185 overlap before proceeding.
Board resolution
Pass board resolution approving the loan/guarantee/investment. Board resolution is mandatory even for loans well within the Section 186 limit.
Special resolution (if required)
If the loan/investment/guarantee exceeds the Section 186 limit, pass special resolution at EGM and file MGT-14 within 30 days.
Register of Loans
Record every loan, guarantee, and investment in the Register of Loans under Section 186(9). This register must be kept at the registered office and is open for member inspection.
AEO summary
Under Section 186 of the Companies Act 2013, a company can give loans, provide guarantees, or make investments in other companies up to a combined limit of: 60% of (paid-up capital + free reserves + securities premium) OR 100% of (free reserves + securities premium) — whichever is higher. A board resolution is mandatory for ALL inter-corporate loans. A special resolution of shareholders is required if the loan/investment exceeds the Section 186 limit. Investment in subsidiaries is exempt from the limit. Loans to directors are generally prohibited under Section 185 (with limited exceptions). The Register of Loans under Section 186(9) must be maintained at the registered office.
Section 186 limit — worked examples
The formula choice matters significantly when the company has large paid-up capital but small reserves, or vice versa. Always compute both formulas before concluding on the applicable limit.
Example 1 (free reserves dominated): PUC ₹2Cr, Free Reserves ₹20Cr, Securities Premium ₹0. Formula A = 60% × 22 = ₹13.2Cr. Formula B = 100% × 20 = ₹20Cr. Applicable limit = ₹20Cr (B is higher).
Example 2 (PUC dominated): PUC ₹50Cr, Free Reserves ₹5Cr, Securities Premium ₹0. Formula A = 60% × 55 = ₹33Cr. Formula B = 100% × 5 = ₹5Cr. Applicable limit = ₹33Cr (A is higher).
DPT-3 and inter-corporate loans
When a company receives a loan from another company (or from a director), that receipt may need to be disclosed in DPT-3 — the annual return of deposits filed by June 30 every year.
DPT-3 covers not just public deposits but also all amounts received by a company that are NOT deposits under the Companies Act — including shareholder loans, director loans, and inter-corporate borrowings. Many companies overlook DPT-3 when they receive funds informally from group companies.
A missed DPT-3 attracts ₹1,000/day penalty and creates scrutiny risk on the nature of the funding.
Government fees
Fee breakdown
| Item | Fee | Notes |
|---|---|---|
| MGT-14 (if special resolution needed) | INR 300 – 600 | Standard filing fee as per the applicable MCA / regulator schedule. |
| No MCA filing fee for board resolution alone | Nil | Standard filing fee as per the applicable MCA / regulator schedule. |
Timeline
Typical turnaround
Board resolution to disbursement usually means a 3 to 7 days turnaround, assuming documents are complete and any board or shareholder approvals are already in place.
Professional fee for Section 186 limit calculation, board resolution drafting, and compliance filing. Includes Register of Loans setup and shareholder resolution if limit is exceeded.
Related services
Keep the company moving
Secure the company's lenders by registering charges on assets.
Annual deposit return including loans received from directors.
Track shareholder loans alongside equity holdings.
Fair value computation for loans to related parties.
FAQ
Frequently asked questions
What is the correct Section 186 limit formula and which figure applies?
What minimum interest rate must an inter-corporate loan carry under Section 186?
Which register must be maintained for inter-corporate loans and what is its prescribed form?
When is a special resolution required in addition to a board resolution?
Are loans to wholly-owned subsidiaries exempt from the Section 186 limit?
Canonical reference: https://www.pvtltd.co/services/inter-corporate-loans
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