Query

[Nidhi Nair]

Dear All,

Can Private Limited Company give advance salary to Director?

Regards,

Nidhi Nair

[Sweta Sinha]

Yes. 

But still check your AOA

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[Vivek Mishra]

Dear all,

Can a Private Company give loan to its director relatives under companies act, 2013 ?

For the research of this question, what I got is .

Section 185 of Companies Act, 2013 contains prohibition, restriction and exemption for providing Loan, Guarantee, and Security to the Directors of the Company and any of their relatives.

If this holds true, then can the directors friend comes under the purview of the definition of relatives under companies  act , 2013

Best regards

Vivek Mishra

[Nidhi Nair]

Thanks Vivek!

But my question is about providing salary advance to director. May be 2-3 months advance salary.

I understand  providing loan, guarantee and security to directors or its relatives is prohibited under section 185 of the Companies Act, 2013.

Will advance salary will come under the preview of Section 185 of the Act?

[Premnarayan Tripathi]

Dear Vivekji,

 

As the term ‘relative’ is defined under the Companies Act, 2013 i.e. Sec.2(77) read with Rule 4 of the Companies (Specification of Definitions Details) Rules, 2014, ‘friends’ won’t come under the clutch of the Sec. 185.

 

Thanks & Regards,

 

Premnarayan Tripathi (CS & IP)

PRT & Associates

Company Secretaries

606, 6^th Floor, Shivalik Square

Nr. Adani CNG Pump, 132 Ft. Ring Road

New Vadaj, Ahmedabad – 380013

M: 89800 26497

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[Vivek Mishra]

Dear sir ,

Thanks for your kind response, so that means the company can provide the loan to the directors friend.

So what are the compliances to be followed next ???

Thanks & Regards

Vivek Mishra 

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[Vivek Mishra]

Dear Nidhi Mam,

The MCA had issued a circular regarding the advance salary.

And they quote :

The issue has been examined and it is here by clarified that loans and / or advanced made by the companies to their employees, other than the managing or whole time directors are not governed by the requirements of section 186 of the companies act, 2013.

I hope this clarifies your query, if not please let me know or any suggestions on this topic are highly appreciated.

Best Regards

Vivek Mishra

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[Premnarayan Tripathi]

Dear Nidhi,

 

• Giving 2-3 months ‘salary’ in advance to only MD/WTD (not to any other director) is permitted if any such policy is extended by the Company to all its employees (not only seniors).

 

• Else, an advance salary may be considered an ‘indirect’ loan because ‘salary’ become due and payable as ‘expense’ only after the completion of the working month. Otherwise, an advance salary would become a ‘balance sheet’ item (pre-paid expense) and may have adverse repercussions.

 

Thanks & Regards,

 

Premnarayan Tripathi (CS & IP)

PRT & Associates

Company Secretaries

606, 6^th Floor, Shivalik Square

Nr. Adani CNG Pump, 132 Ft. Ring Road

New Vadaj, Ahmedabad – 380013

M: 89800 26497

 

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[Premnarayan Tripathi]

Dear Vivekji,

 

In compliance with Sec. 179 and 186, the loan can be given.

 

Thanks & Regards,

 

Prem

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[Nidhi Nair]

Thank you for the revert.

However, i am getting both the opinions on advance salary.

As per few, advance salary can be provided to Director if director is employee of the company and has entered into employment agreement with the company.

 Regards,

Nidhi Nair

[Premnarayan Tripathi]

Yes, Nidhi true.

 

Advance salary to such ‘employee-directors’ can be given subject to the condition that ‘such advancing is a part of conditions of service and extend to all the employees of the company’. If there is no such policy (which is generally adopted by the Board of the Company), then, in my view, it would certainly attract rigorous grab of sec. 185. (and very heavy as the director to whom the loan is given, amongst others, will also be ‘punishable’). (In such situations, we ought to be very cautious in advising (to save our job/client, as the case may be J).

 

Thanks & Regards,

 

Prem

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[Nidhi Nair]

Yes, this is very useful.

As per above revert, we have policy extended to all the employees of the company and hence advance salary to employee director will get cover under this.

Thanks for the revert.

Regards,

Nidhi Nair