Learn compliance rules under Section 186 for loans, investments, and guarantees.
Section 186 of the Companies Act governs inter-corporate loans, investments, and guarantees. Non-compliance may lead to heavy penalties for companies and directors.
Approval Requirements: All such transactions need Board approval. If limits are exceeded, a special resolution is required.
Limits: Cannot exceed 60% of paid-up share capital + free reserves + securities premium, or 100% of free reserves + securities premium, whichever is higher.
Interest Rate Rule: Loans must not be given below the prevailing yield of government securities.
Exemptions: Wholly-owned subsidiaries and joint ventures may have relaxed conditions.
Companies must monitor inter-corporate transactions closely and ensure board/shareholder approvals are documented.