Companies can now accept funds from relatives of directors

Move will makes it easier for firms to raise money, they need to disclose such borrowings in board report

Relaxing the norms for private companies, the government has allowed them to accept funds from relatives of the directors.

The latest move would also makes it little easier for companies to raise money for meeting their funding requirements.

Easing the Companies (Acceptance of Deposits) Rules, the Corporate Affairs Ministry has said that in case an entity receives money from relative of a director then the same should be disclosed in the board's report.

In this regard, the ministry, which is implementing the Companies Act, 2013, has issued a notification.

"... The director of the company or relative of the director of the private company, as the case may be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the board's report," it said.

With the latest move, the definition of 'deposit' excludes money received from a director or a relative of the director of the private company.

Besides, the definition of free reserves has been expanded by including securities premium account, according to the notification dated September 15.

"This means that all companies that are accepting deposits (based on prescribed percentage of paid-up capital and free reserves) will have the benefit of increase in their borrowing limits, and enhanced ability to accept deposits," leading consultancy PwC India said in a note.

The latest amendments are positive in nature and would go a long way in fulfilling the funding requirements of business, it added.

In recent months, the government has made various changes to rules pertaining to the Companies Act, 2013 apart from amending certain provisions in the main law itself. These steps are aimed at making it more easier for corporates to do business in the country.