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Understanding-Company-Deposits-and-Eligible-Entities

Understanding Company Deposits and Eligible Entities

If you’re running a business under the Companies Act 2013 (hereinafter referred to as the “Act”), knowing the nitty-gritty about the company deposits is crucial.  Understanding these basics can help businesses follow the law properly when dealing with deposits. This article explains the rules for companies when they want to ask for or accept deposits. We’ve covered everything from defining company deposits to explaining who can ask for them and what rules companies need to follow.

Defining Company Deposits and Eligible Entities

Understanding company deposits starts with knowing what they are, as defined in Section 2(31) of the Act. Basically, a deposit includes different types of money that a company gets, except for some specific cases mentioned in Rule 2(c) of the Companies (Acceptance of Deposits) Rules, 2014 (hereinafter referred to as the “Rules”). Certain types of companies, like public ones that meet certain financial requirements based on their net worth and turnover, can ask for deposits under certain conditions.

Sections 73 to 76 of the Act along with the Rules, set the guidelines for asking for and accepting deposits. These rules say that companies can only accept deposits from their members through a regular vote or from certain eligible companies, mainly public ones, under specific conditions. Some companies, like banks and housing finance companies, are not allowed to ask for deposits based on rules set by the government.

Certain terms are important to understand in this context. A deposit, according to Section 2(31) of the Act, includes any money received by the company, except for specific categories detailed in Rule 2(c) of the Rules.

For instance, deposits don’t include money received from governmental sources, foreign entities, or certain financial institutions. Also, certain types of advances or security deposits aren’t considered deposits under these rules.

These are listed below for your reference:

  1. Amounts received from governmental sources, including the Central Government, State Governments, local authorities, or statutory authorities constituted under an Act of parliament or a state legislature.
  2. Money received from foreign entities such as foreign governments, international banks, multilateral financial institutions, foreign collaborators, or foreign citizens, subject to Foreign Exchange Management Act, 1999.
  3. Loans or facilities received from banking companies, the State Bank of India, subsidiary banks, cooperative banks, or institutions notified by the Central Government.
  4. Funds received as loans or financial assistance from Public Financial Institutions, regional financial institutions, insurance companies, or scheduled banks.
  5. Money received against the issue of commercial paper or any other instrument in accordance with Reserve Bank of India guidelines.
  6. Amounts received from other companies.
  7. Funds held pursuant to an offer for subscription to securities under the Act, provided they are only used for allotment of securities.
  8. Money received from a director of the company, provided the director declares in writing that it is not borrowed or received as a deposit.
  9. Funds raised by issuing bonds or debentures secured against specific assets.
  10. Amounts received from employees as non-interest-bearing security deposits, not exceeding their annual salary.
  11. Non-interest-bearing amounts received or held in trust.
  12. Funds received in the course of company’s business, such as advances for goods or services, security deposits, or advances for long-term projects, subject to certain conditions.
  13. Money brought in by promoters as unsecured loans, subject to specific conditions.
  14. Amounts accepted by Nidhi Companies in accordance with rules under Section 406 of the Act, including promised returns or additional contributions.

Provisions and Regulations

Acquainting oneself with company deposits starts with knowing what they are, as defined in Section 2(31) of the Act.  Essentially, a deposit includes different types of money that a company gets, except for some specific cases mentioned in Rule 2(c) of the Rules.

  • Certain types of companies, like public ones that meet certain financial requirements based on their net worth and turnover, can ask for deposits under certain conditions.
  • Sections 73 to 76 of the Act, along with the set rules for asking for and accepting deposits.

These rules say that companies can only accept deposits from their members through a regular vote or from certain eligible companies, mainly public ones, under specific conditions. Some companies, like banks and housing finance companies, are not allowed to ask for deposits based on rules set by the government.

Understanding Key Terms

To better understand company deposits, it’s crucial to grasp important terms like ‘depositor,’ ‘eligible company’. These definitions form the foundation of the regulatory framework and offer guidance to entities dealing with deposit-related activities.

A ‘depositor‘ refers to either a company member who has deposited funds following Section 73(2) of the Act or an individual who has deposited funds with a public company according to Section 76 of the Act.

An ‘eligible company’ is a public company mentioned in Section 76(1) of the Act with a net worth of at least one hundred crore rupees or a turnover of at least five hundred crore rupees.

Such a company must obtain prior consent through a special resolution in a general meeting and file this resolution with the Registrar of Companies and, if applicable, with the Reserve Bank of India before inviting the public to accept deposits.

However, if an eligible company is accepting deposits within the limits specified under Section 180(c) of the Act, it can do so with an ordinary resolution.

FAQ: Understanding Company Deposits and Eligible Entities

Addressing common inquiries about company deposits helps clarify complex regulations and ensures compliance. Here are answers to some frequently asked questions:

  • How much deposit can a company accept?

According to the company laws in India, a company can accept deposits up to a maximum of 25% of its paid-up capital and free reserves, subject to certain conditions and regulatory approvals.

  • Can a company accept deposit from another company?

Yes, a company can accept deposits from another company under specific circumstances and subject to regulatory compliance. However, such transactions may require approval and adherence to prescribed conditions under the Act.

  • What is the limit of public deposit?

The limit of public deposits that a company can accept is capped at 10% of its aggregate of paid-up capital, free reserves, and securities premium account. This limit is set to safeguard the interests of the public and ensure financial stability within the company.

  • What is the period of deposit?

The period of deposit varies depending on the terms agreed upon between the company and the depositor. However, as per Indian company laws, the period of deposit cannot exceed 36 months for an eligible company, and for other companies, it cannot exceed 12 months. Additionally, renewal of deposits is subject to regulatory provisions and company policies.

 Conclusion

Addressing common queries regarding the quantum of permissible deposits, eligibility criteria for depositors, and the duration of deposit tenures serves to demystify the regulatory landscape surrounding company deposits, thereby fostering compliance and clarity.

At InstaFiling, we understand the importance of navigating the regulatory maze seamlessly. Our team comprises skilled and knowledgeable individuals proficient in guiding businesses through various corporate transitions. With InstaFiling by your side, rest assured that your corporate endeavours will be met with precision and proficiency.

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