TL;DR for CAs
- Loans/guarantees to directors are heavily restricted.
- Exceptions exist for MD/WTD under conditions.
- Violations attract penalties and governance risk.
What it is
Section 185 restricts companies from advancing loans or giving guarantees/security to directors and related persons.
Who it applies to
Private and public companies extending financial assistance to directors/connected entities.
Key provisions
- Prohibited transactions
- Conditional exceptions
- Special resolution requirements where applicable
Practical tips for CAs
Screen related-party ledgers monthly. Document board approvals meticulously.
Common mistakes
Routing loans via group entities; treating advances as temporary without documentation.
For general guidance only. Verify with the latest Finance Act, GST notifications, and ICAI guidance notes before advising clients.