Board Resolution: Loan / Guarantee / Security to a Subsidiary
Approve a loan, guarantee or security to another company, including a subsidiary, at a board meeting with the terms and limit check.
What it is
Section 186 of the Companies Act, 2013 governs loans to any person or body corporate, guarantees and security given in connection with a loan. A resolution at a board meeting with the consent of all directors present is needed, and a special resolution of members where the limits are exceeded. A loan must carry interest at a rate not lower than the prevailing yield of government securities closest to its tenor. Loans to a wholly owned subsidiary are exempt from the special resolution requirement.
When it is used
- Funding a subsidiary's operations through an inter-corporate loan.
- Giving a corporate guarantee for a subsidiary's bank loan.
- Providing security over the company's assets for another company's borrowing.
What the template covers
- Company name, CIN and meeting details
- Borrower name, CIN and relationship
- Type of transaction
- Amount, interest rate and tenure
- Purpose
- Authorisation and entry in the register
Details you will need
The generator asks for the following. Fields marked with an asterisk in the form are required; the rest can be left blank and filled in later in Word.
Company
Company Name; CIN; Registered Office
Meeting
Board Meeting Date; Place
Borrower
Borrower Name; Borrower CIN; Borrower Address; Relationship
Transaction
Type of Transaction; Amount (₹); Interest Rate (% p.a.); Tenure (months); Purpose
Authentication
Chairman Name; Chairman DIN
Stamp duty, registration and filing
Loans to directors and entities in which directors are interested are also subject to Section 185, which restricts or requires special resolution approval. Entries are made in the register in Form MBP-2, and the details are disclosed in the financial statements. An unsecured inter-corporate loan may also need stamping of the loan agreement.
Generate the BR — Loan / Guarantee / Security to Subsidiary
Fill in the form and download the draft as a Word file. It is a general template, not legal or professional advice; have it reviewed for your facts before you sign or rely on it.
Need this checked against your facts, or the registration or filing that follows (e.g. the related MCA e-form)? Contact SKAG and Associates
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Frequently asked questions
What is the minimum interest rate on an inter-corporate loan?
Not lower than the prevailing yield of one, three, five or ten-year government securities closest to the tenor of the loan.
Is Section 185 relevant to a loan to a subsidiary?
Loans to a wholly owned subsidiary, used for its principal business, are exempt from Section 185. Other cases need checking.
Can the resolution for a loan to a subsidiary be passed by circulation?
No. Section 186 requires a resolution at a board meeting.
This page gives general information for reference only. Laws, stamp duty rates and filing requirements change and differ between States, so confirm the current position for your case. Related: all document templates · free tax calculators · compliance calendar and guides.