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Whenever a company gives any loan, guarantee or security in favor of any other company or a person, then it is termed as inter-corporate loans. Under the Companies Act, 2013[1], inter-corporate loan in India plays a vital role in the growth of industries. There is a continuous flow of funds for the group and other companies who are in the need of funds.
Keeping in view, the continuous industrialization in India, the corporation may require more funds. Hence, you may need the help of the inter-corporate loan.
In this blog, we will enrich your knowledge about the Inter-corporation loan.
The inter-corporate loan is a loan made by one unit of a corporation to another unit of the same corporation. The term Inter-corporate loan refers to a loan in which both the lender and borrower are divisions of the same corporation.
Generally, it is necessary to record the inter-corporate loan in the financial statements of individual business units.
There are various objectives of the inter-corporate loan. Inter-corporate loans are loans made from one business unit of a company to another. This is usually for the following reasons and objectives:
The inter-corporate loan is extremely useful for the following reasons.
According to the Companies Act, 2013, there are certain limits on inter-corporate loan. All the companies have following restrictions on the maximum amount of the inter-corporate loan.
These are following restrictions that you must keep in mind while making arrangement for an inter-corporate loan.
The rate of interest applicable to inter-corporate loans will be as follows:
Section 186(4) of the Companies Act, 2013, provides that the where a company made some inter-corporate loans, then that company must disclose the following details to the members in the financial statement
The companies must keep in mind the following requirement before taking inter-corporate loans:
Section 186 of the Companies Act, 2013 does not apply to the following loans given by
Following is the procedure which must be kept in mind while providing inter-corporate loans:
To run any business one of the important resource required is money. Source of funding for companies are share capital, loans etc. Loans are the major source of funding for most of the companies. Nowadays, the inter-corporate loan is one of the best sources of funding amongst the companies. Inter-corporate loan satisfies all the need and necessity of a capital source of a company. A company only after getting consent and approval of the Board as well as shareholders entitles to provide an inter-corporate loans to another company or body corporate.
Read our article:Inter Corporate Loans and Investments According to Section 186 of the Companies Act 2013
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