Article · 8 min read

Can Startups and Pvt Ltd Companies Accept Loans From Directors or Relatives?

Lawyered Legal Team · Lawyered.in Free Intermediate India

This is the actual Companies Act 2013 mechanics for the thing you want to do: put your co-founder's 5 lakh cheque in as a director's loan, not equity. It spells out the June 2016 startup exemption, the written declaration that the money is the director's own (not itself borrowed), and the board-report disclosure, so your CA can paper it correctly instead of quietly issuing shares against cash.

  • A private company can accept a loan from a director if the director signs a declaration that the funds are their own and not themselves borrowed, disclosed in the board's report.
  • The June 2016 MCA exemption notification relaxed deposit rules specifically for private companies and startups, making a clean founder loan straightforward.
  • A loan is repayable debt with defined terms, structurally separate from equity, which is exactly why founder cash belongs here and not on the cap table.
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The question it answers

  1. Should co-founder equity be split before or after we have raised any money, and does it matter that one of us is putting in cash?

Read with it

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  2. This is the cleanest statement of your core thesis: money in and sweat in are different instruments. Slicing Pie prices cash at... Slicing Pie Article · 7 min read The Magic of Multipliers Mike Moyer
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