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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Meridian Foods Ltd wants to lend money to its employees to buy its fully paid-up shares. It proposes a loan to Ms Kavya, a clerk earning Rs 40,000 per month, and a loan to Mr Rohan, a director. Which proposal is within the exemptions in section 67 of the Companies Act, 2013?

Only the loan to Kavya up to Rs 2,40,000 is exempt. The Act allows loans to employees who are not directors or key managerial personnel, capped at six months' salary, for buying fully paid-up shares to be held beneficially. Directors are excluded.

  1. ALoan to Kavya up to Rs 2,40,000, as it does not exceed six months' salary and she is not a director or KMPCorrect
  2. BLoan to Kavya up to Rs 4,80,000, being twelve months' salary
  3. CLoan to Rohan up to six months' remuneration, since directors are employees
  4. DLoans to both, if the board passes a resolution

Explanation

Section 67(3)(c) allows loans to employees other than directors or key managerial personnel, up to salary or wages for six months, to buy fully paid-up shares for beneficial ownership. Six months at Rs 40,000 is Rs 2,40,000. Twelve months overshoots the limit, and directors are excluded.

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