Loans to Directors and Inter-Corporate Loans: Section 185 vs Section 186
Loans and guarantees are high-risk because they can look commercially simple but legally sensitive. Section 185 targets loans to directors and connected persons; Section 186 covers inter-corporate loans, investments, guarantees and securities.
For broader context, see the NRI, RBI and International Transactions Hub.
Section 185 vs 186
| Section | Core focus | Finance control |
|---|---|---|
| Section 185 | Loan to directors and related covered persons. | Screen borrower/beneficiary relationship before loan or guarantee. |
| Section 186 | Loans, investments, guarantees and securities by company. | Check limits, approvals, registers and disclosure. |
| Section 179 link | Board powers and approvals. | Route through correct board approval matrix. |
| Accounts/audit link | Disclosure and evidence. | Maintain agreement, board note and ledger support. |
For the connected rule, example or next step, see Gold Loans in 2026: LTV, Valuation, Auction and Release Rules.
Pre-transaction checklist
- Identify borrower, beneficiary and connected persons.
- Check whether transaction is loan, guarantee, security or investment.
- Review board/shareholder approval route.
- Check limits and register requirements.
- Document commercial rationale and repayment/security terms.
For the connected rule, example or next step, see Deposits and Loans From Shareholders: Section 73 and DPT-3 Risk Checklist.
Finin2min warning
Records to preserve
Board notes, resolutions, loan agreements, valuation/investment papers, ledger extracts, repayment schedule and statutory register extracts should be maintained in the finance-secretarial file.
Official sources used
This article is intentionally source-limited to official MCA / India Code material. Verify final filing positions with the latest Act, Rules, MCA forms and portal advisories before publishing.
- India Code: Companies Act, 2013 — Section 185 Loan to Directors
- India Code: Companies Act, 2013 — Section 186 Loan and Investment by Company
- India Code: Companies Act, 2013 — Section 179 Powers of Board
- India Code: Companies Act, 2013 official PDF
FAQs
Section 185 focuses on loans to directors/connected persons, while Section 186 covers loans, investments, guarantees and securities by a company.
Yes. Guarantees and securities can be covered in these provisions and should be reviewed before issuance.
Yes. These transactions need both commercial and legal-compliance review.
Source and review trail
Use the current official instrument, portal or regulator publication before acting. This panel separates the category authority from page-specific references.
- Primary category
- Companies Act & MCA
- Official starting point
- www.mca.gov.in