Penalty for Contravention of Section 186

What is Equity Funding under Companies Act, 2013?

Equity Funding under the Companies Act 2013 refers to the process through which a company raises its capital by issuing shares to investors in exchange for ownership in the company. Equity represents ownership in a company, and those who hold equity shares are known as shareholders or equity investors. Companies Act 2013 has made strict regulations concerning the concealment of funds. A company is not permitted to make any sort of investment through more than two layers of investment companies. It is observed that corporations use this as a common practice to divert funds via investing through several step-down subsidiaries. Placing such restrictions can help prevent the diversion of such funds....

Section 186 of Companies Act, 2013

Section 186 of the Companies Act 2013 establishes rules for regulating the loans and investments that can be made by a company registered under the act. The section also states that a company can make investments through more than two layers of investment companies by following certain restrictions that they have to adhere to. A company cannot directly or indirectly provide a loan, security, or guarantee to any person or a body corporate. Furthermore, the company cannot acquire the securities of any other body corporate through purchase, subscription, or any other means....

Legal Requirements for Equity Funding

Requirement 1: Approval of Board...

Non-applicability of Section 186

1. For the Government Company...

Penalty for Contravention of Section 186

Section 186 of the Companies Act 2013 provides the following punishments which are imposed if a company violates this section....

Conclusion

Section 186 of the Companies Act 2013 applies to both public and private companies. The section deals with the provisions regarding ‘Loan and Investment’ by a company. In addition to Section 186, Rules 11, 12, and 13 also provide provisions governing the making of loans and investments, giving of guarantees, and providing of securities by a company. The Companies Act has provided for seven major legal requirements that are to be followed under Section 186. The act has also specified penal provisions in case a company violates this section. The penalty shall be levied on both the company and the officer in default. The section has provided the cases in which this section shall not be applicable....

Equity Funding under Companies Act, 2013- FAQs

What is Section 186 of the Companies Act of 2013?...