Doing Business in India - RSM Austria

4.0 SIGNIFICANT COMPANY LAW REGULATIONS
4.1 Loans and Guarantees to Companies
The Directors of Public Companies can make investment, give loan and guarantees
to other body corporates up to 60% of its paid up capital and free reserves or 100%
of its free reserves whichever is higher. If the above limit is exceeded then the
approval of the shareholders at a general body meeting by way of special resolution
is required. In case any term loan taken from any financial institution is outstanding
and there is a default in repayment of loan installments in that event for making
investment, giving loan and guarantees prior approval of the financial institution
should be obtained. The above restrictions are however not applicable to insurance
companies, banking companies, financial institutions, investment in subsidiary
companies and private companies.
4.2 Loans and Guarantees to Directors
No public company can without the prior approval of the Department of Corporate
Affairs give any loan to, or any guarantee or provide any security in connection with
a loan made by any other person to or to any other person by a director of the
lending company or its holding company, his relatives and associated enterprises.
4.3 Disclosure of Interest by Directors
Every director of the company who is any way directly or indirectly concerned or
interested in a contract or proposed contract to be entered into by or on behalf of
the company should disclose his concern or interest at a meeting of the Board of
Directors.
A general notice at a meeting of the Board at the end of each financial year stating
that he is a director or a member of such body corporate and as such is deemed to
be interested in case of any contract which may be entered into by the company
after the date of the said notice is also a sufficient disclosure of interest.
4.4 Dividends
A company must pay dividends only out of its undistributed profits after providing
for depreciation on fixed assets and after minimum transfers to reserves, in the
manner prescribed in the Companies Act, 1956 and in rules applicable to the
declaration of dividends. The Board of directors recommend the declaration of
dividends based on which the shareholders decide the rate of dividends to be
declared. For Financial Year 2009-10, a tax of 16.995% is payable on the amount of
profits to be distributed as dividends in addition to the corporate tax by the
company. Simultaneously, dividends have been exempted from tax in the hands of
the recipients. The Finance Act 2010 has reduced surcharge from 10% to 7.5%,
accordingly the effective rate of dividend distribution tax would reduce from
16.995% to 16.60875% for Financial Year 2010-11.
The dividends declared must be paid within 30 days of the general meeting and the
unpaid amount, if any, needs to be transferred to a separate bank account.
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DOING BUSINESS IN INDIA