Section 186 of the Companies Act: the 60% and 100% limit on loans, guarantees and investments

Last updated 25 Oct 2026 · India

Short answer. Under section 186(2) of the Companies Act 2013, a company may give loans, guarantees or security, or acquire securities of another body corporate, up to the higher of 60% of its paid-up capital, free reserves and securities premium or 100% of its free reserves and securities premium. Going above that needs a special resolution in a general meeting (section 186(3)). Every such transaction needs a board resolution passed at a meeting with the consent of all directors present (section 186(5)), loans cannot carry interest below the yield on the comparable government security (section 186(7)), and each one goes into the register in Form MBP-2.

Step by step

Work out the limit from the latest audited balance sheet: 60% of (paid-up capital + free reserves + securities premium) versus 100% of (free reserves + securities premium).
Add up all loans, guarantees, security and investments already outstanding, plus the new one.
Pass the board resolution at a meeting (not by circulation) with all directors present agreeing. If a term loan from a public financial institution is running, get its prior approval where the Act requires it.
If the total crosses the limit, pass a special resolution and file it in MGT-14 within 30 days.
Enter the details in the MBP-2 register.

Common mistakes

Checking only the new loan instead of the aggregate outstanding.
Interest-free loans to group companies where section 186(7) applies.
Approving by circular resolution. Section 186(5) needs a meeting.
Forgetting the MBP-2 register.

Banks, insurers, certain NBFCs and some other cases are exempt under section 186(11), and loans to directors are governed by section 185. Check which applies before relying on this page.

Frequently asked questions

What is the section 186 limit?

The higher of 60% of paid-up share capital, free reserves and securities premium, or 100% of free reserves and securities premium.

Is a special resolution always needed for an inter-corporate loan?

No. Only when the aggregate crosses the section 186(2) limit. A board resolution at a meeting is always needed.

Which register records section 186 transactions?

The register of loans, guarantees, security and acquisitions in Form MBP-2.

Official sources

Not tax or legal advice. This is a free explainer of public rules; deadlines and rules can change by notification, so confirm on the official portal or with your CA before you file. Last checked 25 Oct 2026.

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