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Can a private company give a guarantee to a trust under the Companies Act?

Question

Can a private company give a guarantee to a trust under the Companies Act?

Expert Answer
Answered 18 Apr 2026
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Section 185 of the Companies Act, 2013 regulates loans, guarantees, and securities given by a company. A company is generally restricted from giving guarantees to directors or entities in which directors are interested, unless specific conditions and approvals are fulfilled. Therefore, if the trust is connected to the directors of the company (for example, if directors are trustees or beneficiaries), the company must ensure compliance with Section 185, including passing a special resolution and meeting prescribed conditions. Further, Section 186 of the Act governs inter-corporate loans and investments. The company must stay within the prescribed limits (60% of paid-up share capital, free reserves, and securities premium, or 100% of free reserves and securities premium, whichever is higher), and if these limits are exceeded, prior approval by a special resolution is required. So yes, private company can give guarantee to trust.
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