Power of a Company to
Borrow. Every trading company has an implied Power to borrow but it is wise
to include an express power to borrow in the objects clause of the memorandum. Non-trading
companies, however, must be expressly
authorised to borrow by their memorandum.
A power to borrow, whether express or implied, includes the
power to charge the assets of the company by way of security to the lender.
The Companies Act does not expressly empower companies to
borrow money. Therefore, most of the companies expressly provide for such borrowing
powers in
the memorandum. In such cases, where memorandum authorises
the company to borrow, the Articles provide as to how and by whom these powers
shall be exercised. It may also fix up the maximum amount which can be borrowed
by the company.
Exercise of borrowing
powers. A public company cannot exercise its borrowing powers until it
secures the certificate to commence business [s.149 (1)]. A private
company may, however, exercise the borrowing powers
immediately after its incorporation.
The power to borrow money is generally exercised by
the directors but Articles normally provide for certain restrictions on their
power to borrow. Section 293 also limits the directors' power to borrow, to the
aggregate of the paid up capital of the company and its free reserves apart
from temporary loans obtained from the company's bankers in the ordinary course
of business.
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