TYPES OF BORROWERS
The following are the types of borrowers who approach the Bank for credit facilities.
a) Proprietor Ship
b) Partnership firms
c) Private & Public Limited Companies
d) Limited Liability Partnership
e) Trust
f) Hindu Undivided family
g) Societies
Proprietorship firm as Borrower:
Proprietorship is perhaps the simplest form of a borrowing entity. As far as the legal
status is concerned, both the proprietorship and proprietor in individual capacity are
considered the same, though for accounting purposes a proprietorship has to prepare the
financial statements, viz., balance sheet and profit and loss account for an understanding
of the financial health of the concern.
While sanctioning credit facilities to proprietorship firms, it is not necessary to obtain
personal guarantee of the proprietor, as the proprietor is personally liable for any debt of
the proprietorship.
Advances to Limited Liability Companies
In dealing with a Limited Liability Company, the foremost requirement is the company’s
Memorandum and Articles of Association and Certificate of Incorporation. From a
scrutiny of the Memorandum & Articles of Association, it would be revealed whether the
purpose of borrowing is consistent with the stated objectives and whether the advance is
within the borrowing powers of the company. It has to be ensured that no prior charge
exists over any of the assets being offered as security and that the persons executing the
security documents and operating the account(s) are duly authorized.
A company’s borrowing powers are usually specified in the Articles of Association, but
they may not always be limited to a fixed amount. When no mention of borrowing is
made, a trading company may generally be presumed to have power to borrow for the
purpose of its ordinary business, but no advance should be sanctioned in such
circumstances without prior reference to the controlling office.
The powers of a company (public or private) to borrow may be exercised by its Board of
Directors by means of resolutions passed at a meeting (and not by circulation). All
advances granted to companies must, therefore, be supported by resolutions so passed
The following are the types of borrowers who approach the Bank for credit facilities.
a) Proprietor Ship
b) Partnership firms
c) Private & Public Limited Companies
d) Limited Liability Partnership
e) Trust
f) Hindu Undivided family
g) Societies
Proprietorship firm as Borrower:
Proprietorship is perhaps the simplest form of a borrowing entity. As far as the legal
status is concerned, both the proprietorship and proprietor in individual capacity are
considered the same, though for accounting purposes a proprietorship has to prepare the
financial statements, viz., balance sheet and profit and loss account for an understanding
of the financial health of the concern.
While sanctioning credit facilities to proprietorship firms, it is not necessary to obtain
personal guarantee of the proprietor, as the proprietor is personally liable for any debt of
the proprietorship.
Advances to Limited Liability Companies
In dealing with a Limited Liability Company, the foremost requirement is the company’s
Memorandum and Articles of Association and Certificate of Incorporation. From a
scrutiny of the Memorandum & Articles of Association, it would be revealed whether the
purpose of borrowing is consistent with the stated objectives and whether the advance is
within the borrowing powers of the company. It has to be ensured that no prior charge
exists over any of the assets being offered as security and that the persons executing the
security documents and operating the account(s) are duly authorized.
A company’s borrowing powers are usually specified in the Articles of Association, but
they may not always be limited to a fixed amount. When no mention of borrowing is
made, a trading company may generally be presumed to have power to borrow for the
purpose of its ordinary business, but no advance should be sanctioned in such
circumstances without prior reference to the controlling office.
The powers of a company (public or private) to borrow may be exercised by its Board of
Directors by means of resolutions passed at a meeting (and not by circulation). All
advances granted to companies must, therefore, be supported by resolutions so passed
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