How small company promoters eat away profits?
- Keep their family and relatives in key management roles and pay them a very high salary. But as per company act 2013, total salaries of Directors and Managment should not exceed 11% of company’s profits. There are special exceptions where a company is not making profits or inadequate.
- Giving interest-free loan to directors and other KMPs. This use to reflect in the annual report as "related party disclosure ". But with the new company act 2013, these kinds of transactions are strictly prohibited.
Please share other methods which promoters use to eat away profits. Thanks
1.Making acquisitions of associate companies at very high prices with shares of the parent companies and then gaining shareholding in the parent company through the backdoor.
2.Writing of a lot of receivables and loans and advances.
Not restricted to small companies, but one of the major methods of taking money out of a company is the over invoicing of capital expenditure.
@Gothamcapital I see loan written off in one company where I am invested. This was done in 2010 & 2011. They have given interest free loan to directors and written off in 2010 & 2011. Can I do something for this as a retail investor?
What is the company name?It does look bad.Generally My guess is the promoter holding is low?
Promoter’s holding nearly 65%. Its a Debt free company. I will share details once I complete my research.
Got this from google search.