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by Rakesh Waghela

16.2 Borrower-type-specific protocols

Every borrower entity type carries its own diligence requirements driven by company law, partnership law, GST registration norms, and the PMLA. The single-flow application captures these consistently; behind the scenes the per-type checklist differs materially.

Sole proprietorship

Section titled “Sole proprietorship”

The simplest. Borrower entity = proprietor as individual.

Documents required

Section titled “Documents required”
  • Proprietor’s PAN.
  • Proprietor’s Aadhaar (offline KYC).
  • Proprietor’s photograph (V-CIP).
  • Business identity proof — any one of:
    • GST registration (preferred).
    • Udyam certificate.
    • Shops & Establishment Act licence (state-specific).
    • Drug Licence / FSSAI / similar industry licence.
    • Municipal trade licence.
    • IT return showing proprietary business income.
  • Business address proof — utility bill / rent agreement / municipal record.
  • Bank account — in business name (with proprietor on the title) or proprietor’s personal account if business is owner-operated.

Verification

Section titled “Verification”
  • PAN verified at NSDL.
  • Aadhaar via offline XML or V-CIP.
  • GSTIN status active.
  • Udyam (where applicable).
  • Bank account via penny drop.
  • Field FI to confirm business presence (for material tickets).

Specific points

Section titled “Specific points”
  • Proprietorship has no separate legal entity — the proprietor is personally liable. KYC = proprietor’s individual KYC.
  • Loan documents are signed by proprietor personally.
  • No separate “company PAN” — the proprietor’s PAN is the business PAN.
  • No BO graph needed (proprietor is the sole controller).
  • CIBIL pull = consumer bureau for proprietor.
  • Commercial bureau typically thin for proprietorships unless borrower has commercial loan history.

Partnership (Indian Partnership Act, 1932)

Section titled “Partnership (Indian Partnership Act, 1932)”

Borrower entity = the partnership firm.

Documents required

Section titled “Documents required”
  • Partnership Deed — original or notarised copy showing partners, capital, profit/loss share, partnership terms.
  • PAN of partnership firm (yes, partnerships get their own PAN distinct from partners).
  • Partnership firm GST registration (if turnover above threshold).
  • Each partner’s PAN + Aadhaar + KYC (individual KYC for each partner).
  • Authorisation letter signed by all partners authorising the signing partner to execute the loan documents.
  • Bank account in firm name.
  • Business identity / address proofs as for proprietorship.

Verification

Section titled “Verification”
  • Partnership Deed reviewed for: number of partners, profit-sharing, signing authority, dissolution clauses.
  • Each partner’s KYC.
  • Firm’s GST + Udyam where applicable.
  • Bank account penny drop with firm name match.

Specific points

Section titled “Specific points”
  • All partners are jointly and severally liable under Indian Partnership Act unless the partnership deed specifies otherwise.
  • Each partner must KYC — not just the signatory.
  • Personal Guarantee typically taken from each partner.
  • Partnership type matters:
    • Registered partnership (registered with state Registrar of Firms) — slightly stronger evidentiary position.
    • Unregistered partnership — common; loans extendable but enforcement may be slower.
  • Change of partners during loan life — must be tracked; can affect signing authority and risk profile.

Limited Liability Partnership (LLP)

Section titled “Limited Liability Partnership (LLP)”

Borrower entity = LLP, registered under LLP Act, 2008.

Documents required

Section titled “Documents required”
  • Certificate of Incorporation (LLPIN issued by MCA).
  • LLP Agreement (filed with MCA).
  • PAN of LLP.
  • GST registration (where applicable).
  • Each partner’s PAN + Aadhaar + KYC.
  • DIN of designated partners.
  • Authorisation (board-resolution-equivalent under LLP Agreement) for signing partner.
  • Bank account in LLP name.

Verification

Section titled “Verification”
  • MCA portal verification of LLP status (active, not struck-off).
  • Each designated partner’s DIN active.
  • LLP Agreement reviewed for signing authority.
  • Each partner’s KYC.

Specific points

Section titled “Specific points”
  • Liability of partners is limited to their capital contribution + agreed obligations.
  • Designated partners (minimum 2) bear additional responsibilities.
  • Personal Guarantee from each designated partner typically required to overcome limited-liability gap.
  • MCA filings status — annual return + statement of accounts; failure to file triggers compliance flags.
  • Strike-off risk — LLPs are struck off by MCA for non-compliance; pre-strike-off LLPs are decline-worthy.

Private Limited Company (Pvt Ltd) — Companies Act, 2013

Section titled “Private Limited Company (Pvt Ltd) — Companies Act, 2013”

Borrower entity = Pvt Ltd company.

Documents required

Section titled “Documents required”
  • Certificate of Incorporation (CIN issued by MCA).
  • Memorandum of Association (MoA) — defines company’s objects.
  • Articles of Association (AoA) — defines internal governance.
  • PAN of company.
  • GST registration (where applicable).
  • Board Resolution authorising borrowing + signing authority + creating any security.
  • List of directors with DIN; each director’s PAN + Aadhaar + KYC.
  • Shareholder list with PAN of each shareholder above threshold (typically > 10%).
  • MCA filings — annual return (MGT-7), financial statements (AOC-4) for last 2 – 3 years.
  • Authorisation for the signing director.
  • Bank account in company name.
  • TAN if required.

Verification

Section titled “Verification”
  • MCA verification — company status active, not struck-off, not under-process.
  • Each director’s DIN active.
  • Shareholder list cross-verified with shareholding pattern declared.
  • BO graph mapping — every shareholder > 25% (direct or effective).
  • MoA / AoA reviewed for borrowing powers (some companies have explicit borrowing caps in their MoA).
  • Recent Board Resolution copy.

Specific points

Section titled “Specific points”
  • Limited liability — shareholders liable only to extent of unpaid share capital.
  • Personal Guarantee from directors / promoters almost always required.
  • MCA compliance — companies with overdue annual filings are decline-worthy.
  • Authorised borrowing limit — under Companies Act Section 180(1)(c), borrowings exceeding paid-up + free reserves require shareholder special resolution. Verify.
  • Charge creation — if creating any security, must be registered with MCA within 30 days.
  • Directors’ KYC required separately per RBI KYC MD.
  • Beneficial ownership — recursive graph for layered shareholding (Pvt Ltd held by another Pvt Ltd → trace up to natural persons).

Public Limited Company (Public Ltd)

Section titled “Public Limited Company (Public Ltd)”

Borrower entity = listed or unlisted public Ltd.

Documents required

Section titled “Documents required”

Similar to Pvt Ltd, plus:

  • For listed: SEBI filings, shareholding pattern (BSE / NSE), credit rating reports.
  • For unlisted public: same as Pvt Ltd but with higher shareholder counts and minimum-3-directors rule.

Verification

Section titled “Verification”
  • Same as Pvt Ltd plus listing-specific checks.
  • Stock-exchange disclosure history.
  • Credit rating from CRA (CRISIL / ICRA / CARE / India Ratings) if rated.

Specific points

Section titled “Specific points”
  • Listed companies rarely come to NBFC for ₹50 lakh – ₹5 Cr loans (they have direct bank lines). When they do, typically for specific working-capital gap or speed.
  • Public unlisted more common in this segment.
  • Shareholder approval for material borrowing.

Hindu Undivided Family (HUF)

Section titled “Hindu Undivided Family (HUF)”

Borrower entity = HUF.

Documents required

Section titled “Documents required”
  • PAN of HUF.
  • HUF declaration deed.
  • PAN + KYC of karta (head of HUF).
  • List of coparceners with KYC for major coparceners.
  • Authorisation from karta + (where customary) major coparceners.
  • Bank account in HUF name.

Verification

Section titled “Verification”
  • HUF declaration deed reviewed.
  • Karta’s KYC.

Specific points

Section titled “Specific points”
  • HUF is a distinct tax entity but not a separate legal person in the same way a company is. Lawsuits enforce against karta + coparceners.
  • Personal Guarantee from karta + major coparceners.
  • Less common for SME WC lending; more relevant for family-business borrowers in specific regions (Rajasthan, Gujarat).
  • Special caution — HUF status can change (split into separate HUFs); affects borrower-level continuity.

Trust / Society

Section titled “Trust / Society”

Borrower entity = trust (Indian Trusts Act, 1882 / state Trust Acts) or society (Societies Registration Act, 1860).

Documents required

Section titled “Documents required”
  • Trust Deed or Society Memorandum + Rules.
  • Registration certificate.
  • PAN of trust / society.
  • Trustee / governing body member KYC.
  • Authorisation for signing trustee / authorised signatory.
  • Bank account in trust / society name.

Verification

Section titled “Verification”
  • Trust deed reviewed for borrowing powers.
  • Trustees’ KYC.
  • Society registration current.

Specific points

Section titled “Specific points”
  • Trusts and societies often have restrictions on borrowing or specific purpose requirements in their constituting documents. Always verify the trust deed / society rules authorise the borrowing purpose.
  • Trustee liability — typically trustees are not personally liable; loan is against trust assets only. PG from trustees is unusual but possible.
  • Less common for commercial SME lending; more relevant for educational / religious / NGO contexts which most SME WC lenders avoid as a segment.

Cooperative society

Section titled “Cooperative society”

Less common; treat with caution.

  • Registration under state Cooperative Societies Act.
  • Bye-laws define borrowing powers.
  • Member-list KYC for major members.
  • Specific lender appetite — many lenders decline; verify with credit policy.

Foreign-investment entities

Section titled “Foreign-investment entities”

If the entity has foreign investment / foreign directors:

  • FDI compliance under FEMA / RBI sectoral policy.
  • FCRA registration if any (for trusts / societies receiving foreign contributions).
  • Foreign director KYC with passport + foreign-address proof.
  • Special diligence on the nature of foreign capital.

What the platform must do

Section titled “What the platform must do”
  • Entity-type-specific application UI — different fields and document uploads per type.
  • Entity-type-specific KYB checklist — automated checks driven by entity type.
  • Personal Guarantee determination — automatic per entity type (Proprietorship: not needed separate from individual KYC; Partnership: from each partner; LLP / Pvt Ltd: from designated partners / directors).
  • Authorisation document templates per entity type.
  • BO graph builder for non-individual entities.

Common pitfalls

Section titled “Common pitfalls”
  • Proprietorship loan signed by spouse — invalid; only proprietor can sign as the entity.
  • Partnership loan signed by single partner without authorisation — challengeable; require partnership-deed-based authorisation or all-partner sign.
  • Pvt Ltd loan exceeding MoA limit — borrowing in excess of MoA cap is ultra vires; void.
  • LLP designated partner KYC stale — must be current at sanction.
  • HUF with disputed karta — borrower-level dispute; decline.
  • Trust borrowing for non-trust-purpose — may not be enforceable; decline.
Section titled “Related”