individual can carry on money lending business but he needs money lending licence to do so 

2) he would need licence from Tamil Nadu and Karnataka if he wants to carry on money lending business in 2 states 

3) proprietor  is not a separate legal entity from the business owner. The business owner has unlimited liability (i.e. the business owner is personally liable for all the debts and losses of the sole proprietorship) 

4) company has limited liability  . it has separate legal entity 

Not without license.

He can lend to any citizen of any state.

advantages and disadvantages - Nothing much. 

You can operate in your city only but any individual can approach you from anywhere for loan.

Yes he is required to take licence from both the states 

For tax issues consult local CA 

- Any individual / organization who wishes to open Money Lending Business needs to apply for the license to the appropriate authority under the Money Lenders Act, 1957 , and as per this Act, it is compulsory that every money lender to have a license.

- Every state of India having its own rule and regulation for money lending , and hence this license will not work in other states of India. 

- Further, the Money lender license is granted by the Revenue Department  and it is valid for one year. 

-  You can start this business as a company as well after getting a NBFC certificate, however the minimum capital investment of 2 crores is needed for apply for the NBFC

- Yes, the interest earned by you is taxable . 

Yes he can conduct money lending business only with license. Tax appljcable

Hi, Once you get the license of money lending business you can give money to any body even outside your state.

Yes, you being individual can start money lending money after obtaining necessary permission, approvals and licence. License obtained should be valid all over India. 

Money lending license is for individual and not for any company

The Government of Tamil Nadu controls the money lending process in accordance with the Money Lenders Act, 1957. By this Act, it is compulsory that every money lender to have a license.

The Money Lending Act states that no money lender shall carry on the business of money-lending except in the area for which he has been granted a licence. The term used here is “business of money-lending

Any person who intends to conduct Money Lending and Pawn Broking business shall obtain license as per the Section 6 & 4 of KARNATAKA MONEY LENDERS AND PAWN BROKERS ACT respectively, renewable every five years. 

Money lending business can be done individually and also as partnership firm or LLP.

Under “traditional partnership firm”, every partner is liable, jointly with all the other partners and also severally for all acts of the firm done while he is a partner. Under LLP structure, liability of the partner is limited to his agreed contribution.

The income tax are to be paid as applicable as per Income tax act, for more details you an consult your auditor who will be able to explain you the actual quantum of tax payable.

If the borrower is obtaining loan from the state of the money lender, then there is no requirement for the money lender to obtain license from the state of the borrower, but if the money lending business is extended to the neighboring state then the license is to be obtained from that state too.

You must know that in India, money lenders are governed by the Money Lenders Act in different states. The Tamil Nadu Government controls the money lending process in accordance with the Money Lenders Act, 1957. It is mandatory for every money lender to have a license. Even though getting a valid license under the Money Lending Act helps money lenders to carry on business lawfully and have legal recourse against the defaulters, one of the major reasons for non-registration is the ceiling on interest rate. Many lenders are not even aware about the requirement of such registration.

Please note the following sections of Tamil Nadu Money Lenders Act:

3. Money-lender to obtain licence. - (1) No person shall, on and after the date on which the provisions of this Act are brought into force in any area, carry on, or continue to carry on, business as a money-lender at any place in such area except under, and in accordance with, the terms of a licence.

(2) Where a money-lender has more than one shop or place of business, whether in the same town or village or in different towns or villages, he shall obtain a separate licence in respect of each such shop or place of business.

(3) (a) Where a money-lender is a registered firm, the licence shall be obtained in the firms name.

(b) Where a money-lender is an undivided Hindu family, the licence shall be obtained in the name of the manager or the karnavan or the yajaman, as the case may be, described as such in the licence.

(c) Where a money-lender is any other association of individuals, not required to be registered under the Companies Act, 1956 (Central Act 1 of 1956), a separate licence shall be obtained by each such individual in his name describing himself as a member of the association:

Provided that nothing contained in this sub-section shall affect the operation of section 59 of the Indian Partnership Act, 1932 (Central Act IX of 1932).

4. Grant and refusal of licence. - (1) Every application for a money-lenders licence shall be in writing and shall be made to the licensing authority prescribed under this Act:

Provided that a person under the age of eighteen years shall be eligible to apply for a licence only through a guardian:

Provided further that if any person acting as a guardian on behalf of a minor applies for, and obtains a licence under this Act, such guardian shall be subject to all the provisions of this Act as if the licence has been granted to himself.

(2) Every licence shall be granted in such form and subject to such conditions as may be prescribed including conditions as to payment of licence fees not exceeding one hundred rupees.

(3) The licensing authority may, by order in writing, refuse to grant a licence, if such authority is satisfied -

(a) that the applicant has not complied with the provisions of this Act or the rules made thereunder in respect of an application for the grant of a licence; or

(b) that the applicant has made wilful default in complying with, or knowingly acted in contravention of, any requirement of this Act; or

(c) that the applicant has -

(i) knowingly participated in or connived at any fraud or dishonesty in the conduct of, or in connection with, the business of money-lending; or

(ii) been found guilty of an offence under Chapter XVII or Chapter XVIII of the Indian Penal Code (Central Act XLV of 1860); or

(iii) been found guilty of an offence [under section 10-A or section 11] or section 13 on two or more occasions; or

(d) that the applicant has had his licence cancelled within six months before the date of application.

(4) Any person aggrieved by an order of the licensing authority under subsection (3) may, within one month from the date of communication of such order to him, appeal to the prescribed authority.

(5) Every licence granted under this Act shall, subject to the provisions of sub-section (7), expire on the last day of the year in which it was granted.

(6) A licence granted under sub-section (2) may be renewed from year to year and the provisions of sub-sections (1) to (5) shall apply in relation to the renewal of a licence as they apply in relation to the grant of a licence.

(7) If orders refusing to renew a licence are not communicated to a moneylender by the licensing authority before the expiry of his current licence, the money-lender shall, notwithstanding such expiry, be deemed to have a valid licence till orders are received by him on his application for renewal.

(8) Nothing in this section shall be deemed to disentitle a money-lender, whose licence has expired or has not been renewed, from taking steps to recover any loan advanced during the period when the licence was in force.

Please note that an LLP has a separate legal entity under the law. A partnership firm has no separate legal status apart from its partners. The partner's liability of an LLP is limited to the extent of their capital contribution to the LLP. The partner's liability of a partnership firm has unlimited liability. Major advantages of LLP over partnership include separate legal entity, limited liability of partners, and the ability to purchase property in its own name. LLP or limited liability partnerships and general or traditional partnerships, both require a minimum of two individuals for their formation. Detailed discussion is required in such cases with complete facts and documents. 

You may contact my secretary to connect with me for clarification. 

Gopal Verma

Advocate on Record & Amicus Curiae

Supreme Court of India

1. Individuals can do money lending 

2. License is Mandatory

3. He can lend money through India its not an issue but recovery is tough in case of default

4. Business in the name of Individual. Partnership & LLP are having its own pros and cons. It cant be explained in detail 

5. Tax implication for individual is different from partnership and LLP

6. Already answered in 3. For borrower no license is required unless he is also doing money lending business in his state.

Individual Capacity: In some jurisdictions, individuals may be allowed to conduct money lending businesses in their individual capacity. However, specific licensing requirements and regulations may still apply.

Money Lending License: Many jurisdictions require individuals or entities engaged in money lending activities to obtain a license or registration. The licensing requirements and procedures can differ from one jurisdiction to another. It's crucial to consult the laws and regulations of the specific state or region where the money lending business is intended to operate to determine whether a license is required.

Cross-State Lending: If a person wants to lend money to individuals or companies in a different state, it's possible that additional licensing requirements may apply in the borrower's state. Some jurisdictions may require lenders to acquire licenses or fulfill specific criteria in the borrower's state as well. Again, it's important to consult with legal professionals who are well-versed in the laws and regulations of both the lender's and borrower's states to ensure compliance.

Advantages and disadvantages of different business structures (individual, partnership firm, LLP, company) in money lending business:

Individual: An individual conducting a money lending business may have simplicity in terms of decision-making and operations. However, they may bear unlimited personal liability for the debts and obligations of the business.

Partnership Firm: A partnership firm allows for shared responsibilities, resources, and decision-making among partners. However, partners may also have unlimited personal liability for the partnership's debts and obligations.

Limited Liability Partnership (LLP): An LLP provides limited liability protection to its partners, meaning their personal assets may be protected from business debts and obligations. It also offers flexibility in terms of management and tax advantages. However, LLPs may have additional compliance requirements and formalities compared to individual or partnership firms.

Company: A company, such as a private limited company or a corporation, provides limited liability protection to its shareholders. It has a separate legal entity from its owners, and shareholders' personal assets are generally protected from business liabilities. However, companies may have more complex compliance requirements, legal formalities, and higher administrative costs.

Tax implications on money lending business can vary based on the jurisdiction and the business structure. Tax laws and regulations related to money lending, such as interest income, deductions, and reporting requirements, can differ significantly. It's advisable to consult with tax professionals or accountants who can provide guidance specific to your jurisdiction and business structure.