Legal Glossary · Company & Security
Floating Charge: Meaning, Explained Simply (2026)
A floating charge is a flexible security used mainly by companies. Instead of locking down one fixed asset, it hovers over a whole class of assets that keep changing, like stock, raw material or receivables. The company carries on business and deals with those assets freely until something triggers the charge, at which point it settles, or crystallises, on whatever assets are then in that class. This page explains what a floating charge means in plain words, how it differs from a fixed charge, how crystallisation works, a short example, and the law on registering company charges. This is general information, last verified October 2026, and not legal advice.
- Meaning: a company security over a changing class of assets, such as stock or receivables.
- While floating: the company can use and deal with those assets in the ordinary course.
- Crystallisation: the charge fixes on the existing assets on default, winding up, cessation of business or appointment of a receiver.
- Registration: company charges are registered with the Registrar of Companies under the Companies Act, 2013 (Section 77 onwards).
- Fixed vs floating: a fixed charge attaches to one asset at once; a floating charge is weaker until it crystallises.
01What a floating charge means
A floating charge is a security created by a company over a class of present and future assets that keep changing, such as stock in trade or book debts. The company may continue to use and deal with those assets in the ordinary course of business until the charge crystallises and attaches to the assets then held.
The easiest picture is a cloud floating over a moving pool of goods. While it floats, the company can buy, sell and replace stock as usual, and the lender does not interfere. The charge only comes down and fixes itself on the actual assets in the pool when a crystallising event happens.
Why it matters
A floating charge lets a company raise finance against assets it needs to trade with daily, which a fixed charge would freeze. The trade-off is that a floating charge is generally weaker than a fixed charge until it crystallises, and its value depends on what assets remain in the pool at that moment.
While it floats, the company trades freely with the assets. On crystallisation the charge stops floating and fastens on whatever assets are then in the class.
02When a floating charge applies
Floating charges are a company-law device, used where the security has to cover assets that change constantly. Typical features and triggers include:
- Changing class of assets: stock in trade, inventory, raw material or book debts, rather than a single identified asset.
- Freedom to deal: until crystallisation the company can sell and replace those assets in the ordinary course of business.
- Crystallisation: the charge becomes fixed on the existing assets when a trigger occurs, commonly the company going into winding up, ceasing business, a default under the loan, or the appointment of a receiver.
Once crystallised, a floating charge behaves like a fixed charge over the assets it has caught, and the lender can look to those assets to recover the debt.
03A simple Indian example
Suppose a trading company borrows from a bank and gives a floating charge over its stock of goods and its receivables. Day to day, the company keeps selling goods, buying new stock and collecting payments. The bank does not stop any of this, because the charge is floating over the whole class, not pinned to any one item.
Now the company defaults and goes into winding up. That is a crystallising event. The floating charge settles on whatever stock and receivables the company holds at that point, and the bank can enforce against those assets. If the pool had shrunk because the company sold off most of its stock before default, the bank recovers less, which is the practical risk of a floating charge.
04The law behind floating charges
The idea of a floating charge comes from company law and is applied in India for charges created by companies. The Companies Act, 2013 requires a company to register the charges it creates on its property or assets with the Registrar of Companies, from Section 77 onwards, and keeps a register of charges. Registration matters, because an unregistered charge can be ineffective against a liquidator or other creditors.
Priority between a floating charge and later fixed charges, and the position of a floating charge in insolvency, can turn on the facts and on insolvency law. The term floating charge itself is largely judge-made and understood through case law rather than a one-line statutory definition.
The new criminal codes, the Bharatiya Nyaya Sanhita, 2023, the Bharatiya Nagarik Suraksha Sanhita, 2023 and the Bharatiya Sakshya Adhiniyam, 2023, have nothing to do with company security, so their section numbering is not relevant. Always confirm any section against the bare Act.
05Fixed vs floating charge
The most common confusion is between a fixed charge and a floating charge. The table sets out the difference.
| Point | Fixed charge | Floating charge |
|---|---|---|
| What it covers | A specific, identified asset | A changing class of assets, present and future |
| Dealing with the asset | Company usually cannot dispose of it freely | Company can trade with the assets in the ordinary course |
| Attachment | Attaches at once to the asset | Attaches only on crystallisation |
| Strength | Generally stronger security | Weaker until it crystallises |
So a fixed charge pins the lender's security to one asset from the start, while a floating charge gives the company breathing room to trade until a trigger converts it into a fixed security. For the broader distinction between a charge and a mortgage, see our note on charge vs mortgage.
06Where Claw fits
Claw is an all-in-one legaltech platform for Indian advocates, law firms, and corporate legal teams, combining AI-based case search, an AI legal assistant (Legal GPT), case management, and compliance automation across all Indian courts and tribunals.
A reader who wants to see how courts have treated floating charges, for example when a charge was held to have crystallised or how it ranked against other creditors, can look up those judgments on Claw. Claw lets you search across 30 crore+ judgments from 9,102 courts, benches and forums, with results in under 5 seconds, and its Legal GPT can show how the concept has been applied in company and insolvency matters. Coverage runs from the Supreme Court since 1950 and High Courts since 1990. Claw does not train on customer documents. You can create a FREE Claw account to read the case law behind this concept. Claw is a research tool, not a substitute for advice from your own advocate.
07Sources and further reading
Check the current text of the law before relying on it:
- India Code (official Acts, including the Companies Act, 2013): indiacode.nic.in
- Ministry of Corporate Affairs (company filings and registration of charges): mca.gov.in
- Claw: clawlaw.in
This page is general information, last verified October 2026, and is not legal advice.
08Frequently asked questions
What is a floating charge?
A floating charge is a security a company creates over a class of present and future assets that keep changing, such as stock in trade or book debts. The company can keep dealing with those assets in the ordinary course until the charge crystallises and fixes on the assets then held.
What is the difference between a fixed and a floating charge?
A fixed charge attaches immediately to a specific, identified asset, and the company usually cannot dispose of it freely. A floating charge covers a changing class of assets, lets the company trade with them, and attaches only when it crystallises, so it is generally weaker until that point.
What is crystallisation of a floating charge?
Crystallisation is the moment a floating charge stops floating and fixes on the assets then in the class. It is usually triggered by events such as the company going into winding up, ceasing business, a default under the loan, or the appointment of a receiver.
Are company charges registered in India?
Yes. Under the Companies Act, 2013, from Section 77 onwards, a company must register the charges it creates on its property with the Registrar of Companies. An unregistered charge can be ineffective against a liquidator or other creditors. Always confirm the current provisions against the bare Act.
Is a floating charge weaker than a fixed charge?
Generally yes, until it crystallises. Because the company can keep selling and replacing the assets in the pool, the value available to the lender depends on what remains when the charge crystallises, which makes it less certain than a fixed charge over a specific asset.