Procedure: Conversion of Unsecured Loan into Equity Share Capital

[Deepak Gupta]

Dear All,

Please guide me how can we convert unsecured loan from shareholder which is a pvt ltd.?

If yes then what is the procedure of conversion of Equity shares?

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Thanking You

Yours Truly,

CA Deepak Gupta

Partner

D K Gupta & Associates

+91-11-22058329,     +91-8010456823

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[Deepak Gupta]

reminder

[Deepak Sadhu]

Yes u can

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[Deepak Gupta]

what is the procedure? we have to conduct EGM or Board meeting is sufficient?

[Deepak Sadhu]

Hi DEEPAK

Basically pursuant provisions of Section 62(3) of the Companies Act 2013 the unsecured loans can be converted in to share capital.

But at the time of obtaining the loan it should have been approved by special resolution mentioning terms & conditions that the loan shall be converted in to equity capital at a future date.

If that special resolution was not passed by your company at the time of obtaining loan, the same cannot converted under section 62(3).

Regarding treating the loan as Deposit :Recent MCA circular no 5/2015 dated 30.03.2015 clarified that amounts received by private companies from their members, directors or their relatives prior to 1st April, 2014 shall be considered as deposits under the Companies Act, 2013 such amounts received by private companies prior to 1st April, 2014 shall not be treated as 'deposits' under the Companies Act,2013 and Companies (Acceptance of Deposits) Rules, 2014 subject to the condition that relevant private company shall disclose, in the notes to its financial statement for the financial year commencing on or after 1st April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement.

Regarding conversion of share application money in to Equity you may check MCA Companies (Acceptance of Deposits ) Amendment Rules 2015 dated 31.03.2015  Amendment made to Rule 2(1) (c) (vii) (a).

Regards

Deepak

[Deepak Sadhu]

Hello Deepak

These conditions under section 62 shall not apply to the increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the debentures issued or loan raised by the company to convert such debentures or loan into share in the company. The terms of issue of such debentures or loan containing such an option to convert have been approved before the issue of such debentures or raising of loan by a special resolution passed by the company in general meeting.

Regards

Deepak