Conversion of Equity into Preference

[Rupal Gambhir]

Dear Members,

 

Can already issued equity share capital be converted into preference share capital.

 

Thanks & Regards,

Rupal Gambhir

[kartheek CN]

Dear Rupal,

The Conversion of issued Equity Share Capital into Preference Shares is not permissible under the Companies Act, 1956.

Section 106 provides for Variation of Class Rights - It doesn't provide any option of Conversion of issued shares into a different category of shares.

The Unissued Authorized Equity Share Capital can be Re Classified as PREFERENCE shares Capital and subsequently be issued.

Members - Correct me if i am wrong...!

Other members views are solicited.

C.N.Kartheek

Rupal Gambhir

--
Find eNewsletters of ICSI Mysore at: http://www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx AND www.esnips.com/web/icsimysore
 
You received this message as you are subscriber. To unsubscribe email to: csmysore-u...@googlegroups.com

--
C.N.Kartheek
karth...@gmail.com

[Rupal Gambhir]

Dear Kartheek,

Thanks for your reply, I am also of the same view and just wanted
other members to through a light upon the same. Actually, in our case,
the present equity shareholders themselves are willing to give their
NOC's for conversion of equity into preference.

Is the same possible.

Thanks & Regards,
Rupal Gambhir

On 1/16/12, kartheek CN <kartheek...@gmail.com> wrote:
> Dear Rupal,
>
> The Conversion of issued Equity Share Capital into Preference Shares is not
> permissible under the Companies Act, 1956.
>
> Section 106 provides for Variation of Class Rights - It doesn't provide any
> option of Conversion of issued shares into a different category of shares.
>
> The Unissued Authorized Equity Share Capital can be Re Classified as
> PREFERENCE shares Capital and subsequently be issued.
>

> *Members - *Correct me if i am wrong...!

[anjali bansal]

Hi Rupal

Can you please tell me the status of your Company (listed or
unlisted). Also the number of Equity Shareholders and Preference
shareholders. Based on this, i might be able to give some way out.

Thanks

Anjali

[Rupal Gambhir]

Dear Anjali,

The company is a Private Unlisted company and the number of
shareholders are five only.

Regards,
Rupal Gambhir

[kartheek CN]

Dear Rupal,

As per my knowledge goes..

Members cannot exercise the powers that are not specifically provided to them in the act and which are ultra vires the Companies MOA & AOA.

So as per the above said statement it could be said that obtaining the NOC from all the members will not suffice the conversion from Equity to preference. As the law itself doesn't permit the above said transaction.

It is Ultra Vires the powers of the Members.

The best possible option as per i see now is going with Reclassification of Unissued Authorized Capital.

C.N. Kartheek

[anjali bansal]

Dear Rupal

In this case, you can call two EGMs of Preference Shareholders as
well as Equity Shareholders and obtain their approval for company
entering into a Shareholders Agreement with the existing Equity
Shareholders. In the said agreement, you can give some privileges to
the Equity Shareholders i.e. do not change the nature of the issued
share capital, rather change the terms of issue in such a way that
your object is fulfilled. This mights attract the provisions of
section 106, so look into that section.

Pls know that i have not done anything like this and the same is based
on my personal opinion only.

Members, pls recitfy if i am wrong.

Many Thanks

[kartheek CN]

Dear Anjali,

In that case..? Are you of the opinion that .! The company can exist
by having only preference share capital..and zero equity
participation..?

And can the company convert part of its equity into preference..?

Kindly clarify..

C.N.Kartheek

[anjali bansal]

Dear Kartheek

the company can not exist with preference shares only. that is why i
suggested to give additional privileged to equity shareholders instead
of changing the nature of shares itself. since the company has only
equity share capital right now, giving additional benefits to them
will not affect the rights of any other shareholders i.e. preference
shareholders.

If you have a different opinion, pls enlighten

Anjali

[Rupal Gambhir]

Dear Sir/ Mam

Thanks a lot to both Kartheek and Anjali.

[kartheek CN]

Dear Anjali,

In that case it Could BE DEEMED AS the Equity Shares capital with Differential voting rights and has to Comply with Section 86 of the Companies Act, 1956 and Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 and it can only issue such shares and there is no Provision to Convert the issued paid up share capital in the rules.

In my opinion the Company can only issue such shares and it has to have a provision in the AOA of the Company before such issue and  it cannot convert THE ISSUED CAPITAL and the Company can have only 25% of the Total Paid up share capital issued as the Shares with Differential Voting Rights with respect to Voting or Dividend or both.

This right could not be extended to all the Share holders of the Company even with their the NOC obtained to have additional privilege from all the share holders.

IF ITS DONE WILL BE ULTRA VIRES THE powers of Share holders and the COMPANY .

PLEASE QUOTE YOUR OPINION IN THIS REGARD.